Building a large nest egg with a Self-Invested Personal Pension (SIPP) can be quite a daunting task. Picking individual stocks requires a more hands-on approach and risk-taking that not every investor is comfortable with. Instead, most retirement investors seeking to beat the market tend to rely on actively managed investment funds.
There’s a lot to like about taking this approach to investing. All the hassle of picking stocks and portfolio management is handed off to a professional. And thanks to insights from Hargreaves Lansdown, we know which funds have proven to be the most popular among British SIPP investors.
Which funds are investors buying?
The top five most popular actively managed funds bought by SIPP investors are:
- HL Multi-Index Moderately Adventurous
- Royal London Short-Term Money Market
- Baillie Gifford American Fund B
- Vanguard Sterling Short-Term Money Market
- Fidelity Cash Fund W
Despite their popularity, these active funds haven’t been stellar performers of late. In the last 12 months, all five have generated a positive return. Yet the best performance hasn’t been all that groundbreaking. The average return across all five is just 8.3% before management fees.
Baillie Gifford American is the standout performer, achieving an impressive 21% gain since June last year. But when zooming out the last five years, investors have only reaped a 6.2% total return. By comparison, the FTSE 100 over the same period is up by 35%. And index tracker funds charge significantly lower fees.
Avoiding fees altogether
Actively managed funds are often criticised for their lack of consistent market-beating returns once managers take their fee. And index funds, on average, tend to outperform active funds. But sadly, these also have the downside of closing the door to any possibility of market-beating returns. This is why prudent stock picking, in my opinion, continues to be the best option for long-term DIY investors.
Take a look at one of the FTSE 100’s largest companies – RELX (LSE:REL). This is a mature data analytics provider to critical sectors and departments such as science, law, business, healthcare, and risk management, among others.
Revenue and earnings growth may not be very explosive. However, the firm’s ability to consistently generate free cash flow from its subscription revenue model, paired with the rapid integration of artificial intelligence (AI), has enabled the business to outperform. And this has translated into a near-110% return since June 2020 before even accounting for dividends – more than three times a passive index fund.
Of course, not all UK stocks have performed as strongly during this period. And even a seemingly high-quality company like RELX has its weak spots.
Free AI tools like ChatGPT and Gemini already offer competing research analysis solutions. And if RELX’s own AI tools can’t stay ahead of the innovation curve, it may struggle to maintain its pricing power in the long run. There’s also a risk of national budget sensitivity to consider. Many of RELX’s customers are universities and research groups reliant on government grants and funding. So any cuts to public spending can potentially throw a spanner into the firm’s growth plans.
Despite these risks, RELX’s outlook still looks promising, in my opinion. Therefore, investors may want to consider taking a closer look at this business as a potential long-term addition to their own SIPPs.
