Most popular funds among professional investors

Europe’s fund-of-funds market, controlling a significant €1.1 trillion (£954 billion) in assets, offers investors a convenient gateway to diversification by pooling capital in funds that invest across multiple underlying funds, asset classes or management styles.

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The UK is Europe’s largest fund-of-funds market, holding nearly a third of total assets (€343 billion) and attracting increased inflows in recent years. Conversely, strategies domiciled in mainland Europe have seen more than €30 billion in outflows since 2023.

These capital movements reveal an interesting dynamic around fees. UK funds have reduced their median fees sharply to 0.86% a year, undercutting the European median of 1.64% a year, where fees have decreased but remained relatively sticky.

Investors are moving their money to lower-cost funds, which have outperformed more expensive funds. Vanguard’s attractively priced LifeStrategy range reflects this trend, leading the market at €57 billion.

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Inside the portfolios: Europe including UK

European fund-of-funds’ portfolios are dominated by US low-cost passive exchange-traded funds (ETFs), such as iShares Core S&P 500 ETF USD Acc GBP (LSE:CSP1) and Invesco S&P 500 ETF GBP (LSE:SPXP), underscoring the global dominance of US equities within diversified portfolios.

However, concerns over rising concentration risk in mega-cap US stocks has led some investors into equal-weight strategies, such as the Xtrackers S&P 500 EW ETF 1C GBP (LSE:XDWE), which seeks to spread exposure more evenly across companies.

Sustainability also shapes portfolio choices, with environmental, social and governance (ESG)-integrated products such as iShares MSCI USA Screened ETF USD Acc GBP (LSE:GPSA) and Brown Advisory US Sustainable Growth reflecting growing investor demand for responsible investment opportunities.

Active equity funds retain their appeal, particularly those blending disciplined stock selection with cost-efficiency. The JPM US Research Enhanced Equity Active ETF USD Acc GBP (LSE:JURE) stands out as Europe’s largest active ETF with more than €10 billion in assets, combining low-cost access with low tracking error and an index-enhanced strategy.

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Other widely held active equity options include M&G Japan, Comgest Growth Europe, Guinness Global Equity Income and BlackRock European Dynamic.

Private equity exposure, as illustrated by holdings in 3i Group Ord (LSE:III), which also features in the top fund-of-funds holdings, indicates growing investor appetite for private markets exposure deemed to offer enhanced return potential and diversification.  

Inside the portfolios: UK

Index funds dominate the list of most popular underlying funds for both fixed income and equity sectors, reinforcing the view that low-cost funds that follow the ups and downs of a particular index have become the default choice for core market exposure in the UK.

In the fixed-income space, Man Sterling Corporate Bond fund, led by Jonathan Golan since 2021, has emerged as a top active choice among UK fund-of-funds portfolios.

UK bonds remain a key component in UK multi-asset portfolios, with Royal London Sterling Credit – managed by the seasoned team of Paola Binns and Eric Holt – also among the most-held funds.

Global bond funds, such as Vanguard Global Credit Bond and Dimensional Global Ultra Short Fixed Income, resonate with investors seeking diversified exposure to global credit and short-term debt. Both funds leverage deep in-house expertise and balance active management with attractive fees, making them appealing to cost-conscious investors.

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Among equities, M&G Japan is a top holding, offering investors exposure to a compact portfolio of around 50 high-quality companies in Japan, while also meeting UK demand for sustainable investing through its ESG-integrated approach.

Other popular actively managed equity funds include Invesco UK Opportunities and Artemis UK Select. Invesco is noted for its disciplined core/value strategy, while Artemis focuses on companies with strong earnings potential and attractive valuations.

Funds Held in Portfolios - Fixed Income (All)
Ranked by Number of Fund of Funds Holding the Fund

Funds Held in Portfolios - Equity (All)
Ranked by Number of Fund of Funds Holding the Fund

Source: Morningstar. Data as at 31 December 2024.

The bottom line

Europe’s fund-of-funds market is evolving, with investors seeking lower costs, more alternatives and sustainable options. Success will favour managers who blend passive and active strategies to meet changing demands in this €‎1.1 trillion landscape.

Lena Tsymbaluk, associate director for equity strategies, and Giovanni Cafaro, analyst for fixed-income strategies, at Morningstar.