Best-selling funds, investment trusts and ETFs of May 2023

Fundsmith Equity has been a popular strategy amongst investors over the years, with the manager focusing on a relatively focused portfolio of quality companies held for the longer term.

Amidst a high inflationary environment and sharply rising interest rates last year, the fund had a tough time, underperforming both the broader market and its peer group. However, central banks are now becoming more measured in respect of future interest rate increases, with the Fed pausing at its latest meeting as it seeks to assess the impact of the tightening cycle before proceeding further. Markets are forward-looking, anticipating a fall in rates, which boosts performance of long duration assets, such as those held by Fundsmith Equity.

Technology stocks have been a dominant feature this year, having made a decisive comeback following a sharp sell-off through 2022. Based on data to the end of May, the tech-heavy Nasdaq in the US delivered gains exceeding 20% on the back of strong earnings and as the markets are pricing in a pivot in the hiking cycle by central banks. Microsoft is a top holding for the fund, contributing to a strong run for the manager year to date. The stock and the broader sector received a valuation boost from a new type of artificial intelligence (generative AI) and the rollout of ChatGPT, which is part-owned by Microsoft.

Elsewhere, the fund has meaningful exposure companies such as LVMH. The luxury goods sector has rebounded on the strength of Chinese consumers and the associated post-lockdown pent up demand. The change in dynamics saw LVMH recently becoming the first European company to reach a $500bn valuation.

Nothing boosts investor confidence like market returns. It is the driver of momentum investing – get an asset class while it’s hot. Case in point the two regions that fare best in our monthly Investor Confidence survey are the US and Japan, which have seen significant gains over the past few months. The banking sector scare in March, which saw Silicon Valley Bank closed by regulators, and then just a couple of weeks later, a run on Credit Suisse deposits ultimately resulted in a $3.25bn deal by rival UBS to buy the bank, caused global stock markets to shudder. But since then both the S&P 500 and the Nikkei 225 have strongly rallied, restoring investor faith in the regions.

Look underneath the hood on what has been driving those returns and you’ll see growth stocks are back in favour – after a torrid 2022. In the US in particular, the tech top performers have posted spectacular gains – Facebook parent company Meta, electric vehicle behemoth Tesla and top-of-the-pops is global artificial intelligent firm Nvidia. It is therefore not surprising to see investors snapping up tech funds and trusts, in a bid to get a piece of the action.

Alongside the tech picks a few money market funds remain in the top 10 – showing that while pockets of optimism have emerged, investors continue to have doubts about the global market outlook in this high-rate, higher-inflation world.