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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, capital gains and investment income are tax-free. Plus, contributions come tax-deductible, which means they can lower your income tax bill.
Do you have an open SIPP and are looking for investment ideas for 2023 and beyond? Here are three exceptional funds to consider.
Fundsmith Equity
let’s start with Fundsmith Equity, which is one of the most popular funds in the UK. It is a global equity product managed by the famous investor Terry Smith.
Since its launch in late 2010, it has generated fantastic returns for investors. In fact, its latest fact sheet shows that since its inception, it has returned about 15.8% per year. That compares with 11.2% a year for its benchmark, the MSCI World Index.
How did Smith pull off this amazing performance? Well, in a nutshell, you have invested in big companies like Microsoft and Visa and kept them for the long term. This approach has worked wonders.
Of course, this strategy has not worked well every time. For example, over the past year the fund has only returned about 2%. There is no guarantee that it will generate strong returns in the future.
But I am optimistic that it can continue to outperform the market in the long term. So, I’m invested here. Fundsmith is currently my largest SIPP holding.
uniform income
the next is uniform income. This is an equity fund that invests primarily in UK equities, but has the flexibility to invest a small portion of its capital internationally or in cash. I see it as an excellent option for those seeking diversified exposure to the UK stock market.
Like Fundsmith, this one has an exceptional long-term track record. Between its release in October 2009 and the end of February 2023, it returned approximately 290%. That’s almost double the performance of its benchmark, the FTSE All-Share Index. Meanwhile, over the last year, it has returned around 7%, significantly more than the UK stock market as a whole.
The secret to this superior performance? A focus on UK companies that have high return on capital, strong free cash flow and sustainable dividend growth, such as Unilever and Diageo. These companies tend to generate strong returns over the long term.
That being said, there will be periods when they underperform, such as when economic growth is high and cyclical stocks are in favour.
Global Loyalty Technology
Finally, for those looking for a more sporty product, I want to highlight the Global Loyalty Technology background. As the name suggests, it invests in technology companies.
Fidelity has an excellent track record. Just look at the long-term performance of this fund.
Over the past five years, it has returned about 20.7% per year versus 13% for the tech sector overall. Even over the last year (when technology in general has fallen out of favour), the fund has achieved a return of around 4%.
It’s worth noting that this one is much riskier than the other two I’ve discussed because it’s narrower in focus. Therefore, it is not the type of fund where everything is bet.
However, I think it could play a valuable role in a diversified SIPP account.
Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and obtaining professional advice before making any investment decisions.
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