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Investing in exchange-traded funds (ETFs) within an ISA or Self-Invested Personal Pension (SIPP) can be a smart investment strategy. With these products, investors can get access to a range of different stocks (and investment themes) at a low cost.
Looking for ETFs that have the potential to deliver strong long-term returns? Here are three standout products worth a closer look.
A focus on quality
One product that I see as a great ‘core holding’ is the iShares Edge MSCI World Quality Factor UCITS ETF (LSE: IWQU). This is a global product however, it only invests in high-quality companies that have stable earnings and strong balance sheets.
This focus on quality can make a difference to returns, especially in down markets. This year, for example, the ETF’s only down about 1% versus a drop of about 7% for the standard iShares global ETF.
Of course, the downside to this product is that it excludes plenty of well-known companies. For example, it doesn’t hold Amazon at present.
The fact that it excludes a lot of companies can lead to underperformance versus the market at some stages of the market cycle. All things considered however, I reckon the focus on quality is a major plus.
An ETF for the AI revolution
I’m a big fan of thematic ETFs, and one I like the look of today is the iShares AI Innovation Active UCITS ETF (LSE: IART). As its name suggests, this product focuses on companies that are active in the artificial intelligence (AI) space.
Over the next decade, the AI industry’s likely to get exponentially bigger as businesses and individuals adopt the technology to increase efficiency. With this ETF, investors can get access to companies at the heart of the revolution, such as Nvidia, Amazon, and Snowflake.
Investors do need to manage risk carefully here though. Today, AI’s still in its infancy and the growth story in the years ahead may not be linear (meaning that stock prices are likely to be volatile).
This ETF’s also quite new (it was only launched in February). So it doesn’t have a long-term track record.
Bigger than AI?
While AI‘s going to be big, one area of technology that could be even bigger is cybersecurity. Some experts believe that this could be a $2trn industry in the years ahead.
One ETF that’s focused on this theme is the Legal & General Cyber Security UCITS ETF (LSE: ISPY). This provides exposure to around 35 different cybersecurity stocks globally.
There are some great names in this ETF including the likes of CrowdStrike, Fortinet, and Palo Alto Networks. All of these companies are generating strong growth today as businesses scramble to protect themselves from dangerous cyber threats.
Again though, risk needs to be carefully managed here. Given its focus on one specific industry, this ETF isn’t well diversified.
And while the cybersecurity industry has a lot of long-term growth potential (and is also quite defensive in nature), cybersecurity stocks can be volatile. So with this ETF, position sizing is important.
