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.
Investing in the property market
First up is iShares MSCI Target UK Real Estate ETF (LSE: UKRE). This fund is invested in UK real estate investment trusts (REITs), property companies and bonds.
It currently has around 30 holdings, including Segro and Land Securities from the FTSE 100. Another one is Londonmetric Property, which has a significant focus on logistics and urban warehouses. Its occupiers include Tesco, Amazon, 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.
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Adding a bit of zip
Next, I think any ETF that tracks the Nasdaq 100 index — such as iShares NASDAQ 100 ETF (LSE: CNX1) — 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.
It’s worth remembering though that tech advancements in cloud computing, electric vehicles, artificial intelligence and space rockets continued despite the 2008 financial crisis and Covid pandemic. I’m pretty certain technological innovation will also outlast Trump’s executive orders and announcements.
Longer term, the digital revolution is likely to speed up rather than slow down. The Nasdaq 100 is made up of the largest 100 non-financials listed on the Nasdaq exchange, including all the tech giants like Microsoft, Amazon, Nvidia, and Meta Platforms. But there are also up-and-coming tech names, including Palantir and MercadoLibre, as well as pharma giants Vertex Pharmaceuticals and Amgen.
Let’s face it, the next wave of world-changing technologies — including quantum computing, humanoid robots, and the metaverse — probably aren’t going to be heavily represented in the FTSE 350. But many pioneering firms building the future will very likely be found within the tech-driven Nasdaq 100.
Therefore, I reckon this ETF is well worth a closer look for a SIPP for the next decade and beyond.
