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Every week, Kyle Caldwell and guests take a look at how the biggest stories and emerging trends could affect your investments, with practical tips and ideas to help you navigate your way through. Join the conversation, tell us what you want us to talk about or send us a question to OTM@ii.co.uk. Visit www.ii.co.uk for more investment insight and ideas.
Hello, and welcome to the latest episode of On the Money, a weekly bite sized show that aims to help you get the most out of your savings and investments. In this episode, we're gonna be running through the most popular funds, investment trusts, and exchange trader funds, ETFs, with Interact Investor customers in the second quarter of twenty twenty five. Joining me to provide his expert insights is interactive investors, Sam Benstead, who alongside myself regularly interviews for managers on camera and writes lots of news analysis pieces related to funds. Now before I bring in Sam, I'll just briefly explain why we started a year ago covering the top 50 most bought collective investments each quarter. So for a long time now, we've been covering the most bore funds, investment trusts, and ETFs on a monthly basis, but we separate them out.
Kyle Caldwell:So the thinking was if we bring all three together, that'll provide a really interesting league table into the top 50 most bought funds, investment trusts, and ETFs. So we're now publishing this on a quarterly basis. We publish a PDF report, and it's always interesting to see over the quarter how the top 50 has changed, which trends have emerged, which funds have climbed up the league table, and which funds have fallen down the league table. Now we base the top 50 on the number of buys rather than volume, and we also strip out regular investing plans. As the thinking is, we wanna show the active decisions that investors are making, whereas if you're regularly investing, some investors are adopting more of a set and forget investment approach, which is more passive as it's buy and hold.
Kyle Caldwell:So, Sam, we have a treasure trove of data to delve into. In the report, we take a look at the different regions, regions, sectors, and fund types that are most popular with investors. Let's, however, start with the top 10. Sam, could you run through the rankings and give a brief description of how each fund invests and why they are popular with our customers?
Sam Benstead:Yeah. Sure. So Royal London short term money market fund is the it was the most popular fund of the last quarter, and we've seen that in our monthly reporting, haven't we? It's been a very, very popular strategy. And this is a money market fund and a short term money market fund.
Sam Benstead:So it's the lower risk end of the money market fund spectrum, and it aims to provide investors with a cash like return by investing in bonds about to mature and making use of bank savings tools that professional investors can access. So very, very low risk. It tends to track the return of the Bank of England base rate, and it's used as a place to park your cash often for when you're waiting for better opportunities or if you just want to take a very low risk investment and see your money gradually tick up higher. And that was followed by Vanguard's S and P 500 UCES ETFs. So these funds, they're just naught point naught 7% track the S and P 500 index in The US.
Sam Benstead:The version of the ETF that distributes income, VUSA, was in second place, and the version that reinvests any dividend income was in third place, and that stock market ticker is v u a g for the accumulation ETF. Next up, we have the iShares physical gold, ETC, which is a super 60 fund. So quite clearly, that just tracks the price of gold, and it's backed by physical gold bars. In fifth place was the Vanguard Life Strategy 80% equity fund, and actually the Vanguard Life Strategy 100% equity fund was on the top 10 too in ninth place. And these are fund of funds managed by Vanguard, and they're just a package of Vanguard index funds tracking different markets from around the world, stocks and bonds to act as a one stop shop for investors.
Sam Benstead:In sixth place was Scottish Mortgage. This is the well known growth focused investment trust that buys fast growing and innovative public and private companies across the world. And then we had a few trackers as well on the list. So the HSBC FTSE All World Index is a all world tracker fund, so that includes emerging markets. The Vanguard FTSE Global All Cap Index is another all world fund.
Sam Benstead:And also to round off the list, we have the LNG Global Technology Index Trust, which which just tracks global technology shares.
Kyle Caldwell:So in the top 10, there are only two actively managed funds, those that are overseen by professional investors, and they are polar opposites in terms of risk. So you've got top of the table, you've got Royal London short term money market, and then lower down in the top 10, you've got Scottish Mortgage. Now overall in the top 50, there are 20 active funds and 30 passive funds, which are either index funds or ETFs. So I'm sure many listeners are very familiar just to run through for those that are a bit more newer to investing. Index funds and ETFs, They passively track the up and down fortunes of a particular index, such as a particular stock market like the S and P five hundred or the MSCI World Index.
