The most popular investment type among Sipp investors was open-ended funds, accounting for 36% of assets.
Investors using Isas are much more likely to hold individual shares than those using a Sipp, according to data from interactive investor (Money Observer’s parent company).
Figures revealed by the online broker show that as at February 2018, 47% of assets in Isas were in equities, compared to just 23% for Sipp investors.
Interactive investor asset breakdown as at 28 February 2019
|Exchange-traded fund (ETF)||5%||8%|
Instead, the most popular investment type among Sipp investors was open-ended funds, accounting for 36% of assets. Whereas, funds accounted for 23% of Isa assets.
The top five most popular funds for Sipp investors were dominated by Vanguard’s LifeStrategy fund range, which invests in various indices, with the equity weighting ranging from 20% to 100% and the balance held in bonds and cash. Ahead of retirement, investors could opt to switch from one fund to another and to reduce their equity holdings in order to protect capital.
As Rebecca O’Keefe, head of investment at interactive investor, notes: “Funds such as Vanguard’s LifeStrategy range allow investors to ratchet down their level of risk as they approach and enter retirement and begin to treat their pot of lifetime savings as an income stream.”
Alongside three of the funds in Vanguard LifeStrategy range that feature in the top five, were Fundsmith Equity and Lindsell Train Global Equity. Both funds have been among the UK’s top performing over the past decade and both managers are highly respected: Terry Smith and Nick Train.
Interactive investor SIPP top holdings as at 28 February 2019 – by value
|Equity||Open ended fund||Investment trust|
|1||Lloyds||Fundsmith Equity||Scottish Mortgage|
|2||Royal Dutch Shell||Vanguard LifeStrategy 80% Equity||Finsbury Growth & Income|
|3||Amazon||Vanguard LifeStrategy 60% Equity||Woodford Patient Capital|
|4||BP||Lindsell Train Global Equity||Baillie Gifford Shin Nippon|
|5||GlaxoSmithKline||Vanguard LifeStrategy 100% Equity||City of London|
Isa and Sipp customers, however, opted for equal amounts of investment trusts, at 12%.
Among Sipp investors the most popular investment trust is Scottish Mortgage. The Baillie Gifford managed global trust has provided investors with a return of 147% over the past five years.
Sipp investors also held a much larger amount of cash – 21% compared to 13%. The cash in Sipp accounts, says O’Keeffe, can be put down to two reasons.
First, the recent market volatility. O’Keefe says: “When markets are volatile, if you are taking money from your investments it is important to have some sort of buffer zone, so that you are not having to sell investments in a downturn.” Meanwhile, other investors may simply be keeping their powder dry in anticipation for further market dips presenting new investment opportunities.
Second, and more specific to Sipp investors, much of the cash will be held by those approaching drawdown or taking tax-free cash under the pension freedoms.
The difference in holdings between Isa and Sipp investors reflect the different approach to risk investors in either tax wrapper is likely to take.
Sipp investors are saving for retirement. That means that biggest danger is permanent capital loss, particularly as investors approach drawdown age. That means, for many, individual shares pose too much of a risk.
Isa investors, without being reckless, may calculate that they can tolerate a higher level of risk with what is likely their personal savings pot.
At the same time, the sort of private investor that hopes to strike gold in the here and now by stock picking is more likely to have at least part of their holdings in an Isa than a Sipp. The former provides tax efficiency, while also allowing the investor to access the capital at any time.
Sipp investors, in contrast, know that they cannot touch their money until they are at least 55, and therefore more likely to enjoy the steady compounding growth of less risky investments.