Gold fund

Gold’s multi-decade bull run is (in my opinion) showing room for further significant upside. A multitude of risks facing the US and the dollar — combined with broader factors like rising inflation and geopolitical stress — mean fresh records far above current levels now look highly likely.

Goldman Sachs thinks prices could reach $5,000 per ounce by the end of next year.

In this climate, buying the iShares Physical Gold (LSE:SGLN) demands serious consideration in my book. Backed by physical gold, this fund is the UK’s most liquid bullion ETF, meaning investors can buy in and sell up extremely easy and with low spreads.

It also has a rock-bottom total expense ratio of 0.12%, one of the lowest on the market.

Remember there’s no guarantee that gold prices will continue rising, however. A downturn would naturally have bad consequences for the fund.

Copper exposure

Copper is another popular commodity that’s worth looking at this October. Red metal futures have rocketed in recent weeks, after weather-related disruptions caused the closure of Grasberg, the world’s second-largest mine.

It’s the latest in a string of production-related hiccups from major producers. With supply problems growing and demand enjoying structural drivers like the growing green and digital economies, now could be the time to consider a copper-based ETF.

The Global X Copper Miners ETF (LSE:COPX) is one I like the look of.

There’s a big difference between investing in a metal producer fund like this versus a copper price tracker. With these, investors leave themselves exposed to potential production issues that can dampen performance.

Still, with holdings in 39 different copper miners (including heavyweights like Glencore and Antofagasta), this ETF spreads the risk quite effectively.

When copper prices rise, producer ETFs like this can outperform as their profits can rise more dramatically. Be mindful, though, that this leverage effect can act in reverse when red metal values drop.

Defence star

My final fund selection here is the HANetf Future of Defence (LSE:NATP) product. This is an ETF I hold in my own portfolio to capitalise on booming defence spending among NATO nations (and partner countries).

I plumped for this one because it gives me defence exposure but ‘with a twist.’ It holds shares in some of the world’s largest weapons builders like Rheinmetall, BAE Systems and Northrop Grumman. In total, its basket contains 60 different businesses.

However, it also has a high weighting of cybersecurity stocks like Palo Alto and CrowdStrike. This provides it with added long-term growth potential, in my view. As HANetf itself comments: “NATO’s inclusion of cyber and network security in new spending targets reflects the growing threat of geopolitically motivated attacks on critical infrastructure.“

Supply chain issues remain a problem across the defence industry. If this persists, it’s possible this fund could underperform expectations. But in the evolving geopolitical climate I’m optimistic it can deliver stunning returns.

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Investors can choose from thousands of funds that match their investment goals and tolerance of risk. I myself own several in my Self-Invested Personal Pension (SIPP). And I’m looking for more that could deliver strong capital gains and a reliable dividend income I can reinvest for growth.

Here are two on my radar today. If they continue to deliver the returns of the last five years, they’ll turn a £500 monthly investment into an impressive £1.2m over the next 25 years.

Digging for huge returns

Mining is notoriously unpreditable and fraught with risk for companies. Exploration disappointments, project delays, and production outages can play havoc with profits forecasts and decimate share prices.

ETFs that invest in a basket of minerals producers don’t completely eliminate this threat. Operational problems at one major holding can substantially impact overall returns. But on balance, I think funds are far less risky than purchasing individual mining stocks.

I’m looking for a low-risk way to capitalise on a likely rise in copper prices over the next decade. And so I’m thinking of adding the Global X Copper Miners ETF (LSE:COPX) to my SIPP.

As the chart shows, the copper market faces substantial shortfalls in the coming years, which I believe could drive up prices:

In total, the fund holds shares in 40 red metal producers including First Quantum Minerals, Lundin Mining, and UK-listed share Antofagasta. Owning a fund that owns copper stocks instead of a fund that tracks metal prices can be more lucrative in bull markets — because copper miners have fixed costs, their profits grow faster than metal prices, delivering superior capital gains for investors.

This leverage effect means that, since August 2020, this Global X copper fund has delivered a healthy average annual return of 10%.

Emerging market opportunity

As well as boosting my copper market exposure, I’m looking to improve my exposure to emerging markets. For this reason, the Franklin FTSE India UCITS ETF (LSE:FLXI) is on my list of possible funds to buy.

India is the world’s fastest growing economy — the International Monetary Fund is tipping GDP growth of 6.5% in the next two years. And it has significant scope for breakneck long-term growth, driven by its booming population, robust private investment, and rapidly rising personal wealth levels.

These phenomena have already driven an average annual return of 17.1% for the Franklin FTSE India fund over the last five years.

I like this ETF because of its excellent diversification. In total, it holds shares in 263 companies, from HDFC Bank and Bharti Airtel to Tata Motors and Sun Pharmaceutical. This helps reduce risk and provide exposure to a wide range of growth and income opportunities.

Future performance could be impacted by US trade tariffs and reciprocal action from India’s government. But on balance, I think it’s another top fund for me to consider.

The post 2 top ETFs that could turn £500 a month into a £1m retirement fund! appeared first on The Motley Fool UK.