There are 35 funds that grew by more than £1bn in the first 10 months of 2021, Trustnet research has found. 
Fund size is an important issue. While there is a degree of comfort in investing in a big fund that plenty of others have decided to hold as well, there can be a point where a fund has grown too large to work as it once did.
Whether a fund has grown too big or not is a complex subject and can only be resolved on a case-by-case basis. But for those who want to see where the strongest growth has taken place since the start of the year, Trustnet has worked out the funds with the largest increase in assets under management (AUM) through a combination of performance and inflows.
At the top of the list is Fundsmith Equity, which is the largest fund in the Investment Association universe. It was running £23bn at the start of the year but it has grown by close to £5bn since then and is now £28.1bn in size – 21% bigger.
Fundsmith Equity’s AUM over 3yrs
Source: FE Analytics
The fund has built up an impressive long-term track record thanks to FE fundinfo Alpha Manager Terry Smith’s buy-and-hold approach to growth investing and preference for a select group of high-quality stocks.
Since launch in November 2010, it’s made a total return of 556.3% – the third highest of the IA Global sector, where the average fund is up 219.1%. It’s made 19.5% over 2021 to date, contributing to its growing size.
For some time, critics have questioned if Fundsmith Equity is at risk of becoming too large but the fact that Smith runs a portfolio built around large multi-national companies listed in developed markets offers some reassurance.
However, investors should still keep fund size in mind. Analysts at Square Mile Investment Consulting & Research said of Fundsmith Equity: “This fund has seen a significant rise in assets under management in recent years, which can be a natural tailwind for any investment strategy.
“Whilst we do not yet see this as an impediment to the investment process, especially given the low levels of turnover involved, it is something to remain conscious of when reviewing this proposition.”
The full list of the 35 funds that have grown by more than £1bn over the year-to-date can be seen below and there’s a few clear themes among them.
Source: FinXL
For example, Fundsmith Equity is not the only quality-growth strategy on the list, as funds like Baillie Gifford Pacific, BlackRock European Dynamic, Baillie Gifford European and Rathbone Global Opportunities are also known for their strong record in growth investing.
Growth investing has held onto market leadership for much of the past decade but the style’s dominance has been knocked by the inflation that followed the ‘reopening’ from 2020’s lockdowns. Value did outperform growth by some margin at the start of the year but the market has oscillated between the two styles since and they are pretty much neck-and-neck over 2021 so far.
Another trend is the continued rise of passives. Around half of the funds to grow by more than £1bn this year – 17 of the 35 – are index trackers such as Vanguard US Equity Index, Vanguard FTSE U.K. All Share Index Unit Trust, Fidelity Index World, HSBC American Index and iShares Global Property Securities Equity Index.
This reflects the long-term shift towards passive investing. Index trackers have been steadily gathering assets in the UK for a number of years, with Investment Association figures showing that trackers run some 18.4% of the fund industry’s total assets under management.
In addition to the 17 pure index trackers, four of the five Vanguard LifeStrategy multi-asset funds - Vanguard LifeStrategy 40% Equity, Vanguard LifeStrategy 60% Equity, Vanguard LifeStrategy 80% Equity and Vanguard LifeStrategy 100% Equity – have grown by more than £1bn in 2021.
And the list clearly highlights the ascendancy of responsible investing and greater focus on environmental, social and governance (ESG) factors when running portfolios.
Recent years have witnessed a jump in the number of ESG funds and the amount for money flowing into them – research by Calastone found that a large portion of inflows into active equity funds last year ended up in those with an ESG approach.
The latest figures from the Investment Association shows that responsible investment funds’ overall share of industry funds under management stands at 5.5% – a significant rise on the 2% reported at the start of 2020.
Many expect this to grow even more in the years ahead as more companies transition to net zero and governments drive through policies to promote a low-carbon economy. What’s more, several years of good returns from ESG have shown investors that they don’t need to compromise on performance to invest responsibly.
Some of the ESG funds that have added more than £1bn to their assets in 2021 are BlackRock ACS Climate Transition World Equity, Ninety One Global Environment, Baillie Gifford Positive Change and Royal London Sustainable World Trust.