Diversification is an important factor to consider when investing. During uncertain economic times like today, reducing risk within one’s Self-Invested Personal Pension (SIPP) is especially critical.
SIPP investors can mitigate their risk effectively by purchasing pooled investments like exchange-traded funds (ETFs) and investment trusts. These have the ability to spread individuals’ wealth across a range of holdings, which can help them diversify across industries, regions, and asset classes.
With this in mind, here are two top ETFs and investment trusts to consider in June.
Discount trust
Renewed market appetite means FTSE 100 investment trust Alliance Witan (LSE:ALW) is no longer trading at the whopping discount that it was just a few weeks ago.
However, its shares — at £12 — are still almost 5% cheaper than the investment trust’s net asset value (NAV) per share of £12.85. This chunky discount offers a tasty bonus for investors.
Alliance Witan is one of the UK’s oldest and largest trusts, with around £5.1bn in assets. It’s been around for more than a century thanks to its ability to generate excellent returns (its average annual return over the last five years is 11.5%).
I think it’s a great way to diversify because its portfolio of 231 shares span a multitude of industries and different continents. Major holdings include Microsoft, Unilever, Safran, and Petrobras.
It may be more volatile in the near term than trusts that focus on more stable assets (like bonds). But Alliance Witan’s long-term record still makes it worth serious consideration in my book.
Going for gold
Investing in ETFs is now the second-most popular way to get exposure to gold. According to retailer The Gold Bullion Company, almost one in five (17.5%) people tap into the yellow metal via one of these pooled instruments.
That makes it the second-most popular option behind gold jewellery (20.1%) but ahead of gold coins (13.4%).
I have exposure to gold myself through one of these pooled instruments. But rather than buying one that simply follows the gold price, the one I hold — the L&G Gold Mining ETF (LSE:AUCP) — tracks the performance of numerous bullion producers (34 in all).
This has two large advantages for me. It allows me to receive a passive income in the form of company dividends. Also, mining companies enjoy operational leverage — their costs remain relatively stable over time, meaning their profits can grow faster than bullion values during bull markets.
Heavy profit taking and revived demand for riskier assets has toppled gold from recent record highs above $3,500 per ounce. But I’m confident it can reclaim new heights, making now a good time to consider gaining exposure. Enduring macroeconomic and geopolitical uncertainty and sustained US dollar weakness could remain significant drivers.
On the downside, the L&G Gold Mining ETF exposes investors to the unpredictable nature of metals production. However, its wide range of holdings (including industry giants Agnico-Eagle Mines and Newmont) helps to limit this risk.
