Some investors have been increasing risk on the back of a strong July for US markets and tech shares. Kyle Caldwell has all the details.
US stock markets rallied strongly in July, resulting in the S&P 500 delivering its best monthly return since November 2020 – when the breakthroughs of the first Covid-19 vaccines were announced.
The world’s most influential stock market rose 9.1% in July, helping reduce year-to-date losses to 13.9% in US dollar terms (UK investors will have fared better due to the weak pound). The tech-heavy Nasdaq fared even better, up 12.3% in July. Its year-to-date losses now stand at 21.7%.
Despite plenty of caution in the air, with a potential recession occurring in the next 12 to 18 months top of the ‘worry list’, the upturn in performance for risk assets led some investors to increase exposure to US markets.
In our top 10 most-bought funds table, which is based on the number of buys among interactive investor customers in July, Baillie Gifford American, L&G Global Technology Index and Vanguard FTSE Developed World ex-UK Equity Index re-entered the top 10. The trio had exited the rankings in June.
Ballie Gifford American, which invests in disruptive technology businesses, returned 8.5% in July. Investors will be hoping this is the start of a change in fortunes, with the fund down 51.2% over the past year.
Its four co-managers, including Tom Slater, lead fund manager of Scottish Mortgage, invest in “exceptional growth businesses” and invest for the long term so that “the advantages of their business models and cultural strengths become the dominant drivers of their stock prices”. Over five years the fund has returned 84.6% versus 77% for the Investment Association’s (IA) North America sector.
L&G Global Technology Index Trust has a heavy bias to US tech shares, representing just under 80% of its assets. The passive fund returned 8.3% in July, which pushed down its losses over the past year to 4%. It has over 40% in just three stocks – Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL). Therefore, its performance is heavily influenced by how that trio fare. It invests in 277 firms.
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Vanguard FTSE Developed World ex-UK Equity Index also has its fortunes largely dictated by how US markets perform. This passive fund has just under 70% of its assets invested in the US, with the technology sector accounting for 22.3%. It is highly diversified, mirroring the up and down movements of 2,126 companies.
Passive funds continue to dominate our top 10 table. Of the seven other funds that kept their places in the rankings, five aim to give investors the return of an index minus fees. Three of Vanguard’s LifeStrategy funds continue to remain popular, with the Vanguard LifeStrategy 80% Equity and Vanguard LifeStrategy 100% Equity versions retaining second and third positions.
Closely behind, having climbed up to fifth place, is Vanguard LifeStrategy 60% Equity. The fund holds the most assets in the LifeStrategy range. In a recent interview with interactive investor Vanguard explained why it thinks the 60/40 portfolio model will continue to serve investors well in the years to come, despite the approach failing to deliver year-to-date, with both equity and bond markets falling in tandem.
- Watch the Vanguard videos here: Vanguard LifeStrategy: outlook for the next decade
- Watch the Vanguard videos here: Vanguard LifeStrategy funds: everything you need to know
Despite the popularity of passive, Terry Smith’s Fundsmith Equity fund once again retains its place at the top of the table. It has been the most popular fund each month since January 2021, when it was briefly dislodged by Baillie Gifford American.
The sell-off in tech shares this year has harmed the short-term performance of Fundsmith Equity, but Smith argues this has made the portfolio good value compared to its history and other stocks. The fund returned 7.6% in July, which softened the one-year loss to 7.8%. Over five years the fund is up 73.8%, ahead of 49.3% for the average fund in the IA global sector.
The other active fund retaining its place in the top 10 is FTF ClearBridge Global Infrastructure Income.
The fund invests in a diverse basket of global listed infrastructure assets in various sub-sectors such as water, utilities, gas, and electricity. It has plenty of inflation protection, as many of its investments have their cashflows linked to increases in the cost of living.
Top 10 most-popular investment funds: July 2022
|Rank||Fund||IA sector||Ranking change since previous month||1-year return to 31 July (%)||3-year return to 31 July (%)|
|1||Fundsmith Equity||Global||No change||-7.4||23.5|
|2||Vanguard LifeStrategy 80% Equity||Mixed investment 40%-85% Shares||No change||-0.3||17.5|
|3||Vanguard LifeStrategy 100% Equity||Global||No change||2.8||23.9|
|4||Vanguard US Equity Index||North America||Up one||5.1||41.8|
|5||Vanguard LifeStrategy 60% Equity||Mixed investment 40%-85% Shares||Up two||-3.3||11.3|
|6||Vanguard FTSE Global All Cap Index||Global||Down two||1.7||27.5|
|7||Baillie Gifford American||North America||New entry||-50.9||10.5|
|8||FTF Clearbridge Global Infrastructure Income||Infrastructure||Up two||27.4||44.7|
|9||L&G Global Technology Index Trust||Technology & Telecommunications||New entry||-3.5||66|
|10||Vanguard FTSE Developed World ex-UK Equity Index||Global||New entry||3.1||33.3|
Source: interactive investor. Note: the top 10 is based on the number of “buys” during the month of July.
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