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I had some spare money and some tax relief to invest using my Self-Invested Personal Pension (SIPP) this month. Here’s what I bought.
Xtrackers MSCI World Momentum ETF
Exchange-traded funds (ETFs) like the Xtrackers MSCI World Momentum ETF (LSE:XDEM) can be a great way to target large returns while still diversifying for safety. This particular fund has delivered an average annual return of 12.5% since 2015.
I’ve topped up my holdings three times since I first opened a position last spring, including last month.
Funds with a momentum strategy like this have significant wealth-building potential. The companies they hold often enjoy strong price performance due to strong fundamentals: these can include robust operational performances and market opportunities that deliver strong sales and profits growth.
This particular Xtrackers fund focuses on “large and mid-cap companies from global developed markets with high momentum scores“. In total, it holds shares in 360-plus global companies spanning an array of regions and sectors, allowing me to further spread risk across my SIPP.
Major holdings here include US shares Broadcom and Netflix, Germany’s Rheinmetall, and the UK’s Rolls-Royce.
Concentrating on momentum stocks relies on upward trends continuing. It also means that when investor confidence weakens, they can fall more sharply than the broader stock market.
That said, I think the benefits from this strategy can more than compensate for such volatility, as this Xtrackers momentum fund’s performance since 2015 shows. Remember, though, that past performance isn’t always a reliable guide to future returns.
Aviva
The returns delivered by FTSE 100 share Aviva (LSE:AV.) haven’t been nearly as impressive.
Some chunky dividends have offset a 10-year share price decline and resulted in a positive total return. But at 2.7%, the total average annual return lags the Footsie average of 7% by some distance.
Having said that, I’m confident the company’s more-recent self-help measures, like the rebuilding of the balance sheet and sale of non-core assets, mean Aviva shares should outperform looking ahead. The business now has considerable strength to grow earnings through acquisitions, like that of Direct Line, which is currently going through. It also has the means to reward shareholders with share buybacks and more market-beating dividends.
Aviva sells a variety of financial services products. These include life insurance policies, pensions, annuities, and wealth management. As a result, it has many opportunities to turbocharge earnings growth as populations in its UK, Irish, and Canadian markets rapidly age.
The downside is that the products it sells are highly cyclical. So in times of weak economic growth and high interest rates, sales can struggle. Yet, I’m prepared to weather such discomfort given the company’s excellent long-term potential.
Besides, I believe the excellent value Aviva’s shares offered when I bought in this month was too good to ignore. Its price-to-earnings-to-growth (PEG) ratio sits at 0.1 for this year, and remains below the value watermark of 1 for 2026 and 2027. And its dividend yield ranges from 6% to 7% for the next three years.
