Which were the most popular funds with DIY investors in September 2017?

Jason Hollands, Managing Director at the Tilney Group, looks at which funds proved most popular with clients using the group’s Bestinvest Online Investment Service in September.

At a glance: The most popular funds selected by clients using the Bestinvest Online Investment Service in September 2017:

*The above list excludes two Tilney Multi-Asset Portfolios which featured in the top ten, each of which invests in a diversified selection of circa 20 underlying funds selected by the Tilney research team. These funds are available on Bestinvest as an option for investors looking for a ready-made portfolio.

Hollands’ comments: “Once again, funds that are wholly or predominantly invested in equities dominated inflows, with not a bond fund, absolute return fund or property fund in sight. While most choices were actively managed funds with strong records, five of the top fifteen funds were passive funds.

“City veteran Terry Smith’s Fundsmith Equity fund continued to remain in poll position as the most popular fund with our clients, a slot it has held every month now for well over a year. Terry Smith has an invest-and-hold strategy focused on a concentrated portfolio of quality growth stocks from across developed markets that includes PepsiCo, Paypal and Microsoft. Despite the predictions of some earlier this year that quality growth investing would soon be eclipsed by value funds exposed to cyclical sectors, this fund has continued to outpace the MSCI World Index, rewarding investors. Smith’s loyal following sets him up well for the impending launch of a new Fundsmith Sustainable Equity fund, details of which have yet to emerge, but for which an application has been made with the regulator.

“The Threadneedle UK Equity Income fund is another popular choice for core UK equity exposure. Manager Richard Colwell has a pragmatic approach, focused on total return rather than yield per se. The fund is currently very underweight financials and overweight industrials compared to its FTSE All-Share benchmark. Companies within its top ten holdings include healthcare multinationals GlaxoSmithKline and AstraZeneca, and consumer goods companies Unilever and Wm Morrison Supermarkets.

“The CF Woodford Equity Income fund, managed by Neil Woodford, has consistently appeared in our top 10 listed since launch, despite some recent high profile stock disappointments which have generated a lot of negative publicity. In the past month, Woodford himself came out to apologise to all his investors for his short term performance and to add to his woes it has recently emerged that Jupiter’s multi-manager team have withdrawn £300 million from the fund. Whether this withdrawal was down to performance concerns or an asset allocation decision is unclear. Woodford has taken a relatively contrarian view that is much more upbeat on the UK economy than the prevailing consensus opinion and increased his exposure to more domestically biased stocks this year. This may not necessarily fit with the house view of some advisers and discretionary investment managers but if he is proved right, this could get him back on the front foot.

“European equity funds have returned to favour with investors this year as growth as picked up materially in the Eurozone and concerns about the influence populist political parties might achieve in various elections have abated to some degree, though not entirely given the performance of the AfD party in the German elections. The Threadneedle European Select fund, run by Dave Dudding and Mark Nicholas, is a regular favourite for European exposure and is consistently in our top 10 list. This fund retains a bias to the consumer goods, healthcare and consumer services sectors. The fund aims to seek out companies with strong brands that are less sensitive to price-based competition and as such the fund invests heavily in firms such as the world’s largest brewer Anheuser-Busch InBev and beverage company Pernod Ricard. It also holds large positions in consumer goods companies L’Oreal and Unilever.

“Low cost index funds have become the default choice for many investors when it comes to US equity exposure and the HSBC American Index fund continues to retain its position in our top ten. This tracker has a very low ongoing charges figure of 0.08%. But with US equities valuations at historically elevated levels and the Fed expected to begin unwinding the huge balance sheet it built up under years of Quantitative Easing, you have to wonder whether now is the right time to be investing in traditional, market-cap weighted S&P 500 Index tracker funds? An alternative for a more defensive approach would be to use a factor fund, such as the PowerShares FTSE RAFI US 1000 UCITS ETF which weights the 1,000 largest US companies based on four factors: revenues, cash flows, dividends and net assets their balance sheets,

“This Vanguard LifeStrategy 80% Equity Fund appears in our top 10 list intermittently with this its second appearance of 2017 after it first popping up in June. The fund invests 80% in equities and 20% in fixed income through Vanguard index trackers. The highest allocation within equities is to the US, where valuations look very expensive compared to longer-term trend.

“One fund which continues to draw strong support from clients is the Stewart Asia Pacific Leaders, a longstanding top rated fund. The fund, managed by David Gait, focuses primarily on investing in large companies with sustainable cash flows and robust balance sheets. The fund has actually underperformed sharply over the last year partly due to the quality bias proving a headwind but also because it has a large underweight in China and a hefty overweight to India. The drag impact of a 7% cash position in a rising market has also proven a head wind.

“The Lindsell Train Global Equity fund, run by Michael Lindsell and Nick Train, has been another popular global fund choice. It invests in a concentrated portfolio of cash-generative business franchises which are held for the long term. The biggest holdings in the fund are the well-known household names like of Diageo, Heineken, Nintendo and PayPal, which although they note are often deemed to be ‘boring, over the long term ‘boring’ wins out.”

Investors continue to snap up Lloyds shares

“While Bestinvest clients predominately choose funds, they can also purchase shares and investment trusts through the service. Lloyds Banking Group, one of the most domestically focused banks on the market, has remained the most popular stock for the fifth month running. Lloyds has made great progress in become a far simpler bank since the financial crisis and has implemented major cost efficiencies, with further potential to come. It also has a strong capital position. With a No. 1 UK position in mortgages, credit cards and deposits and a commitment to maintaining its market share, Lloyds is well positioned to benefit from growth. With increased expectations of interest rates rises in the UK, potentially with the first rate rise in a decade as early as next month, this environment could prove beneficial for banks, allowing scope for margin expansion on their lending activity.

“Small Welsh technology group IQE has remained a top stock choice. It has seen its shares soar by 800% since July 2016 following rumours that its software would feature heavily in Apple’s iPhone X. However hedge funds are reported to be shorting the stock amid delays to the phone.”

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