Top 10 most-popular investment funds: February 2023 (2024)

February is the month of love, and investors stayed faithful to Terry Smith’s Fundsmith Equity, which remained the most-bought fund on the interactive investor platform, according to the number of ‘buys’ among our customers.

In February, Fundsmith Equity was one of the actively managed funds suggested for ‘contrarians’ by my colleague Sam Benstead, who was reporting on Bank of America’s monthly fund manager survey, which tracks the views of professional investors. Bank of America concluded that the biggest contrarian trades right now are long stocks generally, but particularly US and tech shares. For contrarian investors looking for more focused US exposure, Sam suggested they look at Vanguard US Equity Index (static in fourth place last month). Both funds are part of interactive investor’s Super 60 investment ideas.

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Incidentally, data published by interactive investor today reveals that Fundsmith Equity is the most-heldJunior ISA stock on the platform overall as at 31 January 2023.

Aside from Fundsmith Equity, the rest of the February top 10 table is comprised of passive funds, and Vanguard is the most dominant fund house with six funds in the table. Little has changed in terms of rankings since the prior month, with the multi-asset Vanguard Life Strategy 100% Equity, 80% Equity and 60% Equity funds remaining fixed in third, second, and fifth place respectively. Two of these funds – the 60% Equity and 80% Equity options - are part of interactive investor’s Quick-start funds range, which are one-stop shops for beginner investors.

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Dzmitry Lipski, head of funds research at interactive investor, said that one of the striking trends of last year was the poor performances of funds designed to be low risk. He points out: “Multi-asset funds with up to 35% in shares, and the remainder in bonds, produced steeper losses than rival sectors, and the more cautiously positioned Quick-start selections have been no exception. This is due to the steep declines in bond prices as interest rates rose in an attempt to cool inflation.”

He added: “All this has been a reminder that even supposedly lower-risk multi asset bond funds can fall sharply over a short-term period when there is an unfavourable market backdrop, which has been the case for bonds because of rising interest rates. Unsettling ‘blips’ like this can happen – and that’s exactly how we view this extraordinary period in time. So, the key, as ever, is to hold firm.”

The figures in the table below illustrates the performance of lower-risk funds, as during the high levels of volatility over the past year the higher-risk Vanguard 100% Equity option returned more than the lower-risk 60% Equity option. This is despite the theory that the more bonds you have, the lower risk the portfolio will be. As Lipski explains, during ‘blips’ such as this, investors should avoid short-term trading, hold their nerve, and patiently wait for markets to recover.

Two other Vanguard funds, Vanguard FTSE Global All Cap Index and theFTSE Dev World ex-UK Equity Index are in sixth and seventh place respectively.

In February, the FTSE 100 hit an all-time high, clearing the 8,000-mark for the first time. Our City expert Graeme Evans explained that “the outperformance of London’s top flight in such a tumultuous year for global markets reflected its exposure to the commodity sector and oil in particular, as well as a large number of defensive shares with pricing power to offset inflation.”

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Despite surpassing this milestone, investors continued to shy away from the UK preferring low-cost, diversified global funds such as the HSBC FTSE All-World Index fund in eighth place, with an ongoing charges figure of 0.13%, and Fidelity Index World, with an OCF of 0.12%. The latter fund was this month’s only new entry in 10th place. The only fund that was solely focused on the UK was equity play Fidelity Index UK, in ninth place.

Fund house Baillie Gifford is a notable absence from the top 10. Its growth style bias has fallen out of favour given the economic backdrop and rising interest rates. Baillie Gifford’s latest results, reported by the Financial Times, showed that its assets under management declined £113 billion last year, from £336 billion at the end of 2021 to £223 billion at the end of 2022.

However, Baillie Gifford American fund manager Dave Bujnowski is quoted in a recent article “Are we heading for a lost decade of investment returns?”, saying: “During a downturn, there can still be magical innovations taking place. Because macro conditions might be challenging, it does not mean there aren’t amazing visionaries out there looking for problems to solve,” he said.

The fund that exited the top 10 was Vanguard FTSE UK Equity Income Index.

Top 10 most-popular funds in February 2023

Source: interactive investor. Note: the top 10 is based on the number of “buys” during the month of February.

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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