Most-popular funds for lump sum and regular investing

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In this week’s episode, Kyle and Dave weigh up the pros and cons of lump sum and regular investing. The duo also run through key trends among the top 15 most-bought funds,investment trusts and exchange-traded funds (ETFs) for both approaches. 

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to our latest On The Money podcast, a weekly show that aims to help you make the most out of your savings and investments. 

Today, the topic is on the pros and cons of regular investing versus investing a lump sum. I’m going to be looking at the most popular types of funds, investment trusts, and ETFs for both regular investing and lump sum investing. 

Joining me to tackle this topic is Dave Baxter, who is senior fund content specialist at interactive investor. Dave, welcome back to the podcast.

Dave Baxter, senior fund content specialist at interactive investor: Thanks for having me on.

Kyle Caldwell: So, Dave, let’s start off with the pros and cons of investing regularly and lump sum investing. Let’s begin with regular investing. What are the main advantages of that approach?

Dave Baxter: To use the the intriguing industry jargon, you’ve got so-called pound cost averaging. To put it in layman’s terms, if you are buying every month, say the market goes down, the fund goes down, you are then buying in at a lower basis, so you are averaging out the cost at which you’re buying and that basically helps you weather some of the ups and downs of markets. 

Whereas if you just chuck in a lump sum, then you could potentially buy in when, say, the S&P is especially high and it’s due to have a fall.

Kyle Caldwell: Yeah, spot on. If you are investing regularly, the main advantage is the ability to smooth returns over the long term. There’s going to be fewer bumps in the road.

As you say, Dave, if there is a nasty dip for stock markets, if you are investing regularly, then it’s going to be less harmful for your overall portfolio versus if you invest a lump sum at the wrong time just before a heavy fall for the global stock market, say, it falls 10% in a month, for example. That means it’s going to take longer for your investments to recover over time versus regular investing.

I also think if you are investing regularly, you’re taking the emotion out of investing, and, in theory, you don’t have to interfere as much with your investments. You can potentially try and buy and hold. I think it’s very important to review your investments a couple of times a year, but it gives you greater opportunity to be a bit more passive in terms of the maintenance of a portfolio. You don’t have to be as hands-on. 

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Dave Baxter: Yeah. I think it’s one of those cases where you’re letting inertia work for you because you’re just putting that money to work and you’re not really worrying about it too much. 

As we will get on to, interestingly, you can almost end up doing some contrarian buying by accident because you might have holdings that at a certain period are struggling, say, this year we had the March sell-off and then markets have rebounded since then. If you’re just regularly investing, you would have kept on buying, and therefore you’re benefiting from any recovery that should come further down the road. 

Kyle Caldwell: In terms of the performance returns of lump sum vs regular investing, there have been plenty of studies and analysis on this over the years, and pretty much all the ones I’ve seen [suggest] that if you invest a lump sum and then the stock market is generally buoyant, then you’re going to fare better than by making regular investments. So, if your preference is to invest regularly, that’s the trade-off, but you’re getting greater peace of mind. 

Dave Baxter: Yeah. It’s interesting, isn’t it. Because I imagine, especially if you’re an experienced investor, and you understand this idea that markets over time do go up, and you have a chunk of cash that you want to put to work, there must be that impatience and frustration factor because you think, I could get all this money to work now and then I’ll see markets go up. 

But, yeah, it’s just worth bearing in mind those risks because if you were not in the buoyant period that you mentioned, and who knows, things may turn, then you’re going to be in for a rougher ride, and therefore you need to be even more patient if you’ve put a big chunk of cash to work.

Kyle Caldwell: The final point I’d like to make is, say you identify an undervalued area of the market or an undervalued investment style, and you think on a long-term view that it’s going to recover its poise and is now potentially a great opportunity to attempt to buy low. The danger of committing a lump sum is that it can take quite a long time for performance to turn around and you can be too early.

Whereas if you’re investing regularly, then that protects you, in a way, from the performance having not yet turned around. Then when it does [improve], you’re then getting the benefit. 

Dave Baxter: Yeah.You can definitely be early, but not wrong for quite a long time, can’t you?I think about value as investment style or UK equities. How many years were we listening to UK managers saying that the market is ferociously undervalued and, yes, it’s really come into form the last two or three years, but there was a long period where it was still continuing to trend lower. 

Kyle Caldwell: I think it’d be remiss of me not to say that at interactive investor, regular investing is free. So, do check that out.

Now, let’s get to the performance tables. I’ve compiled two tables, which we’re going to show on the video version of the podcast, ranking the top 15 most-bought funds, investment trusts, and ETFs for lump sum investing and for regular investing. The time period we’ve looked at is from 1 January 2026 to 30 April 2026.

Now, there are some similarities between these two top 15 tables, but there are some differences as well. Dave, let’s start off with the similarities for both tables.

