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Exchange-traded funds (ETFs) can be excellent ways to target long-term returns. They allow individuals to diversify their portfolios for risk management, while keeping the door open for substantial wealth creation.
I’ve been loading my own Self-Invested Personal Pension (SIPP) with ETFs recently. The following three have allowed me to spread risk, and if their past performances turn out to be an accurate guide, they could give me an average 26.8% annual return over the next decade.
Low-cost US share exposure
The HSBC S&P 500 ETF (LSE:HSPX) is about as straightforward as these funds come. It tracks the performance of the US leading index of 500 shares, of which there are currently many on the market.
What attracted me to this one is that has one of the lowest ongoing charges out there, at 0.09%.
Why invest in the S&P 500 though? Well, it provides exposure to some of the largest and best companies on the planet, ones with strong records of innovation, deep pockets, and loyal customer bases across the globe. We’re talking about microchip manufacturer Nvidia, for example, which just made history as the world’s first $4trn company.
Since its launch in June 2022, this fund’s delivered an average annual return of 19.5%. Future returns could be compromised if the recent investor rotation away from US shares and into global equities continues. But I remain confident.
Riding the digital defence boom
The L&G Cyber Security ETF (LSE:ISPY) is a thematic fund rather than a bog-standard index tracker. Its goal is to harness the growth potential of tech shares “that generate a material proportion of their revenues from the cyber security industry“.
These range from hardware and software creators that protect files, websites, and networks from online attacks, to service providers that deliver consulting and other security-related services.
This fund has room for considerable growth as the digital revolution rolls on and the number of online threats increases. Allied Market Research thinks the world’s cybersecurity sector will expand at an annualised rate of 10.4% in the decade to 2033.
Returns may disappoint during economic downturns when tech firms tend to cut spending. But the long-term potential is considerable — it’s delivered an average annual return of 12.1% since its launch in September 2015.
48.7% returns
The HANetf Future of Defence (LSE:NATP) was launched in July 2023 to capitalise on booming demand for defence shares. So far it’s delivered beyond all reasonable expectations, providing an average annual return of 48.7% since then.
Since Russia’s invasion of Ukraine in 2022, countries have turbocharged weapons spending amid rising geopolitical and military threats. Defence sector profits have swelled, a trend that I’m expecting to continue.
Like most thematic defence funds, this product includes the usual blue-chip suspects like BAE Systems, Palantir, and Safran. But it also contains cybersecurity stocks including Palo Alto and CrowdStrike, reflecting the changing nature of warfare.
Future returns could disappoint if geopolitical tensions ease. But given the current direction of travel, this looks an unlikely scenario in my book.
