Investing in a SIPP (Self-Invested Personal Pension) is one of the most effective ways to build wealth in the UK. With this type of account, any capital gains and income generated from investments are tax-free. Moreover, contributions come with tax relief, meaning they can bring down one’s Income Tax bill.
Have a SIPP open and looking for investment ideas for 2023 and beyond? Here are three exceptional funds to consider.
Let’s start with Fundsmith Equity, which is one of the most popular funds in the UK. It’s a global equity product that’s managed by famous investor Terry Smith.
Since its launch in late 2010, it has produced fantastic returns for investors. Indeed, its latest factsheet shows that since inception, it has returned about 15.8% per year. That compares to 11.2% per year for its benchmark, the MSCI World Index.
How has Smith achieved this amazing performance? Well, put simply, he’s invested in great companies such as Microsoft and Visa and held them for the long term. This approach has worked wonders.
Of course, this strategy hasn’t performed well at all times. For example, over the last year, the fund has only returned about 2%. There’s no guarantee that it will deliver strong returns going forward.
But I’m optimistic that it can continue to outperform the market in the long run. So, I’m invested here. Currently, Fundsmith is my largest SIPP holding.
Next up is Evenlode Income. This is an equity income fund that mainly invests in UK shares but has the flexibility to invest a little bit of its capital internationally or in cash. I see it as a great choice for those looking for diversified exposure to the UK stock market.
Like Fundsmith, this one has an exceptional long-term track record. Between its launch in October 2009 and the end of February 2023, it returned approximately 290%. That’s almost double the return from its benchmark, the FTSE All-Share index. Meanwhile, over the last year, it has returned about 7% – significantly more than the broader UK stock market.
The secret to this outperformance? A focus on UK companies that have high returns on capital, strong free cash flow, and sustainable dividend growth such as Unilever and Diageo. Such companies tend to deliver strong returns over the long term.
That said, there will be periods where they underperform, such as when economic growth is elevated and cyclicals are in favour.
Fidelity Global Technology
Finally, for those looking for a racier product, I want to highlight the Fidelity Global Technology fund. As its name suggests, this invests in tech companies.
Fidelity has an excellent track record. Just look at the long-term performance of this fund.
Over the last five years, it has returned about 20.7% per year versus 13% for the broader tech sector. Even over the last year (when tech has generally been out of favour), the fund has still managed to return about 4%.
It’s worth pointing out that this one is much riskier than the other two I’ve discussed because it has a more narrow focus. So, it’s not the type of fund to go ‘all in’ on.
I think it could play a valuable role in a diversified SIPP account though.
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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.