What gives star fund manager Terry Smith a headache? One definite bugbear is the impact of fund “concentration rules” on his flagship global equity portfolio Fundsmith Equity.
Such rules prohibit open-ended funds, such as Fundsmith Equity, from having more than 10% invested in any one company, while holdings that make up more than 5% each cannot exceed 40% of a fund’s assets. My colleague Sam Benstead explained in a recent article that the directive is known as the “5/10/40” rule.
Smith says the rules mean that his hand can forced into selling stocks before he is ready. He said: “As a fund manager, I can come in worrying that my best or biggest stocks will perform well. Is this right? I am not sure this should be exactly how I am led to think about this portfolio – that my biggest stocks are performing well, and I’ve got a headache.”
In October, Fundsmith Equity left the number one spot in our top 10 table, a position it has long held. The fund was relegated to second place in our ranking of the most-bought investment funds, according to the number of “buys” among our customers. Fundsmith Equity has been the most-bought fund on interactive investor since March 2021. Its quality-growth style bias means that it has taken a hit as growth stocks underperform in the current higher interest rate environment.
It was unseated in October by the Royal London Short Term Money Market fund. Why? Demand for the Royal London fund has shot up on the back of UK interest rate rises. With the base rate at 5.25% at the time of writing (an interest rate decision is due tomorrow, although the Bank of England is predicted to hold rates where they are), investors can now earn income on their cash while taking relatively little risk, although nothing in investing is ever risk-free.
Money markets funds can be held inside a Stocks and Shares ISA or a self-invested personal pension (SIPP), and we have just published an article detailing the highest-yielding money market funds. The Royal London fund is in first place with a yield of 5.24%.
Jupiter India rose up the ranking three spots to sixth place in October. Specialist writer Douglas Chadwick explained how he is playing the Indian stock market boom, arguing that compared with China, India “now looks like a more attractive option for foreign investors”. He also cited International Monetary Fund (IMF) growth forecasts for the subcontinent. While the projection for the UK is 0.6% growth in 2024, India’s forecast is 6.3%.
October’s top 10 table was made up of just three active funds, with the rest largely global, passive funds. Two diversified fund behemoths from Vanguard’s stable, LifeStrategy 80% Equity and 100% Equity, are in third and fourth place respectively. The 80% Equity option, which is one of interactive investor’s QuickStart funds, was cited by financial planner Tom Munro in an article about funds professional investors use for investing for the children in their lives.
Munro explained that the 80% Equity option was one of his 26-year-old daughter’s core funds. He said: “The passive portfolio is made up of 17 funds from the Vanguard stable and has averaged sparkling annual returns of just shy of 12% since launch in 2011, when I first bought into the passive concept, against a sector average of 6.7%.”
Three other Vanguard funds appeared in the top 10, namely Vanguard FTSE Global All Cap Index (seventh place), Vanguard US Equity Index (ninth place), and the October newcomer Vanguard FTSE Dev World ex-UK Equity Index (10th place).
The other two funds in October’s ranking were HSBC FTSE All-World Index (fifth place) and the L&G Global Technology Index (eighth place), which has five of the so-called Magnificent Seven stocks in its top 10, as well as other companies exposed to the artificial intelligence theme, including semiconductor stocks Taiwan Semiconductor Manufacturing (NYSE:TSM) and ASML (EURONEXT:ASML), as of 30 Sept 2023.
L&G Global 100 Index left the top 10 in October.
Top 10 most-popular funds in October 2023
|Rank||Fund||IA sector||Ranking change since previous month||1-year return to 1 Nov (%)||3-year return to 1 Nov (%)|
|1||Royal London Short Term Money Mkt||Short Term Money Market||Up one||4.42%||5.29%|
|2||Fundsmith Equity||Global||Down one||8.73%||17.67%|
|3||Vanguard LifeStrategy 80% Equity||Mixed investment 40%-85% shares||No change||2.88%||18.63%|
|4||Vanguard LifeStrategy 100% Equity||Global||Up two||4.23%||31.35%|
|5||HSBC FTSE All-World Index||Global||Up two||4.39%||28.73%|
|6||Jupiter India||India/Indian Subcontinent||Up three||17.66%||97.73%|
|7||Vanguard FTSE Global All Cap Index||Global||Up three||2.08%||28.35%|
|8||L&G Global Technology Index||Technology and Technology Innovations||Down four||28.48%||47.03%|
|9||Vanguard US Equity Index||North America||Down four||0.41%||38.98%|
|10||Vanguard FTSE Dev World ex-UK Equity Index||Global||New entry||4.61%||33.78%|
Source: interactive investor. Note: the top 10 is based on the number of “buys” during the month of October.
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