Dave Baxter: One thing I found really interesting was that I would have assumed that the regular investing table was going to have a lot of diversified passive funds, like your Vanguard LifeStrategy, which is very popular with our customers, your US funds, world funds, and that is definitely the case. It’s around half, or a bit over half, in those kind of funds.

But what’s interesting is that lump sum is pretty much the same on that front. Maybe there’s a couple fewer, but even when people are doing lump sum investing, they’re perhaps putting money to work a bit more tactically, or they have a big chunk of money to put to work, they’re still using these fairly diversified funds as a way of getting exposure.

Other similarities? One prominent active name you see that appears in both tables is the investment trust darling Scottish Mortgage Ord. 

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Kyle Caldwell: Just going back to your points on the global index funds and ETFs that are prominent in both the lump sum and the regular investing tables.

To me, I think this shows personal preference in terms of some people preferring to invest a lump sum and be a bit more active. Others prefer to be more hands-off, and they’re happy to commit to a certain amount of their money going in each month and being done with it, really.

A global index fund or ETF is a fantastic core holding in your portfolio to build other positions around. The main decision you have to make is whether you want just developed market exposure in a global index fund or ETF, or if you want some emerging markets exposure. So, that’s one of the main things to look out for.

Also look at the costs and the tracking error. How efficiently has that index fund or ETF done its job in terms of giving you exposure to the global stock market return? If a global index fund or ETF has a really poor period, there’s going to be a lot else going wrong in the world and that won’t be your only problem. 

Dave Baxter: Yeah. It is interesting, though, if you think people are using those global funds and US funds, there’s even more of an argument about whether the Mag Seven are looking good and whether the US is looking good.

The US has been a bit out of favour relative to other regions, and particularly last year, but we’re also seeing [that] this year so far as well. Maybe it’s more spicier and less of a no-brainer play than it used to seem like. 

Kyle Caldwell: Regarding Scottish Mortgage, this is an example of an investment trust that is very different from a global tracker fund in terms of its listed exposure (the companies it owns), but also its private exposure.

Let’s now run through the differences between these two tables. I’ll go first. 

So, I thought it was interesting that in the lump sum investing table we’ve got Royal London Short Term Money Mkt Y Acc fund. But it doesn’t appear in the regular investing top 15. 

To me, this makes complete sense because there are certain points at which money market funds are attractive, and they are right now because of where UK interest rates are. Six years ago, when UK interest rates were at rock-bottom levels, this fund sector was not attractive because they were paying very, very little in terms of the amount of income being generated from the funds.

But at the moment, given where UK interest rates are, the yields on money market funds are around 3.8%. And for the cash element of a portfolio, that’s a pretty good return.

Dave Baxter: Yeah. Also stock markets are again somehow doing very well, but to use another slightly cliched term, it is markets climbing a so-called wall of worry because there’s so much that people have to be concerned about, whether it’s the ceasefire, whether it’s rates rising, inflation, all that. 

So, perhaps people are just thinking that they want to put some money to the side and not take that investment risk at the minute, and that’s an efficient and, as you say, attractively yielding place to put it. 

Kyle Caldwell: But you do need to be more hands-on with that type of fund. At the moment, this looks unlikely. But say, if there were interest rate cuts and the yield on money market funds becomes lower and less attractive, then you might take the view that the amount of income being generated from those funds is no longer sufficiently high enough. And [you’re ] actually willing to take greater potential risk elsewhere. 

Although, as mentioned, I think the likelihood is that UK interest rates look like they’re going to stay where they are. If you read all the comments from economists and the like, it actually looks like it’d be more likely [to be] an interest rate rise rather than fall given the events in the Middle East.

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Dave Baxter: Yeah. So, they might stay popular for some time.

Kyle Caldwell: But if you did just buy and hold, and were investing regularly, and, say, you didn’t check up on your investments for 10 years, you might find that over that 10-year period, it’s not been beneficial to just regularly buy money market funds because over that period, you’d expect conditions to change.

We don’t know where interest rates are going to be in 10 years, but because the [funds’] returns are dictated by where interest rates are, you do need to keep your eye on the performance and [the level of] interest rates. 

Dave Baxter: Yeah. Also, just over that longer stretch, you need to be much more aware of inflation, don’t you, and what it can do versus that kind of low-returning asset. You do need to return to equities or something that’s actually going to outpace that. 

Kyle Caldwell: Another difference between these two tables is that in the regular investing table...we have three actively managed products.

So, we have Fundsmith Equity I Acc, Alliance Witan Ord, and F&C Investment Trust Ord. Dave, I’ll pass the baton to you for your thoughts on the appearance of these three in that table. Why do you think they’re not in the investing lump sum table? 

