A self-invested personal pension (SIPP) gives DIY investors the freedom to get creative in their pursuit of wealth for retirement. One tool at their disposal is an exchange-traded fund (ETF).
These vehicles provide exposure to a basket of investments in one fell swoop. That’s why they’re becoming increasingly popular, with thousands of options available.
Here are two that I think are worth considering for income and growth in a SIPP portfolio.
First up is iShares MSCI Target UK Real Estate ETF (UKRE.L). This fund is invested in UK real estate investment trusts (REITs), property companies and bonds.
It currently has around 30 holdings, including Segro (SGRO.L) and Land Securities (LAND.L) from the FTSE 100 (^FTSE). Another one is Londonmetric Property (LMP.L), which has a significant focus on logistics and urban warehouses. Its occupiers include Tesco (TSCO.L), Amazon (AMZN), and Primark.
One risk here is that REITs often carry higher levels of debt (to fund property purchases), which is problematic when interest rates are high.
REITs are legally obliged to pay a minimum of 90% of their annual rental profits out in dividends. As borrowing costs rise, they can’t so easily retain earnings to reduce debt or reinforce their balance sheets.
This pressure explains the ETF’s poor performance (down 15% in five years).
However, one upshot of the recent weakness is that property-related dividend yields are higher. Right now, the ETF’s yield is 7%. No payout is guranteed, of course, but that looks very attractive to me.
Looking ahead, interest rates are forecast to keep falling, suggesting that the property market might be over the worst. Therefore, investors could also see some healthy share price gains as the market warms up again to REITs.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Next, I think any ETF that tracks the Nasdaq 100 (^NDX) index — such as iShares NASDAQ 100 ETF (CNX1.L) — is worth considering right now. Following the recent stock market sell-off, this tech-heavy index is around 12% off its February high.
The chief culprit for this fall has been President Trump’s on-off tariff policies. As well as causing massive uncertainty and volatility, they also have the potential to trigger a spike in inflation and even a worldwide recession. These are key risks right now.