3 exceptional investment funds for a SIPP

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, any capital and income generated from the investment is tax-free. In addition, the contribution comes with tax relief, which means it can reduce your Income Tax bill.

Have a SIPP open and looking for investment ideas for 2023 and beyond? Here are three unique funds to consider.

Fundsmith Equity

Let’s start with that Fundsmith Equity, which is one of the most popular funds in the UK. It is a global equity product managed by renowned investor Terry Smith.

Since its launch in late 2010, it has produced excellent results for investors. Indeed, the latest fact sheet shows that since its inception, it has returned about 15.8% annually. That compares to 11.2% per year for the benchmark, the MSCI World Index.

How did Smith achieve this incredible performance? Well, to put it simply, they invest in large companies such as Microsoft and visa and held for a long time. This approach has worked wonders.

Of course, this strategy doesn’t work very well. For example, over the past year, the fund has only returned about 2%. There is no guarantee that it will generate strong profits.

But I am optimistic that it can continue to outperform the market in the long run. So, I invested here. Currently, Fundsmith is the largest SIPP holding.

Evenlode Income

Next is Evenlode Income. This is an equity income fund that mainly invests in UK shares but has the flexibility to invest in small amounts of international capital or in cash. I see it as a good choice for those looking for diversified exposure to the UK stock market.

Like Fundsmith, it has an outstanding long-term track record. Between its launch in October 2009 and the end of February 2023, it returned about 290%. That is almost double the return of the benchmark, the FTSE All-Share index. Meanwhile, in the past year, it has returned about 7% – more than the wider UK stock market.

The secret to this outperformance? A focus on UK companies that have a high return on capital, strong free cash flow, and sustainable dividend growth such as Unilever and Diageo. The company tends to generate strong profits over the long term.

That said, there will be bad times, such as when economic growth picks up and cycles are more favorable.

Global Fidelity Technology

Finally, for those looking for a racier product, I want to highlight it Global Fidelity Technology fund. 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% annually versus 13% for the broader tech sector. Even over the past year (when technology was generally out of favor), the fund still managed to return around 4%.

It is worth pointing out that this one is much riskier than the other two I have discussed because it has a narrower focus. So, it’s not the type of fund for ‘everyone’.

I can play an important role in various SIPP accounts though.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor does it become, any form of tax advice. Readers are responsible for doing their due diligence and seeking professional advice before making any investment decisions.