Interactive Investor

What’s hot and what’s not among most-popular funds and trusts of 2023

Kyle Caldwell considers the new entrants and those that have exited the top 10 tables compared to a year ago.

18th December 2023 11:21

Kyle Caldwell from interactive investor

Overall, eight funds and six investment trusts kept their places in their respective top 10 rankings, which are based on the number of buys among interactive investor customers, compared to 2022.

As was the case last year, Fundsmith Equity is the most-popular fund, while the rest of the top 10 are mainly index funds.

Investors are favouring going global, which is reflected in three Vanguard LifeStrategy funds, 100% Equity, 80% Equity and 60% Equity, featuring. Other popular global index funds are Vanguard FTSE Glb All Cap Index, Vanguard FTSE Developed World ex-UK Equity Index, L&G Global Technology Index and HSBC FTSE All-World Index, which was a new entry in the top 10 for 2023.

For investment trusts, six kept their places in the top 10 compared to a year ago. The top two positions are unchanged and filled by Scottish Mortgage (LSE:SMT) and City of London (LSE:CTY). Then, from third to sixth in the rankings are Greencoat UK Wind (LSE:UKW), F&C Investment Trust (LSE:FCIT), BlackRock World Mining Trust (LSE:BRWM) and Alliance Trust (LSE:ATST).

In our latest On The Money podcast, we discussed the key themes among the most-popular funds and trusts. You can listen to the episode here.

New entrants

For funds, the other new entry joining HSBC FTSE All World, was Royal London Short Term Money Market. This fund was nowhere near the top 10 in 2022, but in 2023 it rose up the rankings to be the third most-bought fund among interactive investor customers.

The rising interest rate environment has fuelled the demand, turbocharging Royal London Short Term Money Market’s yield, which is currently just over 5%. In addition, many investors have become more cautious, which has benefited this low-risk fund. Money market funds own a diversified basket of very low-risk bonds that are due to mature soon, normally in under a year. They can also put money into bank deposit accounts. As a result, investors can earn an income on their cash with minimal risk.

For investment trusts, the four new entrants in 2023 all reflect the high demand for income strategies, as investors battle to keep their returns ahead of inflation.

In seventh place is JPMorgan Global Growth & Income (LSE:JGGI). This adopts a total return approach in aiming to outperform the MSCI All Country World Index over the long term. Its dividend yield is 3.8%.

Next is Merchants Trust (LSE:MRCH), managed by Simon Gergel, which aims to deliver an above-average level of income by investing mainly in higher-yielding large UK companies. Its yield is 5.2%.

In ninth place is Renewables Infrastructure Group (LSE:TRIG). This trust, in common with its peers, has seen its share price come under pressure due to greater competition from bonds, which are offering their highest level of income in more than a decade. Its share price is down 10.1% over the past year, slightly less than the average sector loss of 10.1%. Its discount has been widening, and is currently 17%. The trust yields 6.6%, which is a key attraction. Its objective is to generate sustainable returns from a diversified portfolio of renewables infrastructure that contributes towards a zero-carbon future. Investors buying in now will be hoping for a change in short-term fortunes, and the potential bonus of the discount narrowing.

The biggest yield on offer among the top 10, at a sky-high 11.7%, is from Henderson Far East Income (LSE:HFEL), which was the 10th most-popular trust in 2023. However, in terms of total returns, losses of 12.8%, 17.0% and 7.7% over one, three and five-year periods shows that having a high yield does not necessarily correlate with market-beating returns. It was recently announced that long-standing fund manager Mike Kerley will be retiring, which has prompted a strategy review that could see the trust attempt to strike more of a balance between delivering both growth and income. 

Exits

The two funds exiting the top 10 funds ranking were Vanguard FTSE UK Equity Income Index and Baillie Gifford American.

The departure of Vanguard FTSE UK Equity Income Index reflects the continued low sentiment towards the UK market, while Baillie Gifford American's exit is due to its investment style being negatively impacted by higher interest rates. The fund invests in growth stocks, which have seen their future earnings devalued by rate rises. In response, valuations have re-priced and share prices have fallen since rates started rising at the end of 2021.

Over one year, though, Baillie Gifford American has been staging a recovery, up 27.5% versus 15.0% for the average North America fund. However, over three years it is down 34.4% versus an average gain of 30.8% for the sector average. It favours technology firms, with Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA) among its top 10 holdings.

Of the four investment trusts that exited the rankings, two are wealth preservation strategies, namely Capital Gearing (LSE:CGT) and Ruffer Investment Company (LSE:RICA).

A big factor behind the duo slipping out of the top 10 most-bought trusts in 2023 is down to investors having more choice when considering what to invest in for the defensive part of their portfolio due to bond yields being at their most attractive levels in over a decade.

Moreover, the performance of the trusts in 2023 havent lived up to expectations. Over past year, Ruffer’s share price total return is down 11.2%, and its net asset value (NAV) is down 6.9%. Capital Gearing’s share price total return is down 6.0%, while its NAV is slightly up at 0.1%. 

The other two trusts no longer in the top 10 are Smithson (LSE:SSON) and Polar Capital Technology (LSE:PCT).

Smithson invests in global mid- and small-cap stocks, an area of the market that’s been out of favour since interest rates starting rising at the end of 2021. In a recent interview with interactive investor, manager Simon Barnard explained why the peaking of interest rates may be a catalyst for investor sentiment to improve for the area of the market he invests in.

Polar Capital Technology exits the top 10 in 2023 despite a strong year of performance, with its share price up 40.7% over one year. It is trading on a discount of -10.5%, which offers investors the chance to buy technology shares at a cheaper price.  

Top 10 most-popular funds in 2023 

Top 10 most-popular investment trusts in 2023 

Note: tables are based on the number of buys among interactive investor customers.

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.

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