Despite heightened volatility, investors kept buying global and technology funds, while UK funds made a slight comeback, writes interactive investor's head of investment Rebecca O'Keeffe.
October did prove to be the scariest month in the investment calendar this year – so far at least!
Having previously shrugged off trade wars, political unrest and central bank tightening, investors suddenly took fright at the start of October and banked profits. This was especially true of US technology stocks, which have been on a tear over the past few years and whose valuations had started to look expensive.
Despite the horror story at the start of the month however, by the end of October investors had started to buy back into the market, taking advantage of the opportunity to buy the dip - which has been one of the hallmarks of this long bull market.
In spite of the volatility, ii's investors remained happy to buy global funds during October, many of which are heavily exposed to US technology stocks. But there were signs that investors have started to look at the UK again, with LF Lindsell Train UK Equity entering the most-bought table, doubling the number of UK funds in the Top 10!
Changes to most popular funds
Nine of September's top 10 remained favourites in October, with just one change. As always, our top two spots remained the same, but what was interesting in October was the increased popularity of the three tracker funds in the list, with Vanguard LifeStrategy moving up the rankings and taking spots 3, 5 and 7 on the list.
While you would expect that heightened volatility would increase the relative attraction of unconstrained active fund managers, who are able to take advantage of market moves, it was passive options that proved more enticing for investors - October providing them with an opportunity to get into the market at a more attractive level.
According to the Investment Association (IA), retail investors hold £194 billion in tracker funds – 15.4% of the total invested. The amount held in trackers a decade ago was just £30 billion, which at the time represented 6% of the total.
The rise in popularity of passive funds is leading some to conclude that markets may no longer experience the same highs and lows of the past as investors drip-feed money into index funds every month, providing the foundations for a steady rise in valuations.
While some active managers continue to attract large followings, the active management industry as a whole is under significant pressure from the shift towards passive money. The fact that there are popular active managers is an indication that investors do believe that some managers can add value, either through exploiting inefficiencies in the market, or making informed asset allocation decisions - but investors are less willing to put up with underperforming managers.
After months of no UK funds on the Top 10 list, we now have two UK equity funds – albeit occupying the final two spots. SDL UK Buffettology, which entered the list in August, was joined by Lindsell Train UK equity.
The UK has been very unloved since the EU referendum result, being shunned by international investors and overlooked by UK investors who have instead preferred more global options.
On a relative valuation measure the UK now looks attractive and if we can finally get agreement on Brexit this might open the doors to a wider global audience once more and see UK valuations begin to catch up.
Most-popular funds bought in October 2018
|Rank||Fund||IA sector||Previous Rank*|
|2||Lindsell Train Global Equity||Global||2|
|3||Vanguard LifeStrategy 80% Equity||Mixed Investment 40%-85% Shares||5|
|4||Baillie Gifford American||North American||4|
|5||Vanguard LifeStrategy 100% Equity||Global||10|
|6||Baillie Gifford Global Discovery||Global||3|
|7||Vanguard LifeStrategy 60% Equity||Mixed Investment 40%-85% Shares||7|
|8||Janus Henderson Global Technology||Technology & Telecommunications||8|
|9||Lindsell Train UK Equity||UK All Companies||New Entry|
|10||SDL UK Buffettology||UK All Companies||9|
Source: interactive investor, 5 November 2018. Shows most-bought funds by interactive investor's customers in October 2018.
* September 2018
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