How do you know if a UK stock is undervalued?

Compare its share price to its intrinsic value — the discounted value of the cash the business will generate. If the price sits meaningfully below that, and the company has strong returns on equity and low debt, it may be genuinely undervalued rather than simply cheap.

Are UK shares cheaper than US shares?

UK-listed companies have generally traded on lower valuation multiples than comparable US companies in recent years. That can create opportunity, but a lower multiple alone doesn't make a share good value — the underlying business quality still has to hold up.

What is a value trap?

A value trap is a share that looks cheap but is priced low because the business is genuinely declining. Checking return on equity, cash flow and debt levels is what separates a real bargain from a value trap.

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What is an ETF?

An exchange-traded fund holds a basket of investments — often hundreds of companies — and trades on an exchange like a single share. It is the simplest way to own a slice of an entire market rather than betting on individual businesses.

By Nathan Wickham-Hurd · Founder, Oak Growth · First-class Economics & Finance, MBA · Last reviewed July 2026

The plain definition

Buy one share in an ETF tracking the FTSE 100 and you own a fractional slice of all 100 companies in it. You are not choosing between Shell and HSBC — you hold both, in proportion to their size in the index.

That is the whole idea. One purchase, broad ownership, no stock selection.

What is actually inside one

Abstract descriptions of ETFs are easy to nod along to and hard to picture. So here is a real one: the Vanguard S&P 500 UCITS ETF, which tracks the 500 largest listed companies in the United States. It comes in two versions — VUSA pays dividends out, VUAG reinvests them — holding the identical portfolio. Buy one share of either and this is what you own a slice of.

NVIDIA7.92%

Apple7.07%

Alphabet (A+C)6.14%

Microsoft5.16%

Amazon4.08%

Broadcom3.27%

Meta Platforms2.13%

Tesla1.89%

Micron Technology1.69%

Other ~495 companies60.65%

Top ten holdings by weight, July 2026, from a fund of 505 holdings. Alphabet appears twice in the underlying data as class A and class C shares; the two are combined here. Weights move continuously as share prices change — a snapshot, not fixed proportions.

What that picture actually tells you

You own everything, but not equally. The fund holds just over 500 companies, weighted by size. NVIDIA at 7.92% counts for roughly forty times more than an average holding, while a company at the bottom of the index barely registers.

Nine names are nearly 40% of it. Those top holdings come to 39.35% of the entire fund. So "buying the whole US market" also means a substantial position in a handful of very large technology businesses — technology is about 39% of the index by sector. That is not a flaw, it reflects what the American market has become, but it is worth knowing before assuming an index fund spreads risk evenly.

Nobody is choosing. No manager decided NVIDIA deserved the largest slice. It has the largest slice because it has the largest market value. If it halves, its weight falls and the fund holds less of it automatically, with no decision taken. That mechanical quality is the entire point of passive investing.

The concentration is a live argument, not a settled one. Some investors treat a top-heavy index as a reason to hold equal-weight or international funds alongside it. Others treat it as simply owning the market as it is. Both positions are held by serious people.

The fund charges 0.07% a year — £7 on £10,000. That is the cost of someone else holding 505 companies, weighting them, and rebalancing them without you lifting a finger.

How it actually works

1. The fund buys the holdings. A provider such as Vanguard or iShares buys the shares in an index and holds them.

2. It issues units. Ownership of that basket is divided into units, priced at roughly the value of the underlying holdings per unit.

3. Those units trade on an exchange. You buy and sell them through any broker, at any point in the trading day, exactly like a share.

4. Charges come out of the fund. The ongoing charge is deducted from the fund's assets rather than billed to you, so it shows up as slightly lower returns rather than a line on your statement.

The number that matters most

The ongoing charge figure (OCF), sometimes called the total expense ratio. A broad index ETF often charges 0.05%–0.25% a year. An actively managed fund may charge ten times that.

On £10,000, the difference between 0.10% and 1.00% is £90 a year — every year, compounding against you. Over decades that gap does more damage than most people expect, which is the central argument for passive investing.

Watch the tracking difference too. An ETF should follow its index closely. Persistent underperformance beyond the stated charge means something else is leaking value.

Accumulating or distributing

Two versions of the same ETF often exist. Accumulating reinvests dividends inside the fund automatically. Distributing pays them into your account as cash. Same underlying holdings; the choice is whether you want income now or compounding without intervention.

ETFs versus picking stocks

An ETF gives you the market's return, less a small charge, with no research. Stock picking offers the possibility of doing better and the certainty of more work — and most people who try it underperform the index they were trying to beat.

The honest framing is that these are not rivals. Many investors hold broad ETFs as their foundation and pick individual companies with a smaller portion, where they think they have a genuine edge. If you do pick, the discipline in how to pick the best stocks matters far more than enthusiasm.

ETFs are also not all the same thing. A commodity product is structured differently and carries different risks — see what is an ETC.

See the best-performing ETFs alongside individual stocks

Oak Growth ranks ETFs on long-run performance and scores 1,000 individual companies on intrinsic value, moat, management and financial strength — in one screen.

Explore Oak Growth

Common questions

What is an ETF in simple terms?

A single fund that holds many different investments and trades on an exchange like a share. Buying one unit gives you a small slice of everything the fund holds.

Are ETFs safer than individual shares?

They remove the risk of any single company failing, because you hold many at once. They do not remove market risk — if the whole market falls, a broad ETF falls with it. The value of investments can go down as well as up.

What is a good ongoing charge for an ETF?

For a broad index ETF, roughly 0.05% to 0.25% a year is normal and competitive. Charges above about 0.50% need a clear justification, because the fee compounds against you every year you hold.

What is the difference between an ETF and an index fund?

Both track an index. An ETF trades on an exchange throughout the day at a live price; a traditional index fund is priced once daily and bought directly from the provider. The underlying approach is much the same.