The top 10 most-popular investment funds: May 2024

The general election is a month away, and as the UK waits for party manifestos to emerge, investors speculate on potential changes.

Issues being discussed include the possible re-instatement of the pension lifetime allowance under a Labour government, and what could happen with personal taxation, the British ISA, state pensions, and the NatWest retail offer.

Prime Minister Rishi Sunak announcing the election hasn’t prompted any obvious knee-jerk changes within our top 10 funds’ list, which is based on the number of buys among our customers during the month. Investors are still, in the main, favouring low-cost, global, passive strategies, with only three actively managed funds – the same number as the previous month – in the top 10.

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But, there has been notable downgrading at the top end of our table, withTerry Smith’s Fundsmith Equity falling to fifth place in May’s top 10 ranking.

The popularity of the £22.7 billion fund could be waning because it has underperformed its benchmark over the past three years, as our fixed income lead Sam Benstead recently reported.

In the same article, he disclosed that Smith has bought shares in two new companies. The fund manager could name only one of the firms since he is still in the process of building his stake in the second company.

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The firm he named is a semi-conductor business, but one that has no links to artificial intelligence (AI). Texas Instruments Inc (NASDAQ:TXN) is not one of the “hot chip” stocks, such as NVIDIA (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), or ASML (EURONEXT:ASML), and concentrates on chips used in electronic devices.

Meanwhile, the desire for money market funds remained strong, with the popularity of the Royal London Short Term Money Market fund, up two to second place, likely owing to still-high interest rates.

The yield on money market funds is correlated with interest rates, with the Bank of England’s next decision on the direction of the 5.25% base rate due on Thursday 20 June. When interest rates do begin to fall, the return on money market funds will also fall.

The Royal London fund was the subject of a recent Fund Spotlight article, with the ii Research Team noting that while this type of low-risk fund has been around for 50 years, investor interest has mushroomed over the past few years in parallel with rate rises.

Our research team said that “with consensus growing that rates will be cut this year, the question now is which central bank will move first and how much they will cut rates. This has led some investors to consider whether money market funds have already enjoyed their best days.”

However, our research team stress that it’s unlikely that central banks will cut rates as quickly as they went up. Money market funds were also the focus of a recent On the Money podcast episode.

Investor interest in two “specialist” funds continued in May with Jupiter India (up two to fourth place) and L&G Global Technology Index (third place) still in demand.

The BBC reported over the weekend that exit polls in India suggested that Prime Minister Narendra Modi of the Bharatiya Janata Party (BJP) is likely to win a third consecutive term in office. A Modi victory would provide policy continuity and political stability. The results of the election will be announced tomorrow.

Our most-recent On the Money podcast focused on an Indian investment trust rather than a fund, but the trust’s manager had much to say that is relevant to fund investors on the subject of share price valuations in India and the outlook for the country.

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Vanguard LifeStrategy 80% Equity remained the most-bought fund in May’s table. The low-cost diversified fund is the sole choice of one interactive investor customer on the cusp of retirement, who explained in a pensions case study article that his approach to investing is to keep things simple.

His ii SIPP is 100% invested in Vanguard LifeStrategy 80% Equity. The investor said: “I don’t mess about - I just diversify, leave it for the long term, and be wary about incurring large fees.”

Three funds in the Vanguard LifeStrategy range, including the 80% Equity option, are recommended by ii for those looking to get started with investing, but such funds are also, as our pensions case study demonstrates, favoured by more experienced investors.

Vanguard sister funds in the top 10 include 100% Equity (eighth place) and 60% Equity (our new entry, in 10th place). The other passive fund in our top 10 from the US fund house is Vanguard FTSE Global All Cap Index (ninth place).

Other global passive funds in the top 10 are HSBC FTSE All-World Index (sixth place)and Fidelity Index World (seventh place).

Vanguard US Equityleft the top 10 list in May.

Top 10 most-popular investment funds in May 2024 

Source: interactive investor. Performance data to 3 June 2024. Note: the top 10 is based on the number of “buys” during the month of May.