Tracker funds dominate DIY investor demand in H1 2023

• Nine of the ten most popular funds with DIY investors are trackers
• Four of these were ETFs
• Fundsmith Equity is the only active fund in the top ten
• Global and US funds remain in vogue

Laith Khalaf, head of investment analysis at AJ Bell, comments:

“DIY investors have been plumping for tracker funds in the first half of this year, with nine out of the ten most popular funds flying the passive flag. That includes ETFs, which trade throughout the day, unlike unit trusts. This can make them more suitable for more tactical shifts in and out of markets, to capitalise on big index movements, though plain vanilla ETFs are useful vehicles for more strategic, long-term investment too.

“Fundsmith Equity is the only fund left carrying the torch for active management in the top ten, which suggests it’s shaping up to be another challenging year for active managers. To be fair, active managers offer more of a split ticket to investors than tracker funds, which are dominated by a small clutch of providers and markets, and therefore it’s natural for more passive money to gravitate to a smaller pool of funds. Few active managers have anything approaching the brand awareness of Fundsmith, and it’s perhaps therefore not too surprising to see individual active funds gradually slipping off the leaderboard.

“Fund investors have been largely gaining global and US stock market exposure in 2023 so far, which has been par for the course for many years now. The big US tech titans have staged a significant bounceback in share price performance in the last six months, and that will do little to dissuade investors from sending their money in the direction of global and US funds. Some more contrarian souls have seen fit to back the FTSE 100, where valuations are less demanding, but earnings growth prospects aren’t as promising as in the US. Despite starting the interest rate hiking cycle first, the UK also has a sticky inflation problem, which is taking its own sweet time to dissipate.

“Share traders by contrast are pretty UK-centric in their focus, with Tesla being the only overseas stock to crack the top ten. The UK stock market is undoubtedly a great place to harvest dividends, and that may go some way to explaining why share traders like to keep their money on the London Stock Exchange. Indeed, the most popular UK shares bought in the last six months would fit seamlessly into an income portfolio.”

Most popular investments with AJ Bell’s DIY investors in H1 2023

Source: AJ Bell