Best ETFs to have in a Lifetime ISA

Are you choosing investments for your Lifetime ISA? Not sure where to start? ETFs can be a great, beginner-friendly investment. We asked Ben Yearsley, Investment Consultant at Fairview Investing, to tell us his top picks for beginners who aren’t sure what to put in their LISA.

The investments you choose for your Lifetime ISA very much depend on what you plan to use it for. If you’re using it for a house purchase in the very near future, it makes sense to stick with cash or a near-cash option – so you can sleep easier at night knowing your money is safe and easy to access when you need it. This has become an even better option since interest rates have risen. However, cash may leave you vulnerable to rising inflation in the longer-term.

With that in mind, if you have longer to invest – say, five years or more - you could consider a lower risk investment option. This can help you to ensure that your money keeps pace (and hopefully, outperforms) inflation, whilst still keeping risk to a minimum. After all, this is money you’re using for important things – a first home or your retirement. You want to keep it safe. So how can you invest with this in mind?

Ben Yearsley, Investment Consultant at Fairview Investing, thinks ETFs can be a great addition to a sensible LISA portfolio as a way to access dozens of shares all in one go, keeping you diversified and therefore helping to minimise risk. We asked for his top picks.

Wisdom Tree UK Equity Income ETF

The Wisdom Tree UK Equity Income ETF is a cheap way to get access to the UK’s largest dividend-paying companies. It has an ongoing charge of just 0.29% and its largest holdings are heavyweight household names such as Land Securities, Rio Tinto, Vodafone and NatWest.

Yearsley says: “The UK is a good place to be looking at the moment. It’s cheap to buy into, particularly for UK large caps. Most importantly, the UK market has a 4% dividend yield [on top of the actual returns] and that looks like a good buying opportunity. There are also a lot of share buybacks, where companies buy back their own shares to reduce the number of shares in issue. This usually helps lift share prices.”

The high dividend should also help cushion the natural volatility of investing in the stock market, making sure you’re always earning from your investment, even if its share price dips. You can read more about Wisdom Tree UK Equity Income - including details about its charges, top holdings and key investor information documents (KIIDs) - using the link below.

iShares Global Infrastructure ETF

Yearsley also likes the iShares Global Infrastructure ETF. This fund is managed by BlackRock, one of the world’s largest investment management firms and a specialist in ETFs. Its Global Infrastructure ETF invests specifically in companies that provide transportation, communication, water, and electricity services in developed markets around the world.

“I’m a big fan of infrastructure as a long-term investment,” Yearsley says. “It is an essential asset, with good inflation-linkage. It’s demonstrated good long-term growth and the iShares Global Infrastructure ETF is a cheap way of getting exposure. The historic yield is 3%, so not quite as high as an equity income fund [a fund which invests primarily in companies which pay out regular dividends], but lots of the underlying companies have inflation protection.”

Infrastructure assets have struggled a little in recent years as interest rates have risen, but with base rates generally stabilising, this should help to give the sector a boost in the year ahead. You can read all about the iShares Global Infrastructure ETF and its charges, top holdings and KIIDs using the link below.

Royal Mint Responsibly Sourced Physical Gold ETC

Finally, Yearsley’s final choice is the Royal Mint Responsibly Sourced Physical Gold ETC. An ETC is a type of ETF which invests in a commodity - in this case gold. He says an investor could really pick and choose any gold ETF, but there are some nuances around where the gold is kept. A key difference is that the gold in this fund is held in the vault of The Royal Mint as opposed to with a commercial bank.

It works by tracking the price of physical gold and is designed to offer investors an effective way to access the gold market. The fund is Shariah compliant. It’s also the first financial product to be sponsored by The Royal Mint and the first gold ETC to be launched in partnership with a European Sovereign Mint. Another unique feature is that investors can actually redeem their shares for physical bars and coins.

Yearsley explains why gold is an attractive investment in 2024: “We like gold primarily because there are so many bad people in the world trying to cause mischief, such as Putin and Xi. This is likely to create demand for a ‘safe haven’ asset, such as gold. Also, interest rates appear to have peaked. High interest rates are generally bad for gold. There is an opportunity cost if you’re getting 5% in cash – if interest rates come down, that should be positive for gold price. Gold is generally a good ballast in a portfolio and a strong diversifier.”