There are hundreds of different exchange-traded funds (ETFs) on the London Stock Exchange. They span everything from plain vanilla indexes to niche investing themes. Throw investment trusts into the mix, we’re talking thousands of different options!
Here are three that are worth exploring further.
Let’s start with the iShares UK Property ETF (LSE:IUKP), which holds 33 UK real estate investment trusts (REITs). These include LondonMetric Property (logistics and retail warehousing), Primary Health Properties (GP surgeries and health centres), Unite (student accommodation), and Big Yellow (self-storage).
This sector remains out of favour due to higher interest rates. Rising borrowing costs restrict portfolio expansion plans, while investors can now find attractive yields in perceived safer havens like government bonds.
The fact that this ETF is concentrated on one sector makes it higher risk. Were the UK property market to enter a prolonged slump, this product would carry on underperforming (it’s already down 20% in five years).
On the plus side, though, investors are being offered a 4.5% dividend yield while they wait for a potential recovery. This should materialise as interest rates slowly but surely come down over the next couple of years.
Many [UK REITs] are trading at significant discounts to their net asset value, offering investors the chance to acquire real estate below its true value.
To diversify an income stream away from UK property, an investor might also look at the Schroder Oriental Income Fund (LSE:SOI). This FTSE 250 investment trust offers broad exposure to dividend-paying companies across the Asia Pacific region.
What I like here is the trust offers a healthy level of geographic diversification. Mainland China accounts for just over 18% of assets, with the bulk of the rest made up of Taiwan, Australia, South Korea, Hong Kong, Singapore, and India.
Holdings include Samsung Electronics and Singapore Telecommunications, as well as DBS Group (Singapore’s largest bank). But it does have an outsized position in Taiwan Semiconductor Manufacturing. Any weakness in the Taiwanese chipmaking giant’s share price could negatively affect performance.
The rest of the ETF looks well-diversified, though. And over the next decade, I expect institutional investors to start allocating more capital outside the S&P 500. Asia should be a natural beneficiary of this — it’s worth noting that the trust has returned more than 20% year to date.