The latest Investment Association figures on retail fund sales revealed that UK investors put a record £18.1billion into tracker funds in 2019, while inflows into responsible investment funds climbed to £1.3billion in Q4, up 584% from £190million in Q1 2019.
- Tracker funds: half of the £18.1 billion net retail flows into tracker funds went to equity trackers (£8.9bn), as most major stock markets performed well, particularly in the second half of 2019. This compared to £3.2 billion in outflows from active funds in 2019.
The rise of passives comes as little surprise since trackers, or funds using passive strategies, accounted for half of the top 10 bestselling funds on interactive investor in 2019, compared to three out of ten in 2018.
When it comes to ethical investing, Renewables Infrastructure Group (LSE:TRIG) topped the list of bestselling funds and investment trust in 2019, ahead of Royal London Sustainable World Trust and Royal London Short Term Money Market in second and third respectively.
Dzmitry Lipski, Head of Funds Research, interactive investor, says: “The IA’s figures have put the active vs passive debate back in the spotlight. The jostle between active and passive funds for positions on our top 10 bestsellers list ended in a stalemate in 2019, with both strategies securing the same amount of positions. Passive solutions have steadily gained popularity in the UK over the years, but whether 2019’s record haul for trackers marks an inflection point remains to be seen.
“The key for investors is to ensure that their investments continue to align with their objectives and deliver over time. Passive funds can be particularly useful when investing in highly efficient markets like the US, where active funds have struggled to outperform. But remember that active funds can manage risk as well as returns and there’s plenty of room for all types of strategies, as our customer preferences illustrate.”
On ethical funds, Lipski adds: “The only way is ethics is an oft used but apt phrase to describe the burgeoning demand for ethical investments. The ‘Greta Thunberg effect’, which continues to push the issue of climate change high up the political agenda, may have contributed to the 584% increase in retail sales in responsible investment fund to £1.3 billion in Q4 from £190 million in Q1 2019. The demand for ethical investments is becoming too big to ignore and it is interesting that investment trusts with an environmental remit were amongst the top ‘ethical’ picks on our platform last year.
“Our own research tells us that many investors want to invest along ethical lines, but often don’t know where to start. Our Ethical investing long list, ACE 30 ethical rated list and Ethical Growth portfolio have tried to help address this issue, and we have also tried to help investors navigate the sector by introducing three interactive investor ACE investment styles: avoids, considers, embraces.”
Teodor Dilov, Fund Analyst, interactive investor, says: “The record high inflows in passive funds last year is further evidence that more and more investors prefer to simply buy an index, instead of getting involved with active managers.
“The reasons for that may be obvious – many managers struggle to beat their benchmark and cannot justify the fees they take from investors. In fact, lower cost was the main benefit of tracker funds historically, but more recently, investors are valuing the liquidity element also.
“Considering the current overcrowded fund environment and the difficult and time-consuming task to identify talent within the active space, passives look a reasonable option. However, investors should bear in mind that actively managed risk could be a better solution should we experience a market turbulence.”
Most bought funds in 2018 and 2019 (in rank order)
|Fundsmith Equity||Fundsmith Equity|
|Lindsell Train Global Equity||Lindsell Train Global Equity|
|Vanguard LifeStrategy 80% Equity||Vanguard LifeStrategy 80% Equity|
|Baillie Gifford American||Vanguard LifeStrategy 60% Equity|
|Legg Mason IF Japan Equity||Lindsell Train UK Equity|
|Baillie Gifford Global Discovery||Vanguard LifeStrategy 100% Equity|
|Vanguard LifeStrategy 100% Equity||AXA Framlington Global Technology|
|Vanguard LifeStrategy 60% Equity||Vanguard US Equity Index|
|Baillie Gifford Japanese Smaller Companies||Baillie Gifford Global Discovery|
|Janus Henderson Global Technology||Vanguard FTSE Developed World ex UK|
Most bought ethical options on interactive investor platform in 2019 (in rank order)
|Company Name||Instrument Group||Ethical list|
|The Renewables Infrastructure Group||Investment Trust||Ethical Long List|
|Royal London Sustainable World Trust||Fund||Ethical Long List|
|Royal London Short Term Money Market Fund||Fund||Ethical Long List|
|Impax Environmental Markets||Investment Trust||Ace 30|
|Greencoat UK Wind||Investment Trust||Ethical Long List|
|Syncona Limited||Investment Trust||Ace 30|
|Stewart Investors Asia Pacific Leaders||Fund||Ethical Long List|
|Rathbone Ethical Bond||Fund||Ace 30|
|Bluefield Solar Income||Investment Trust||Ethical Long List|
|Jlen Environmental Assets Group||Investment Trust||Ethical Long List|
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