Dave Baxter: I think they’re legacy regular investment plans. So, people have got these direct debits, their core holdings are very different types, so Alliance Witan and F&C are very well diversified. Fundsmith has more of a concentrated bet, but until recent years, obviously was a massive outperformer. It used to be the most-popular fund in the UK. 

I think people have just let those direct debits or whatever run on. What’s interesting there is, as I mentioned, Fundsmith has had a pretty rough four or five years of performance at this point. So, Fundsmith is almost a contrarian investment if you are going to invest in it. These people are almost inadvertently backing this underperformer. But who knows, perhaps performance could turn around, we could see those quality funds return to form. Equally Alliance Witan, at least for the last year, has had a bit of a rough year.

So, yeah, as I mentioned at the start of the show, you’re  buying in low almost by accident when you stick with these regular investments.

Kyle Caldwell: In regards to Fundsmith Equity, I’d put it in the same camp as Scottish Mortgage in terms of I think it’s offering you something very different from the global stock market index. 

Of course, it doesn’t have any private companies - that’s not in its mandate. However, if you just simply look at its top 10, it’s very different from what you’re going to see in the top 10 for a global tracker fund. 

Dave Baxter: Yeah. It’s interesting also, since late last year, that it kind of bailed out of some of its big Magnificent Seven holdings, for those who didn’t know. So, it sold down a lot of its Meta Platforms Inc Class A position. It sold down a lot of its Microsoft Corp position on the back of these now quite widely held concerns about AI spending. 

So, what you’re looking at now is a portfolio with, as it often has had, a lot of exposure to healthcare stocks, and it has a bit of luxury goods, that kind of thing. 

But in theory, if markets get a bit more shaken up, then maybe these companies could prove defensive, so it might still play quite a useful role in your portfolio.

Kyle Caldwell: It’s a very concentrated approach. It typically holds 25 to 30 stocks. Now the other two, Alliance Witan and F&C, they own hundreds of companies. So, they’re giving greater diversification in terms of the number of companies held. You get more exposure to more industries and sectors in terms of the amount of companies. 

However, the performances between the two have been quite different of late. Could you talk through the reasons why, Dave?

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Dave Baxter: Yeah. So, F&C stays much closer to the global index. If you take a glance at its monthly factsheet, then you will see NVIDIA Corp, Microsoft, those Mag Seven members, and they explicitly don’t stray massively far from the index, they have a big US weighting.

Their main differentiator is that they have something like 10% or 11% of the portfolio in this private equity allocation, whereas Alliance Witan is diversified, but it’s a so-called ‘best ideas’ fund. So, they allocate to a number of fund managers, and they pick a small number of what they think are the best stocks. And while Alliance Witan does end up with some of those Mag Seven shares in its portfolio, it does differ a lot more from the index. 

When I interviewed the manager late last year, they were saying things like less exposure to Mag Seven, less exposure to US banks, and I think less exposure to some of these high-flying but unprofitable companies in areas like AI. That’s how they’ve basically fallen behind the broader markets.

Kyle Caldwell: One thing I often think about and ask fund managers when they have such a huge number of holdings is whether the really small positions that are like 0.1% and 0.2% are going to truly make any difference to the overall total returns. 

Dave Baxter: Yeah. It’s tricky, isn’t it? You wonder what it’s doing in the portfolio. Also, how can they viably research that many stocks? Perhaps what they’re doing is just having broad allocations to sectors, and they’re taking more of a broad-brush approach.

But it does mean that the fund is, in theory, less volatile, but less volatile in both directions. So, it might go down less based on stock-specific issues, but it will also enjoy less of those upswings if a specific company does really well.

Kyle Caldwell: I think a key attraction for investors that are a bit later on in their investment journey is the fact that both are dividend heroes. They both have increased their dividend year in, year out for over 50 years. They do have small yields. So, Alliance Witan yields around 2.5%. F&C’s yield, it’s over 1%. I think top, it’d be 1.5%. 

But I think you need to bear in mind that it’s the capital growth that’s becoming the biggest part of the total return rather than the income generated from the investments. But they do both have substantial revenue reserves to, in theory, keep on increasing their dividends year in, year out. However, I think for new investors, those yields, they’re not that much to get excited about.

Dave Baxter: No. Also, if you don’t really need the income, maybe you need to think about what you’re doing with that cash. If, say, Alliance Witan is throwing off a bit of dividend at you every now and then, if you don’t really need it, then perhaps you should consider reinvesting it, whether it’s in the trust or somewhere else, and therefore you can allow it to grow over time, and that would make quite a substantial difference to how much you end up with in the end. 

Kyle Caldwell: Another difference between the two tables is iShares Physical Gold ETC GBP. That’s number one for lump sum investing, and in eighth place for the regular investing table. We also have in the lump sum investing table iiShares Physical Silver ETC GBP in second place. However, it doesn’t appear in the regular investing table. 

