What are themed funds (ETFs) and fractional shares, and what is the difference between them?

When investing in themed funds (or Exchange-Traded Funds/ETFs), you are investing in a fund (which contains a collection of companies, grouped by theme) that aims to mirror the performance of a specific stock index without buying stocks in each company individually. With a stock ETF (which is what Wombat offers), you don’t own shares in the individual companies, instead, you own shares of the ETF. As Wombat is a micro-investing platform, you don’t need to buy a whole share of an ETF, instead, you can own fractions of the ETF for just £10 with a Standard GIA. ETFs are considered one of the best ways to diversify your portfolio and are a simple and powerful way to help you realise your investing goals. 

With Wombat’s fractional shares, you can invest, and own a fraction of a whole share from just £10, in individual companies. So no matter your budget, you can own a piece of brands like Tesla, Apple, Amazon or AMC. Fractional shares are only available in General Investment Accounts, though whole shares are also available in ISAs and Junior ISAs.

ETFs can be a more cost-efficient and convenient way to diversify your portfolio (most are exempt from PTM Levy and UK Stamp Duty) because with one single trade you get exposure to multiple assets. However, individual shares, like growth stocks, have the potential to yield greater returns and give you more control to decide exactly which companies to invest in. It’s important to remember that diversification does not fully protect you from risk and does not guarantee returns or eliminate the potential for loss.