Excitement around the potential of artificial intelligence (AI) to disrupt various industries was arguably the key stock market story of 2023.
While rising share prices have brought more expensive valuations relative to profits for the so-called Magnificent Seven US tech giants, many investors are hoping that the AI theme has plenty of staying power in 2024 and beyond.
This is reflected by Allianz Technology Trust (LSE:ATT) entering the top 10 most-popular investment trust table in January. It joins rival Polar Capital Technology (LSE:PCT), which returned to the top 10 in December 2023. Prior to that, the tech duo had not been in the top 10 since last summer.
The rankings are based on the number of buys among interactive investor customers during the month, with regular investing not included.
Both Allianz Technology and Polar Capital Technology own six of the seven US tech giants in their top 10 holdings except Tesla (NASDAQ:TSLA). As well as AI, another key sector for the duo is cybersecurity. Over the past year, Allianz Technology is up 43.7%, while Polar Capital Technology has gained 41.5%.
Scottish Mortgage (LSE:SMT), the most-popular investment trust among our customers in January, also provides exposure to the AI theme. The innovation-focused portfolio recently repurchased shares in Meta Platforms (NASDAQ:META) (formerly known as Facebook), and also owns Nvidia (NASDAQ:NVDA).
While its three-year numbers show steep losses of -38.7%, its shorter-term performance has been more positive, with a one-year share price total return of 4.2%. The prospect of the interest rate cycle peaking would be a positive for funds such as Scottish Mortgage that have a growth-focused approach to investing. However, arguably a bigger catalyst would be positive news, such as an IPO, from the unlisted stock part of the portfolio, which accounts for around 30%.
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Retaining second place in the rankings was JPMorgan Global Growth & Income (LSE:JGGI). The trust adopts a total return approach in aiming to outperform the MSCI All Country World Index over the long term.
In third place is City of London (LSE:CTY) investment trust. Managed by Job Curtis since 1991, this trust predominately invests in dividend-paying FTSE 100 firms. Curtis adopts a conservative approach in focusing on companies with good cash generation. City has raised its dividends for 57 years in a row.
Fourth and fifth place went to Alliance Trust (LSE:ATST) and Pershing Square Holdings (LSE:PSH). Both have been climbing the rankings of late, with Alliance Trust in 10th place last month, while Pershing was a new entrant last time in seventh place.
Alliance Trust invests globally and adopts a multi-manager approach, while Pershing is a concentrated portfolio of US-listed stocks, managed by star investor Bill Ackman.
Greencoat UK Wind, as the name suggests, invests in UK wind assets. It has a stellar dividend track record, having grown its dividend ahead of RPI inflation each year over the past decade. It offers a dividend yield of 6.9% and recently increased its target dividend for 2024 to 10 pence per share, above the Retail Prices Index for December 2023.
BlackRock World Mining has the worst one-year performance in the top 10, down -23.1%. It has suffered following interest rate rises, as well as China’s economy failing to rebound after the reversal of Covid-19 restrictions. Both have been headwinds for commodity demand. Over five years, it has been a strong performer, up just over 100%.
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India Capital Growth (LSE:IGC) has the best performance over one and three years among the top 10, up 58.8% and 115%. There are a couple of big trends at play here. One is that India’s stock market is enjoying a purple patch, while a second factor is that investors are showing a tendency to prefer India over China as an investment destination. In part, this is due to the latter’s underwhelming stock market performance over the past couple of years. There are also concerns about political risk in China, with government interventions in certain sectors a couple of years ago still fresh in investors’ minds.
Exiting the table in January was 3i Group (LSE:III). It has been delivering stellar returns over the past one and three years, up 58.2% and 133.9%. A key driver of 3i’s performance has been a notable valuation uplift for its biggest private equity holding, Action, the Dutch non-food discount retailer. New investors, however, are paying a big premium for its shares, currently 29.3%.
A final thought is that given how prevalent US tech stocks are in global and US funds, both active and passive, it is worth investors having a quick look under the bonnet to assess whether they already have a lot of exposure to the AI theme. While the theme looks like it is here to stay, share prices don’t move up in a straight line, so there will be pullbacks in share prices along the way.
As ever, while it sounds boring, the key to a smoother stock market ride is to have plenty of diversification, which is achieved through a mix of asset classes, countries and investment styles. If a portfolio becomes over-reliant on one type of investment or theme, it can work well for a period, but could quickly sour.
Top 10 most-popular investment trusts in January 2024
|Change from December
|One-year return to 1 Feb 2024 (%)
|Three-year return to 1 Feb 2024 (%)
|JPMorgan Global Growth & Income
|City of London
|Greencoat UK Wind
|Polar Capital Technology
|BlackRock World Mining
|India Capital Growth
Performance data sourced from FE Fundinfo. Performance data to 1 February 2024. Rankings are based on the number of "buys" during January 2024.
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.