• Early bird SIPP investors picks positive on global equities in the new tax year.
• SIPPs are for the long term, so higher short-term volatility is less of an issue.
• Equities typically provide the greatest long-term returns.
• But where you are in life should impact your portfolio exposures.
By Hal Cook, Senior Investment Analyst, Hargreaves Lansdown.
Early bird SIPP trading in the new tax year suggests some returning confidence for retail investors – with risk-on equities being the most bought funds, although UK equity funds are being overlooked. The picture is the same for Investment Trusts. Even though bond yields are higher than they have been for some time, they are not in the top buys so far this tax year. Given the very long-time horizon for most SIPP investors, this makes sense because we can expect equities to provide the biggest long-term returns, even if there is a potential recession looming.
While global equity funds have their appeal, adding some diversification into specific regions such as the Asia or the UK might also make sense for people who are still trying to grow their wealth for retirement. Asia includes a number of emerging markets, and the region is also home to some of the most exciting economies in the world that have significant potential for future growth. India for example is expected to overtake China as the country with the largest population in the world during 2023. Of course, for those of us who are closer to retirement, investing in funds that are more likely to hold up better during market drawdowns have their appeal. We think multi-asset funds with a focus on downside protection offer great portfolio diversification for those in this situation.
Choosing funds to include in your SIPP can be challenging given the huge number of options on offer. We think that for most people who have a long time to retirement, equities should make up a significant proportion of your portfolio. You can diversify within equity regions too, which should help to smooth returns to an extent.
Our latest picks within equities are Legal & General Future World ESG Developed Index, Aviva UK Listed Equity Income and Schroder Asian Alpha Plus. For those of us nearer retirement, investing in something with lower volatility makes sense, because you don’t want to see a large fall in your investments as you approach your retirement date. We’d suggest Troy Trojan is a good option to help diversify an investment portfolio for people at this stage. Below are some further details about these picks:
Responsible global equities
Responsible investment funds avoid investing in areas that do harm, like tobacco producers, weapons manufacturers, or alcoholic drinks makers. Others invest in companies that have a positive effect on society – from those that treat their employees well, to those that create clean energy through wind farms or solar panels.
The Legal & General Future World ESG Developed Index aims to provide long-term growth whilst being environmental, social and governance focused. It invests in broad developed stock markets, such as the US, Japan and Europe. It is a passive fund, so the ongoing charges are low compared to actively managed funds.
UK equity income
UK equity income funds are a convenient way to invest in a mix of dividend-paying UK companies. With an equity income fund, you can either take the pay-outs to supplement your income (if you’re old enough to access your pension) or, if you are targeting growth and aiming to build your portfolio for longer, reinvesting dividends can help grow your pot thanks to the beneficial effect of compounding.
The Aviva UK Listed Equity Income looks for companies that are market leaders with a competitive advantage and have predictable cash flow. It could help form part of the foundation of an income portfolio and could diversify other equity funds focused on growth. The fund blends companies that are able to offer a high yield now with others capable of strong dividend growth in the future.
Asian growth fund
Asian funds are a great way to add diversification to a portfolio that is focused on long term investing, which makes them ideal for a SIPP. Although they often include investments in emerging markets, Asia is home to some of the most exciting economies in the world that have significant potential for future growth.
Schroder Asian Alpha Plus aims to provide growth by investing in larger companies across Asia. We think the fund can offer a globally diversified portfolio exposure to Asian markets in the pursuit of long-term growth.
Total return fund
Total return funds are more conservative than funds that invest fully in company shares. They normally invest in a mix of investments including shares, bonds, commodities and currencies. They could help provide modest growth for your investment portfolio over the long term, and help shelter your money when stock markets fall, but are unlikely to keep up with stock markets when they rise quickly.
Troy Trojan invests in a mix of investments including shares, bonds, commodities and currencies and includes some of the world’s best-known companies with highly recognisable brands. It could help form part of the foundation of a more cautious portfolio and could diversify other types of funds like equities or bonds.
|Top SIPP Funds, 6-28 April (net buys, alphabetical)|
|abrdn Sterling Money Market|
|Fidelity Global Dividend|
|Fidelity Index World|
|Jupiter Asian Income|
|Legal & General European Index|
|Legal & General International Index Trust|
|Legal & General US Index|
|Royal London Short Term Money Market|
|Vanguard Life Strategy 100% Equity|
|Top SIPP Investment Trusts, 6-28 April (net buys, alphabetical)|
|BlackRock World Mining Trust plc Ordinary 5p|
|City of London Investment Trust Ordinary 25p Shares|
|F&C Investment Trust plc Ordinary 25p|
|Fidelity European Trust plc Ordinary 2.5p|
|Greencoat UK Wind plc Ordinary 1p|
|Henderson Far East Income Ltd Ordinary NPV|
|JPMorgan Global Growth & Income plc Ordinary 5p|
|Law Debenture Corporation plc Ordinary 5p|
|Merchants Trust plc Ordinary 25p|
|TR Property Investment Trust plc Ordinary 25p|
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