One new entrant in a month when the FTSE 100 index hit an all-time high.
February is the month of love, and investors stayed faithful to Terry Smith’s Fundsmith Equity, which remained the most-bought fund on the interactive investor platform, according to the number of ‘buys’ among our customers.
In February, Fundsmith Equity was one of the actively managed funds suggested for ‘contrarians’ by my colleague Sam Benstead, who was reporting on Bank of America’s monthly fund manager survey, which tracks the views of professional investors. Bank of America concluded that the biggest contrarian trades right now are long stocks generally, but particularly US and tech shares. For contrarian investors looking for more focused US exposure, Sam suggested they look at Vanguard US Equity Index (static in fourth place last month). Both funds are part of interactive investor’s Super 60 investment ideas.
Aside from Fundsmith Equity, the rest of the February top 10 table is comprised of passive funds, and Vanguard is the most dominant fund house with six funds in the table. Little has changed in terms of rankings since the prior month, with the multi-asset Vanguard Life Strategy 100% Equity, 80% Equity and 60% Equity funds remaining fixed in third, second, and fifth place respectively. Two of these funds – the 60% Equity and 80% Equity options - are part of interactive investor’s Quick-start funds range, which are one-stop shops for beginner investors.
- ISA fund ideas for different ages and stages
- My first four years as an ISA investor
- ISA ideas: alternatives to the most-popular funds and trusts
Dzmitry Lipski, head of funds research at interactive investor, said that one of the striking trends of last year was the poor performances of funds designed to be low risk. He points out: “Multi-asset funds with up to 35% in shares, and the remainder in bonds, produced steeper losses than rival sectors, and the more cautiously positioned Quick-start selections have been no exception. This is due to the steep declines in bond prices as interest rates rose in an attempt to cool inflation.”
He added: “All this has been a reminder that even supposedly lower-risk multi asset bond funds can fall sharply over a short-term period when there is an unfavourable market backdrop, which has been the case for bonds because of rising interest rates. Unsettling ‘blips’ like this can happen – and that’s exactly how we view this extraordinary period in time. So, the key, as ever, is to hold firm.”
The figures in the table below illustrates the performance of lower-risk funds, as during the high levels of volatility over the past year the higher-risk Vanguard 100% Equity option returned more than the lower-risk 60% Equity option. This is despite the theory that the more bonds you have, the lower risk the portfolio will be. As Lipski explains, during ‘blips’ such as this, investors should avoid short-term trading, hold their nerve, and patiently wait for markets to recover.
In February, the FTSE 100 hit an all-time high, clearing the 8,000-mark for the first time. Our City expert Graeme Evans explained that “the outperformance of London’s top flight in such a tumultuous year for global markets reflected its exposure to the commodity sector and oil in particular, as well as a large number of defensive shares with pricing power to offset inflation.”
- How many funds should I own in my stocks and shares ISA?
- ISA tips: around the world in eight funds and trusts
- Eight easy ways to boost your ISA returns
Despite surpassing this milestone, investors continued to shy away from the UK preferring low-cost, diversified global funds such as the HSBC FTSE All-World Index fund in eighth place, with an ongoing charges figure of 0.13%, and Fidelity Index World, with an OCF of 0.12%. The latter fund was this month’s only new entry in 10th place. The only fund that was solely focused on the UK was equity play Fidelity Index UK, in ninth place.
Fund house Baillie Gifford is a notable absence from the top 10. Its growth style bias has fallen out of favour given the economic backdrop and rising interest rates. Baillie Gifford’s latest results, reported by the Financial Times, showed that its assets under management declined £113 billion last year, from £336 billion at the end of 2021 to £223 billion at the end of 2022.
However, Baillie Gifford American fund manager Dave Bujnowski is quoted in a recent article “Are we heading for a lost decade of investment returns?”, saying: “During a downturn, there can still be magical innovations taking place. Because macro conditions might be challenging, it does not mean there aren’t amazing visionaries out there looking for problems to solve,” he said.
The fund that exited the top 10 was Vanguard FTSE UK Equity Income Index.
Top 10 most-popular funds in February 2023
|Rank||Fund||IA sector||Ranking change since previous month||1-year return to 1 March (%)||3-year return to 1 March (%)|
|1||Fundsmith Equity||Global||No change||3.20%||34.50%|
|2||Vanguard LifeStrategy 80% Equity||Mixed investment 40%-85% shares||No change||-0.12%||22.10%|
|3||Vanguard LifeStrategy 100% Equity||Global||No change||4.30%||34.10%|
|4||Vanguard US Equity Index||North America||No change||2.50%||45.40%|
|5||Vanguard LifeStrategy 60% Equity||Mixed investment 40%-85% shares||No change||-4.30%||10.90%|
|6||Vanguard FTSE Global All Cap Index||Global||No change||2.70%||35.60%|
|7||Vanguard FTSE Dev World ex-UK Equity Index||Global||Up one||3.40%||43.90%|
|8||HSBC FTSE All-World Index||Global||Down one||2.70%||37.60%|
|9||Fidelity Index UK||UK Companies||Up one||9.00%||29.40%|
|10||Fidelity Index World||Global||New entry||4.20%||42.60%|
Source: interactive investor. Note: the top 10 is based on the number of “buys” during the month of February.
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.
Please remember, investment value can go up or down and you could get back less than you invest. If you’re in any doubt about the suitability of a stocks & shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.