The passive investment boom continued in 2022 – with interactive investor customers buying these index funds and ETFs the most.
Investing passively, either with an exchange-traded fund (ETF) or unit fund, continued to increase in popularity in 2022 as investors opted to own the market rather than trust a human fund manager to picking winning shares.
According to funds trade body the Investment Association (IA), tracker funds under management stood at £278 billion at the end of October. Their overall share of industry funds under management is now 20.5%. Fifteen years ago, the amount held in trackers was a mere £29 billion, which at the time represented 6.3% of the total.
Lower costs, with some tracker funds charging less than 0.1% a year versus typically around 0.9% for an active fund, is a key attraction.
Simplicity is another. Many investors favour the certainty offered by an index or tracker fund in that it will do what it says on the tin. With active funds, in contrast, investors hope the manager outperforms the index, and the reality is far more fail than succeed.
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Passive funds come in two forms: index funds and exchange-traded funds, or ETFs. The core difference is that unlike index funds, ETFs can be traded throughout the day on the stock market, much like individual shares. For long-term investors, the difference is not important.
Interactive investor customers are part of this trend to passive, with only Fundsmith Equity appearing in the 10 most-bought funds by the end of the year. Here are the most popular passive funds and ETFs of 2022, with data to the end of November.
Core investments that track major global markets were the most-popular ETFs this year. The top three were the Vanguard S&P 500 Ucits ETF (distributing); the iShares Core FTSE 100 Ucits ETF and the Vanguard FTSE All-World Ucits ETF.
They charge 0.07%, 0.07% and 0.22% to track the largest companies in the US, Britain and the world.
Other core funds appearing slightly lower down the list were the Vanguard FTSE 100 Ucits ETF (0.09% in annual fees); the iShares Core MSCI World Ucits ETF (0.2%); the Vanguard S&P 500 Ucits ETF (accumulation, 0.07%); and the Vanguard FTSE 250 Ucits ETF (0.10%).
Investors typically use these ETFs as portfolio building blocks, allowing them to cheaply and efficiently track markets around the world.
Gold has been a relatively good investment this year, with the price flat at around $1,800 (£1,450) an ounce. However, due to the devaluation of the pound, investors are up about 10% on their investment in sterling terms.
WisdomTree’s leveraged ETFs use financial contracts to amplify the gains – and losses – of the UK stock market. They are popular with short term traders looking to bet on the direction of the FTSE 100.
They are much riskier than normal ETFs, and investors should do their homework before buying one of them. The promotional literature of many leveraged products specifies that they should not be held for more than one day, and our article explains why in more detail.
|1||Vanguard S&P 500 Ucits ETF||0.07|
|2||iShares Core FTSE 100 Ucits ETF||0.07|
|3||Vanguard FTSE All-World Ucits ETF||0.22|
|4||iShares Physical Gold||0.12|
|5||WisdomTree FTSE 100 3x Daily Leveraged Short||0.8|
|6||Vanguard FTSE 100 Ucits ETF||0.09|
|7||iShares Core MSCI World Ucits ETF||0.2|
|8||Vanguard S&P 500 Ucits ETF||0.07|
|9||Vanguard FTSE 250 Ucits ETF||0.1|
|10||WisdomTree FTSE 100 3x Daily Leveraged Long||0.75|
Source: interactive investor, most popular ETFs by "buy" trades, 1 January 2022 to 3 November 2022
These funds are popular “one-stop shops” for investors, as professional managers rebalance the portfolios daily so that they have the right split of stocks and bonds, and at 0.22% they are a cheap way of building a diverse portfolio of stocks and bonds.
Generally, the more bonds a portfolio has, the lower risk it is. However, this year the opposite has been true, with bonds being the biggest drag on overall performance due to interest rate rises.
- Ask ii: can I get a yield of 4% or more from bonds like I can from equities?
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Vanguard US Equity Index, which tracks the S&P 500 for 0.1% in fees, was the next most-bought passive fund, followed by the Vanguard FTSE Global All Cap Index, which tracks global shares for 0.23% in fees.
They cost 0.32%, 0.14% and 0.14% and track global tech stocks, global shares excluding UK shares, and high-yielding UK shares (the current yield is 5%).
|1||Vanguard LifeStrategy 80% Equity||0.22|
|2||Vanguard LifeStrategy 100% Equity||0.22|
|3||Vanguard LifeStrategy 60% Equity||0.22|
|4||Vanguard US Equity Index||0.1|
|5||Vanguard FTSE Global All Cap Index||0.22|
|6||L&G Global Technology Index||0.32|
|7||Vanguard FTSE Developed World Ex-UK Index||0.14|
|8||Vanguard FTSE Equity Income Index||0.14|
|9||Fidelity Index world||0.12|
|10||HSBC FTSE All World Index||0.13|
Source: interactive investor, most popular funds by "buy" trades, 1 January 2022 to 3 November 2022.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.