We reveal the most popular low-cost passive investments of the year.
Passive funds and exchange traded funds (ETFs) provide a good way of accessing stock markets at low cost.
Cheapness, however, is not their only attraction. Simplicity is another: investors - particularly those who are younger - favour the certainty offered by a fund that will do what it says on the tin. With active funds, in contrast, investors hope the manager outperforms the index; while some fund managers produce the goods time and again, various studies have shown the majority of active funds fail to achieve this goal on a consistent basis.
With index funds and ETFs it is possible to track everything from equities to gold or bonds – but what are the favourite passive investment choices of investors?
To find the answer we looked at data from our sister website Interactive Investor, to find out what the most-bought passive investments of 2018 have been so far. We looked at the amount of trades that had taken place (buys and sells).
The Vanguard LifeStrategy fund range dominated, with three of its five trackers taking the top three spots. The LifeStrategy funds are multi-asset passive funds that invest in various indices, with the equity weighting ranging from 20% to 100% and the balance held in bonds and cash. The Vanguard fund fee is low, at 0.22%.
Top of the most popular passive fund list (to date, 28 November 2018) is Vanguard LifeStrategy 80% Equity. Over three years this tracker has returned 34%, but over one year it is up just 0.3%.
The fact that 80% of this tracker is in equities indicates a relatively bullish preference among investors, particularly given that the second most-bought passive investment has an even larger equity allocation: Vanguard LifeStrategy 100% Equity. Due to its higher equity allocation, this tracker has returned 41% over three years. On a one-year view, it is also flat, up 0.7%.
The third most-bought fund was the slightly more cautiously allocated Vanguard Life Strategy 60% Equity. This tracker has returned 27% over three years and -0.2% over one year.
The fourth most-bought tracker fund was Vanguard FTSE Developed World FTSE ex UK, which as the name suggests specifically excludes the UK from being tracked. This tracker has 63% in US equities, 10% in Japan and 10% in Europe.
The fifth most-bought tracker was Vanguard US Equity Index, which blindly follows the up and down fortunes of the S&P Total Market index.
Given that all the most-bought tracker funds focus on the US market, their largest individual holdings are the biggest constituents of the S&P 500: Apple, Microsoft and Amazon. These tech names had until October enjoyed a purple patch of form, but they have borne the brunt of the uptick in global stock market volatility that has played out in recent weeks.
In terms of ETFs, it is a completely different story, with UK strategies much more popular among customers of interactive investor.
Top of the pile is the iShares Core FTSE 100 Ucits ETF GBP, which simply follows the fortunes of the FTSE 100 index. The ongoing charge figure is very cheap, coming in at 0.07%. But three of the other four UK names in the top five most popular ETFs are much racier than a conventional index tracker, as they make use of leverage.
In other words, they offer the option of a big bet on the FTSE falling or rising. In doing so, potential high rewards are on offer; but at the same time, if investors bet the wrong way on what is ultimately a coin flip, they risk losing their shirt.
The outlier is the Vanguard S&P 500 UCITS ETF INC GBP, which follows the US market and was the third most popular ETF.
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