To me, Dave, this shows that with lump sum investing, some investors are a bit more tactical, and they’re looking at what is performing well. They’re hoping that the performance is going to continue and momentum is going to be maintained. 

If you invested in gold or silver two years ago, you’ve done very, very well. I mean, there have been some volatile periods in those two years. But I think a lot of investors are buying in, hoping that those returns are going to continue. 

Dave Baxter: Yeah. I’m always a bit wary about this because it can amount to performance chasing, and in the short term that can pay off. If you’ve been buying a gold ETC a few months ago, it would have kept going up quite aggressively, but you are potentially setting yourself up for when something turns. 

So, yeah, with things like that, regular investing probably is a better approach just because you can ride the ups and downs, but it is a bit less satisfying than trying to chase that rush. 

Kyle Caldwell: Another one is Artemis Global Income I Acc. That’s number four in lump sum investing. It doesn’t appear in the regular investing top 15, although it is just outside of it when I looked beyond the top 15. 

Again, this is a fund that’s performed very, very well over the past three and five years. I recently interviewed the fund manager, Jacob de Tusch-Lec, in our Insider Interview video series, which you can find on interactive investor’s YouTube channel. 

I asked the fund manager when I interviewed him whether investors are potentially buying at a potential performance peak. I thought he was very candid in the way he answered. He did say, yeah, of course, there’s a potential danger of that given the strong returns over those periods. But the point that he made is that he’s been making changes to the portfolio in order to ensure that the average valuation for the portfolio is still reasonable, and it is still much cheaper than the wider market.

Dave Baxter: That’s interesting. I had a look at his fund wherever it was a couple of months ago and saw in his top 10 holdings that some of them were up by…Samsung Electronics Co Ltd DR, his top holding, was up by more than 200%. But if he is rotating that portfolio enough, then you should hopefully see that it still has something of a value approach, and it’s not morphed into a momentum fund. 

Kyle Caldwell: As we know, over time, certain stocks can move styles. A growth company three years ago, if it underperforms for a marked period of time, can turn into a value share. I remember a while ago, Facebook, before it was called Meta, turned into a value stock at one point, and there’s been lots of other high-profile examples over the years.

Dave Baxter: Yeah, and at the minute you have the software stocks, they were classic quality/quality growth holdings, and now perhaps, after selling off quite hard earlier this year, someone’s eyeing them as a bargain opportunity. 

Kyle Caldwell: I wanted to end by talking through which types of funds, investment trusts and ETFs are not in either of these tables, and which areas investors are potentially overlooking. 

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Dave Baxter: Yeah. What interests me is technically they are captured to differing extents by some of the global funds, but you’re not seeing regional equity funds, by which I mean, for example, a dedicated UK fund, a dedicated Europe fund, emerging markets, Japan. This year, last year and in recent years, really, if you look at these different regions, you’re getting some phenomenal returns.

The fact that they still seem to remain out of favour if you look at things like the amount of money going into those funds means that perhaps that’s going to give you some diversification, perhaps there’s still more room to run in terms of where valuations are, and it would give you a better rounded portfolio than, for example, even just buying a global fund. Because with those, you are getting some exposure, but often you’re not getting that much. 

Kyle Caldwell: For me, an area that’s potentially being overlooked is smaller companies.

If I had a pound for every time a fund manager or an asset allocator said smaller companies are cheap, I’d be able to fill my ISA allowance.

However, having said that, I do think whether you want global exposure, UK, Europe, exposure to Asia-Pacific, emerging markets, or even the US, the data does stack up.

That area of the market is much cheaper than the larger company area. And we know that over very, very long time periods, smaller companies do tend to outperform larger companies. It’s known as the small-cap effect.

So, I think if you have a very long-term time horizon, now is potentially a good time to - probably more so through regular investing, because we don’t know when this is going to turn - dip your toe into smaller companies and potentially buy and hold over the long term.

Dave Baxter: Yeah. I mean, things do mean revert. Things do come back. As I mentioned earlier, UK shares, UK funds, they seemed completely in the doldrums if we look back at, say, 2020, that kind of time period. And now they’re riding high again, things are looking good. 

So, yeah, sometimes you have to be patient, sometimes you can be very early, but you’re not wrong, but still worth doing that. 

Kyle Caldwell: Well, I think that’s a great point to end on, Dave. Thanks for coming on today.

Dave Baxter: Thanks for having me on.

Kyle Caldwell: And thank you for listening to our latest On The Money podcast. We love to hear from listeners, and the way to get in touch is by emailing: OTM@ii.co.uk.

In the meantime, you can find plenty of practical pointers and analysis articles related to funds, investment trusts, and ETFs on the interactive investor website, ii.co.uk.

Hopefully, we’ll see you again next Thursday.