Best sellers: Tough 2022 sees investors hunt for safety in passives and income trusts

Fundsmith Equity and Scottish Mortgage were once again the most-bought fund and investment trust on both AJ Bell and Interactive Investor, despite bruising years. But who else made the cut?

23 December 2022

Poor stock performance, red-hot inflation and rising interest rates have all put pressure on portfolios this year. But rather than trust active fund managers to navigate the vagaries of markets, investors have continued to turn to passive strategies, judging by the best-selling funds on major platforms.

Abrdn-owned Interactive Investor has reported eight out of the 10 best-selling funds on its platform in 2022 were passive. Six of the funds were from the Vanguard stable: Vanguard Lifestrategy 80% Equity came in second, followed by 100% Equity and 60% Equity in third and fourth positions, respectively.

The range of passive multi-asset funds’ continuing popularity came despite a disappointing year of performance as their rigid allocation to bonds led to big losses.

Interactive Investor: Most-bought funds

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Rank	Fund
1	Fundsmith Equity
2	Vanguard Lifestrategy 80% Equity Index
3	Vanguard Lifestrategy 100% Equity Index
4	Vanguard Lifestrategy 60% Equity Index
5	Vanguard US Equity Index
6	Vanguard FTSE Global All Cap Index
7	L&G Global Technology Index Trust
8	Vanguard FTSE Developed World ex UK Index
9	Baillie Gifford American
10	Vanguard FTSE UK Equity Income Index

Source: Interactive Investor

‘The increased demand for passive strategies reflects scepticism over the ability of fund managers to add value when stock markets are volatile,’ said Kyle Caldwell, collectives specialist at Interactive Investor.

‘Usually, one would expect choppy markets to play into the hands of active funds, due to their ability to make changes to portfolio. However, some investors are clearly unconvinced.’

The same trend was reflected on the AJ Bell investment platform, where eight out of the top 10 best-selling funds – ranked by number of buy trades – were passive, with the Vanguard S&P 500 tracker being the second most popular fund in 2022.

AJ Bell’s most-bought funds

Rank	Fund
1	Fundsmith Equity
2	Vanguard S&P 500 ETF
3	Fidelity Index World
4	Vanguard Lifestrategy
5	iShares Core FTSE 100 ETF
6	Vanguard FTSE Global All Cap Index
7	Vanguard FTSE All World ETF
8	iShares S&P 500 ETF
9	Fidelity Global Special Situations
10	Vanguard FTSE 250 ETF

Source: AJ Bell

While there has been a long-standing shift towards low-cost passive strategies, AJ Bell head of investment strategies Laith Khalaf, said ‘it may have been accentuated by a generally poor showing from active managers’. Just 27% of active equity managers outperformed passive equivalent this year, according to the platform’s latest Manager versus Machine report.

Khalaf said the popularity of exchange-traded funds (ETFs) could also point to tactical moves from investors who have been buying the market dips.

As ETFs trade on stock exchanges they offer investors a live price throughout the day, whereas conventional open-ended funds work on a forward-pricing basis.

‘[This] means markets may have rebounded by the time your fund purchase has produced your purchase price,’ he said.

‘In the long term, one day’s movement won’t make too much difference, but it’s understandable that when volatility is high, investors prefer the immediacy and certainty of ETF pricing.’

Top of the pops

Passive funds may dominate the bestseller lists but there was one active fund that pipped them all to the top spot on both Interactive Investor and AJ Bell: the £22bn Fundsmith Equity fund run by Terry Smith.

Smith has not been immune from the downturn in ‘growth’ stocks, with the portfolio down around 13% this year, putting the fund on track for its first calendar-year loss since launch in 2010.

Khalaf said it was ‘notable that DIY investors aren’t throwing out Smith’s baby with the bathwater’ despite last decade’s favourable conditions going into reverse as growth stocks took a hammering from rising interest ates.

‘After so many years of exceptional performance, Smith still has plenty of credit in the bank with investors,’ he said.

The second active fund on the Interactive Investor top seller list was Baillie Gifford American . The £2.9bn portfolio run by Dave Bujnowski, Tom Slater, Gary Robinson, and Kirsty Gibson remained popular despite slumping 54.4% in the year to 30 November.

Over on AJ Bell, Jeremy Podger’s Fidelity Global Special Situations fund was the only other active strategy to make it onto the bestsellers list. The more balanced style of the £3bn fund, which allocates at least one third to cheaper ‘value stocks, has stood it in decent stead this year.

Although, the portfolio was still down 8.5% in the first 11 months of the year, versus a milder 3.5% decline for the MSCI AC World index, according to the latest factsheet.

Trending trusts

Passives may have dominated the open-ended fund space but investment trusts have remained ‘a hotbed of active management’, said Khalaf.

‘The investment trust market has been an exclusively active sphere since the Aberdeen UK Tracker trust shut up shop in 2017,’ he said.

Just as Fundsmith remained in pole position for open-ended funds, the behemoth Scottish Mortgage (SMT ) took the top spot in the trust bestseller lists on both AJ Bell and Interactive Investor, despite the tech-heavy, growth-focused portfolio being down 42% year-to-date.

Khalaf said Scottish Mortgage has ‘not changed its spots, so there’s no real reason for investors to jump ship’ just because the portfolio has hit a rough patch.

Most-bought trusts on AJ Bell

Rank	Investment Trust
1	Scottish Mortgage (SMT )
2	Scottish Investment Trust (SCIN )
3	City of London (CTY )
4	Blackrock World Mining (BRWM )
5	Smithson (SSON )
6	RIT Capital Partners (RCP )
7	Greencoat UK Wind (UKW )
8	Monks (MNKS )
9	Finsbury Growth & Income (FGT )
10	JPM Global Growth & Income (JGGI )

Source: AJ Bell

Investors haven’t ditched growth altogether, despite the style rotation, but within the investment trust space, Caldwell said there has been ‘an appetite for income’.

This is reflected in the inclusion of both City of London (CTY ) and the Greencoat UK Wind (UKW ) in the top 10 for both platforms.

City of London, which yields 5.1%, is the one the Association of Investment Companies’ ‘dividend heroes’, having increased its annual distributions to investors for 56 years in a row. The Greencoat renewable infrastructure portfolio currently yields 5.1%.

In uncertain times, three of Britain’s oldest ‘dividend hero’ investment trusts – all global mandates – were in demand on Interactive Investor, with F&C (FCIT ) in eighth position and Alliance Trust (ATST ) in tenth, as well Scottish Mortgage still rooted at the top.

Investment trusts offering capital preservation also, unsurprisingly, made it onto the list, with Ruffer (RIT ) and Capital Gearing (CGT ) making the grade.

Among AJ Bell customers, their slightly racier, multi-asset peer RIT Capital Partners (RCP ) was also in high demand.

‘Given how volatile markets have been this year, combined with the backdrop of inflation being at its highest levels in decades, the increased appeal of income-focused strategies makes sense. After all, providing income is paid, dividends give investors a tangible return,’ said Caldwell.

Interactive Investor’s top 10 trusts

Rank	Investment Trust
1	Scottish Mortgage (SMT )
2	City of London (CTY )
3	Blackrock World Mining (BRWM )
4	Greencoat UK Wind (UKW )
5	Capital Gearing (CGT )
6	Smithson (SSON )
7	Ruffer (RIT )
8	F&C (FCIT )
9	Polar Capital Technology (PCT )
10	Alliance Trust (ATST )

Source: Interactive Investor

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