Index-tracking funds were among the most popular with UK retail investors during the first half of 2018 as uncertainty dogged markets, according to data from FE Analytics.
Concerns over a potential trade war, fears of central bank policy mistakes, and ongoing Brexit issues led to higher levels of volatility across many asset classes, making it tricky for investors to know where to allocate their capital.
Despite falling into negative territory initially, however, the MSCI AC World index is now up by 2.03 per cent while the Bloomberg Barclays Global Aggregates bond index has gained 97 basis points in sterling terms.
Performance of indices in H1 2018
Source: FE Analytics
As such, knowing whether to add equities, bonds or opting for a more leftfield option in alternatives, has been a real conundrum so far this year.
Overall, investors have been happy to take on more equity risk, but have done so through passive vehicles, giving them more liquidity and taking less stock-, style-, sector- or manager-specific risks.
Of the top 20 most bought funds in the first half of 2018, five are equity index trackers with the BlackRock ACS US Equity Tracker fund the most popular of all, according to data from FE Analytics.
The passive vehicle, which sits in the IA North America sector and tracks the FTSE USA index – a market capitalisation-weighted index of 616 holdings representing the performance of US large- and mid-cap stocks.
In the first half of the year the fund received inflows of £1.2bn which, with a 5.07 per cent gain, saw assets under management (AUM) rise from £1.6bn at the end of 2017 to £4.6bn.
BlackRock dominates the passive equity strategies present in the top 20, with BlackRock ACS World ex UK Equity Tracker, BlackRock ACS UK Equity Tracker, BlackRock ACS World Low Carbon EQ Tracker and iShares 100 UK Equity Index (UK), with Royal London US Tracker the only fund from outside the group.
Passive bond vehicles have also picked up new assets as investors have begun to feel more comfortable about central bank policy-making and the yields on offer – particularly in the US, but also in the UK.
Indeed, iShares UK Gilts All Stocks Index (UK), iShares Corporate Bond Index (UK), iShares Overseas Government Bond Index (UK) and BlackRock Corporate Bond 1 to 10 Year all made the list.
Vanguard LifeStrategy 60% Equity was the only other passive vehicle on the list. The fund-of-funds is 60 per cent weighted to equities and 40 per cent to bonds and only invests in other Vanguard passive vehicles.
Turning to actively-managed strategies, the second-most bought fund during the first half of 2018 was FE Alpha Manager Richard Woolnough’s M&G Optimal Income.
The fund has been popular for the past 18 months now, having topped the list of most bought funds in 2017. Since January it has grown its AUM from £22.5bn to £23.6bn with inflows of £1.2bn.
This is despite recording a loss of 1.41 per cent during the first half of the year, meaning that performance has dragged £102m from the AUM.
Performance of fund vs sector H1 2018
Source: FE Analytics
The fund has been a top-quartile performer in the IA Sterling Strategic Bond sector year-to-date and was in the second quartile in both 2016 and 2017 after a disappointing 2015.
Third on the list was FE Alpha Manager Terry Smith’s Fundsmith Equity which saw net inflows of £1.1bn, helping to take its AUM from £13.4bn to £15.5bn with performance adding £1bn.
The five FE Crown-rated fund is a 28 holding portfolio which has been in the top or second quartile of its IA Global sector in every calendar year since 2011 – its first full year since launching in November 2010.
It has been the second-best performer over the past five years as the quality growth style which Smith employs particularly in favour during 2014 and 2015.
Invesco Perpetual Global Targeted Returns is next on the list, despite making a loss in the first half of the year, attracting £597m in net new inflows. Its AUM has risen from £12bn to £12.6bn.
The fund, which is run by former Standard Life Global Absolute Return Strategies (GARS) managers Dave Jubb, David Millar and Richard Batty as well as Gwilym Satchell, has been a consistent performer since its launch, making 19.76 per cent since its launch in 2013.
The portfolio aims to make a positive return over rolling three-year periods and since inception has never made a loss on this basis.
Table of most bought funds in H1 2018
Source: FE Analytics
Fellow absolute return strategy Newton Global Dynamic Bond, managed by Paul Brain, also appears on the list with net inflows of £484m despite making a £28m loss.
The four FE Crown-rated fund, which invests predominantly in higher yielding corporate and government bonds, rose from £1.9bn in assets to £2.3bn in the first half of the year.
Other active strategies of note include Quilter Investors funds Cirilium Balanced Portfolio and Cirilium Moderate Portfolio as well as the five FE Crown-rated Invesco Perpetual Asian fund managed by William Lam.