More and more people are beginning to see investing as essential to their long-term financial plans – investment provider Vanguard, for instance, has seen 3x as many accounts opened as this time last year. But what is everyone investing in?
Largely in response to Covid-19, an influx of new investors isn’t the only emerging phenomena. When we take a look at the best-selling funds of the last few months, there’s been a clear switcheroo on where people are putting their money: 8 out of 10 funds on Interactive Investor's most-bought funds of July list are active funds, compared to only 2 in March.
Most funds in the market are what we call ‘active’. An active fund manager is a person who thinks he or she is smarter than the average investor. They think they can spot a bargain. Identify the region or market that is about to go belly-up. So they actively pick and choose what goes into the fund.
Passive funds are devoid of ego and opinion. No one makes a call on whether Share A is better than Share B. A computer simply follows what we call an index, or a list of how shares or bonds are performing in any given market, then buys them in proportion to their size. It's a cheap auto-pilot mode with no judgement calls.
Back in March, Interactive Investor's top 10 best-selling fund list included 8 passive funds and 2 active funds. By July, investors had made an about turn. Interactive Investor’s newest list includes 2 passive funds and 8 active funds.
Top 10 most-bought funds on Interactive Investor in July 2020
|2||Baillie Gifford American||Active|
|3||Baillie Gifford Positive Change||Active|
|4||Baillie Gifford Global Discovery||Active|
|5||Baillie Gifford Long-Term Global Growth||Active|
|6||Vanguard LifeStrategy 80% equity||Passive|
|7||Baillie Gifford China||Active|
|8||Baillie Gifford Managed||Active|
|9||Vanguard LifeStrategy 60% equity||Passive|
|10||Polar Capital Global Technology||Active|
Top 10 most-bought funds on Hargreaves Lansdown in July 2020 (ranked alphabetically)
|1||Baillie Gifford American||Active|
|2||Baillie Gifford China||Active|
|3||Baillie Gifford Global Discovery||Active|
|4||Baillie Gifford Long Term Global Growth||Active|
|5||Baillie Gifford Managed||Active|
|6||Baillie Gifford Positive Change||Active|
|8||JPMorgan Emerging Markets||Active|
|9||LF Blue Whale Growth||Active|
|10||Rathbone Global Opportunities||Active|
Personal Investing - Top 10 Selling Funds (July 2020) on Fidelity
|1||Baillie Gifford American Fund||Active|
|2||Rathbones Global Opportunities Fund||Active|
|3||Baillie Gifford Long Term Global Growth||Active|
|4||Baillie Gifford Positive Change Fund||Active|
|5||Baillie Gifford Global Discovery Fund||Active|
|6||Ninety One Global Gold Fund||Active|
|7||Baillie Gifford Pacific Fund||Active|
|8||Baillie Gifford European Fund||Active|
|9||Fidelity Multi Asset Balanced Fund||Active|
|10||Baillie Gifford China Fund||Active|
Top 10 most-bought funds on AJ Bell in July 2020
|1||VT AJ Bell Adventurous||Passive|
|3||VT AJ Bell Moderately Adventurous||Passive|
|4||VT AJ Bell Balanced||Passive|
|5||VT AJ Bell Global Growth||Passive|
|6||Baillie Gifford American||Active|
|7||Vanguard LifeStrategy 80% equity||Passive|
|8||Polar Capital Global Tech||Active|
|9||Billie Gifford Positive Change||Active|
|10||Vanguard LifeStrategy 100% equity||Passive|
Teodor Dilov, Fund Analyst at Interactive Investor, comments:
“Baillie Gifford replaced Vanguard in July as the dominant name in the top 10 most purchased funds, suggesting a recent trend towards active solutions at the expense of passive funds amid a period of heightened market volatility owing to Covid-19. The current market condition is ripe for active managers to show why it is worth paying a bit more for an actively managed solution by taking advantage of perceived inefficiencies in the market.”
In other words, active funds are likely becoming more popular because they are more able to adapt to or take advantage of the uncertainties facing the stock market during the Covid-19 pandemic. Active funds have a human manager pulling the strings, who can adjust the fund in response to what the stock markets and society is doing. Passive funds are cheaper but far less flexible, leaving the stock-picking and allocation to algorithms and computers instead of a human or team.
Interactive Investor’s Dilov also points out:
“Our customers also continue to favour the diversification offered by global strategies, which account for 8 out of the top 10 bestsellers in July. Appetite for the UK remains soured, with Brexit set to come back into focus as the transition period enters its final months.”
Have you changed your investing style in response to Covid-19? Do you think active makes more sense now, or is passive still the better deal in your eyes? Let us and other investors know in the comments below.
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