What were the investment trends on interactive investor in 2023?

• There has been a 607% rise in gilt purchases on interactive investor in 2023 (so far) compared to the same period in 2022
• The prevailing theme for 2023 was income – with eight of the top 10 investment trusts yielding from 2.3% and 7/10 equity bestsellers yielding at least 4%
• Passive funds and those with a global mandate dominate most-bought funds list.

In a year where interest rates soared to heights not seen since before the financial crash to rein in inflation, gilts staged a comeback and investors also flocked to income, passive and global strategies, according to interactive investor.

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There has been a 607% rise in gilt purchases on interactive investor, the UK’s second-largest investment platform for private clients, this year (to 11 December) compared to the same period in 2022.

Purchases of gilts in Q3 2023 alone rose by 340% in Q3 2023 compared to Q2 2023 and is up 81% on from Q2 2023.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The performance of gilts and investment bonds more broadly have disappointed in recent history because inflation and interest rate rises have hurt bonds as the returns they pay became less attractive. But investing in bonds can offer potentially higher returns in a high-interest rate environment. In addition to fixed interest payments, bond prices may appreciate over time, providing capital gains. However, it's important to note that investing always involves risk, and bonds are subject to market fluctuations.

“With the interest rate hike cycle seemingly at an end, the allure of bond investing has increased.”

Income, passive and global strategies all the rage

The prevailing theme for 2023 was income. All the top 10 investment trusts pay a dividend, but two have small yields – Scottish Mortgage Ord (LSE:SMT) and F&C Investment Trust Ord (LSE:FCIT). The other eight have yields ranging between 2.3% (Alliance Trust Ord (LSE:ATST)) to 11.8% (Henderson Far East Income Ord (LSE:HFEL)). Most of the trusts yield between 4% and 7%. City of London Ord (LSE:CTY), a ‘dividend hero’ with an unbroken run of 57 years of consecutive dividend increases, ranked highest (second position). Meanwhile, seven of the 10 most-bought companies currently offer a dividend yield of over 4%.

In what has been a volatile year for investments, stoked by a myriad of challenges from inflation, high interest rates and geopolitical tensions, passive funds and those with a global remit also proved popular.

Passive funds account for eight out of the top 10 bestselling funds on interactive investor. Six are from Vanguard’s stable, Vanguard LifeStrategy 80% Equity ranking highest in second position ahead of the 100% Equity variant and Vanguard US Equity Index fund in fourth and fifth positions, respectively.

Fundsmith Equity tops the funds' list - one of only two actively manage strategies to rank among the top 10, the other being Royal London Short Term Money Market fund in third position.

When it comes to global strategies, they account for eight out of 10 funds bestsellers and five of the top 10 most-bought investment trusts.

Kyle Caldwell, Collectives Editor, interactive investor, says: “Income has been the flavour of the year, with investors seeking to benefit from rising yields following the return of the high interest rate environment. The desire among many investors to protect their portfolios against the high levels of inflation has also contributed to the uptick in demand for income strategies. This is reflected by the dominance of such portfolios in our most-bought investment trust list and the ascendence of Royal London Short Term Money Market in the fund bestseller list from relative obscurity.

"Passives continue to prove popular. There are a number of factors at play behind this trend. One is that some investors are throwing the towel in on trying to find an active fund that could deliver better returns.

“Another driver is that investors are unsure where to put their money at the moment, given there’s no shortage of headwinds. As a result, the broad exposure passive funds offer is being favoured, rather than investors targeting more focused active fund exposure.

“Scottish Mortgage and Fundsmith Equity remain hugely popular with our customers – even despite the former’s shaky performance record so far this year. They have become industry stalwarts, with a large number of investors continuing to hold their conviction for the strategies despite short-term volatility.”

Commenting on the most-bought equities, Keith Bowman, Investment Analyst at interactive investor, says: “With the Bank of England’s base rate starting the year at 3.5%, companies offering attractive dividend yields remained in the cross sights of investors during 2023. Seven of the 10 most-bought companies currently offer a dividend yield of over 4%, with four of those companies (Aviva (LSE:AV.),Legal & General Group (LSE:LGEN), Glencore (LSE:GLEN), and Vodafone Group (LSE:VOD)) all sat on yields of more than 7%.

“Gaining exposure to the recovering airline sector from the global pandemic proved a focus. Budget airline easyJet (LSE:EZJ) flew back into profit, helping lift its shares by around a half year-to-date, while a new chief executive hitting the ground running at plane engine maker Rolls-Royce Holdings (LSE:RR.) added to its recovery momentum, leaving its shares as comfortably the best performer in FTSE 100 so far during 2023, with a gain of 227%.

“Climate change play and electric vehicle maker Tesla Inc (NASDAQ:TSLA) stayed in focus. Having skidded 65% lower during 2022, Tesla shares have almost doubled in 2023, buoyed by increased production following new 2022 factory openings and the expected 2023 launch of its new Cybertruck.”

Top 10 most-bought investments on interactive investor in 2023 (to 11 December 2023)