Kyle Caldwell:And some also track the up and down fortunes of a particular theme, sector, or part of the bond market. Sam, could you explain the types of index funds and ETFs that investors are favoring within the top 50? And could you also outline your thoughts on that split? So in percentage terms, 60% of the top 50 are either index funds or ETFs, and then the other 40% are either funds or investment trusts that are managed by professional investors.
Sam Benstead:Yeah. So the main theme within the passive funds on our list are that they tend to track stock market indices. So S and P 500 is compiled by Standard and Poor's, and it's the 500 largest profitable companies in America. The FTSE All share is roughly 600 companies in The UK. The MSCI World is about 1,300 of the biggest global businesses from developed markets, and the Nasdaq 100 is the 100 largest shares on the index in America.
Sam Benstead:So these are the main places that people want to track. And then fund management groups come in with products, and they compete on fees mainly, but also how close they can track the index. So for example, Vanguard's S and P 500 USITC ETFs charge 0.07%, but actually one ETF, well, plenty of ETFs do it quicker, but one our fund research team really like is the SPDR S and P 500 USITC CTF, which cost 0.03%, and that's on our super 60 list. For all world exposure, you have to pay a little bit more. So the HSBC FTSE All World Fund, which is very popular, cost just 0.13%.
Sam Benstead:So that's where most of the passive money is going, tracking those main indices. But, actually, the other theme is that there are passive funds tracking themes themselves. So as Carl mentioned, it doesn't have to be a main stock market index. It can be a part of the stock market. And some of the most popular themes we've seen investors want to track at the moment are technology shares, and they're doing that with the LNG Global Technology Index Trust and the iShares S and P five hundred information technology sector ETF, and also defense.
Sam Benstead:So the VANEC defense ETF on there. And as somebody spoken about on other podcast, but defense shares are extremely popular at the moment. Particularly in Europe, the governments are committing to spend more on arms and on the military, and that is boosting defense shares. And then one other theme I'd highlight is cryptocurrency. So while UK based investors can't own cryptocurrency and ISAs, and there are no no products tracking the of cryptocurrencies that they can put in ISAs and Zips and investments accounts, you can actually buy an ETF which owns companies themselves that are linked to the cryptocurrency world.
Sam Benstead:And the one that is proving the most popular on our platform is the VanEck Crypto and Blockchain Innovators ETF. And just back to Carl's point earlier, that was 60% of of the 50 funds on our list are passive and 40% are active. This doesn't surprise me at all. It's a theme we've been seeing for a long time, and, actually, the investment association data shows that 25% of money now invested by British investors is passive, so we're ahead of that. But I think our customers are very switched on, and they've seen that lower fees, broad exposure to different stock markets and themes can be a very effective way of managing your money.
Kyle Caldwell:Completely agree. I can really see the trend towards index funds and ETFs increasing in the coming years as, you know, investors seek out a low cost way and a simple way to gain a lot of diversification to global markets. I'll now turn to active funds. So in the second quarter of twenty twenty five, there were 14 investment trusts and six funds in the top 50 index. So compared to a year ago, we've seen demands for investment trusts fall in the index.
Kyle Caldwell:So a year ago, there were 20, and now there are 14. This coincides with the sector being out of favor over the past couple of years. So for the past couple of years, the average investment trust discount, which is the gap between an investment trust share price and the value of its underlying investments known as the net asset value or NAV. So that gap, the discount has been wider than 10% since 2022, and many investment trusts have been trading on discounts much bigger than 10%. So when discounts stay at a stubbornly wide level for a couple of years, it becomes more and more difficult to win over new investors as some investors then think that that discount has become entrenched.
Kyle Caldwell:And this is particularly a problem for smaller sized investment trusts that fall under the radar or are too small for large investors to buy such as wealth managers. Now there are several drivers behind the drop in investment trust demands over the past couple of years, but for me, the main one has been higher interest rates. So higher interest rates, they've caused bond yields to increase to attractive levels, and that has led many investors to dial down on risk. And one of the areas we've seen a lot of investors go into are money market funds. And money market funds, the level of income that they're seeking to generate, it typically tracks around the level of UK interest rates.
