Terry Smith’s recent buy and a new fund in the top 10, while another fund breaks into the top three as investors hunt for income.
In May, Terry Smith’s Fundsmith Equity explained to investors why the star fund manager doesn’t like bank shares and revealed a new position in a stock in the defensive consumer staples sector.
The Super 60 fund remains the most-bought fund on the interactive investor platform, according to the number of ‘buys’ among our customers in May. Procter & Gamble Co (NYSE:PG) is now a “small holding” in the £22.7 billion global fund, with interactive investor evaluating the purchase and explaining why it is ‘a classic Terry Smith stock’.
Bank stocks benefit from interest rate rises, but Smith is no fan of the sector. Amid fear of a new banking crisis, the collapse of several US regional banks, and the takeover of Credit Suisse, we explained why Smith does not invest in these ‘old economy’ stocks, which make up a large part of the FTSE 100, but counts payments processor Visa (NYSE:V) among Fundsmith Equity’s top 10 holdings.
Another hike in the Bank of England base rate, the 12th consecutive increase by the UK central bank, has boosted demand for Royal London Short Term Money Market fund, which took third place in May’s table. The base rate is now 4.5% with commentators suggesting that interest rates could peak at 5.5% by the end of the year. Money market funds, which are considered low risk, benefit from rising interest rates as returns on their cash-like investments increase as rates climb. Risk-adverse investors and those seeking income on their cash can hold money market funds in a SIPP, ISA, or a general investment account. Royal London Short Term Money Market is currently yielding 4.16%, according to its latest factsheet, which was published in April.
Specialist writer Douglas Chadwick, our Saltydog Investor, who holds the Royal London fund, said in a recent article: “It does sometimes feel a bit frustrating sitting on the sidelines, being predominantly in cash or the money market funds, but we take comfort from the fact that now it is probably the best place to be.”
Fundsmith Equity and Royal London Short Term Money Market are the sole active strategies in May’s table. Investors continue to opt for broad exposure to developed markets through low-cost passive funds. Three of Vanguard’s LifeStrategy range are represented in the top 10, with the 80% Equity option in second place, the 100% Equity option in fourth, and the 60% Equity option in 10th place. We explained this week how the LifeStrategy range has outperformed most actively managed multi-asset funds since launch more than a decade ago, and why performance was so unexpected in 2022.
- The index funds and ETFs that active funds struggle to beat
- Why I sold Fundsmith to buy a passive tracker
- Day in the life of a fund manager: Vanguard’s Mohneet Dhir
- Watch out video: Vanguard LifeStrategy: the outlook for the next decade
Two other passive funds make up the top 10, with HSBC FTSE All-World Index, in ninth place, and L&G Global Technology Index in seventh, a new entry this month. Demand for the latter may come from its exposure to ‘hot stock’ NVIDIA Corp (NASDAQ:NVDA), a computer chip firm, which posted bumper results for the first quarter, and was in demand by investors seeking exposure to the artificial intelligence theme. The L&G fund, which invests in global firms engaged IT activities, counts Nvidia among its top 10 holdings, with a 5% weighting, as at 30 April. We name the funds and trusts benefiting from Nvidia’s rise.
The fund that exited the top 10 in May was Fidelity Index World.
Top 10 most-popular funds in May 2023
|Rank||Fund||IA sector||Ranking change since previous month||1-year return to 1 June (%)||3-year return to 1 June (%)|
|1||Fundsmith Equity||Global||No change||10.5%||25.6%|
|2||Vanguard LifeStrategy 80% Equity||Mixed investment 40%-85% shares||No change||0.88%||21.3%|
|3||Royal London Short Term Money Mkt||Short Term Money Market||Up three||2.83%||3.03%|
|4||Vanguard LifeStrategy 100% Equity||Global||Down one||3.24%||33.6%|
|5||Vanguard FTSE Global All Cap Index||Global||Down one||2.65%||32.2%|
|6||Vanguard US Equity Index||North America||Down one||3.69%||40.5%|
|7||L&G Global Technology Index||Technology and Technology Innovations||New entry||10.9%||62.8%|
|8||Vanguard FTSE Dev World ex-UK Equity Index||Global||No change||5.16%||37.4%|
|9||HSBC FTSE All-World Index||Global||No change||2.33%||34.9%|
|10||Vanguard LifeStrategy 60% Equity||Mixed investment 40%-85% shares||Down three||-1.42%||9.96%|
Source: interactive investor. Note: the top 10 is based on the number of “buys” during the month of May
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.