Different directions

The ranking of popular investment companies published each month by Interactive Investor often offers a fascinating insight into market sentiment, and the data for May is no exception. The platform reports two new entries into its top 10 list of the most bought investment companies – and they could hardly be more different.

The first of these entries is Polar Capital Technology, the popular fund run by technology sector stalwart Ben Rogoff. It currently holds around a quarter of its portfolio in the biggest tech companies, Apple, Microsoft and Google-parent Alphabet.

The other new entrant to Interactive Investor’s ranking is Capital Gearing. It takes a very cautious approach with its portfolio, investing across multiple asset classes with the aim of protecting capital. The fund won plaudits for minimising losses in last year’s Covid-19 market sell-off; while markets fell by a third, the net asset value of Capital Gearing slipped only 1.5%.

On the one hand, then, we are seeing investors flock to a fund that could be regarded as an aggressive bet on markets continuing the technology-led bull run we have seen since last year’s setbacks. On the other, we are also seeing a warm embrace of a fund that represents a much more defensive play on what lies ahead.

There may be some nuances that partially explain this split. For example, shares in Polar Capital Technology have been trading on an unusually wide discount to the value of the underlying assets in recent months, providing a window of opportunity for investors to get into the fund.

Still, the nature of these two popular funds offers a striking contrast – and highlights the diverging opinions about where world stock markets are headed in the second half of the year.

One school of thought is that as the global economy rebounds from the problems caused by the pandemic, corporate earnings will be strong, dividend payments will recover, and markets will continue to motor ahead. The pause for breath we have seen in recent months will come to be seen as a temporary lull in an enduring bull market.

The counter argument is that as growth returns, inflation expectations will rise sharply, and central banks will be forced to tighten monetary policy. It is difficult to overestimate the positive effect that low interest rates and policies such as quantitative easing have had on markets in recent years, so a retreat from this stance could be destabilising.

The reality, of course, is that we do not yet know which of these views will turn out to be accurate. Not least, this is because the course of the pandemic is still uncertain; the positivity around vaccines is only a factor in certain countries, and even then, there are still worries about new waves of the virus.

Nevertheless, the presence of two such different investment companies at the top of the buy charts is a reminder of the versatility of the sector. Whichever view you take of market prospects, there is an investment company that provides a means with which to back yourself.