Kyle Caldwell:And at the moment, UK interest rates are 4.25%. So many investors are thinking, okay. I can pick up that level of income. Of course, it's not guaranteed through a money market funds. Why would I want to take the additional risk of potentially earning slightly higher income elsewhere of, say, five, six, or 7% in a fund that's investing in different investments, which are higher risk investments compared to a money market funds.
Kyle Caldwell:In contrast, we've seen over the past year ETFs experience an uptick in demand. There's now 20 in our index, and that's up from 14 a year ago. And for funds, the number in the top 50 index is slightly edged up year on year from four to six.
Sam Benstead:And within these active funds and investment trusts, most of them are global. So investors are are really drawn to the one stop shop fund where a fund manager can pick shares from The US or The UK or Europe. So they actually themselves don't have to go out and find a different fund for a different region. So some of these popular funds and trusts include Alliance Whitten, FNC, Fundsmith Equity, Polar Capital Technology Trust, Alliance Technology, and, of course, Scottish Mortgage. But, actually, we are seeing some quite specialist regional options as well on the list.
Sam Benstead:So I just highlight Jupiter India in there, City of London as well as investing in The UK, and then we've got a bunch of infrastructure, renewable energy infrastructure investment trust, which generally invest in The UK.
Kyle Caldwell:And two of the funds entered the index in the second quarter. I'm gonna talk about them a bit later on in the podcast, and they are Artemis Global Income and Ram Moor Global Equity. As Sam mentioned, investors are generally favoring broad exposure to global markets, whether they are seeking to own the market through an index fund or an ETF, or they're seeking professional investor expertise through a fund or an investment trust. In terms of sectors, one that stands out that investors are viewing as a potential value opportunity at the moment is renewable energy infrastructure investment trusts. Sam, could you explain why we've been seeing greater investor interest in this area, and could you run through the four investment trusts from the sector that are in the top 50 index?
Sam Benstead:Yeah. So these four trusts are GreenCoat UK Winds, NextEnergy Solar Fund, Renewables Infrastructure Group, and SDCL Energy Efficiency Income. So of the four, GreenCo UK win is probably the best known. We've had the fund manager in our studio for an interview before. And I think the main reason that investors are drawn to these trusts at the moment is that they're just bargain hunting, and they're taking advantage of low share prices and big discounts to NAV alongside high dividend yields, because I think that's just an attractive trade off at the moment.
Sam Benstead:So I think if I explain the yields and the discounts and offer, you'll you'll see why these have been popular. So GreenCo UK wind has a yield of 8.2% and is on 19% discount. Next Energy Solar Fund is on an 11.45% yield and a 23 discount. Renewables Infrastructure Group has an 8.5% yield and a 22% discount, and SDCL energy efficiency income is on 11% yield and 37.5% discount. So those yield figures are backward looking.
Sam Benstead:It's based on the past twelve months of dividends, so there's no guarantee you'll get that going forward. But, actually, these renewables infrastructure trusts have been quite good at paying out their dividends. They get predictable returns by selling power back to the grid, they're often inflation linked. And whenever we speak to the managers, they talk about how reliable those dividends are and what a strong investment proposition they have. But, obviously, no guarantees there, big discounts.
Sam Benstead:But for bargain hunters, I can definitely see the appeal.
Kyle Caldwell:I completely agree, Sam. I think investors are looking at those discounts and looking at those dividend yields that are on offer. Of course, they're not guarantees, and it's really tempting some investors. As I mentioned earlier, we have seen over the past couple of years in some investors dial down on risk as bond yields have risen, which has increased the level of income on offer for safer assets such as bonds and also money market funds. But now the interest rates are starting to fall and on money market funds, you can still get a very good yield, but that yield has been declining and will continue to decline as interest rates fall.
Kyle Caldwell:I think there's now a pretty wide gap between the yields that on the safest ends of the market, what money market funds are offering, and then alternative income areas, are more higher risk, like renewable energy infrastructure. The average investment trust in that sector at the moment, the dividend yield is 8.9. There's now a pretty wide range between the safe end and a higher risk end, and that's tempting some investors to look at this alternative income asset class. So that's a sector we've seen greater investor interest in. Now if you compare the top 50 index in the second quarter with a year ago, we've seen some high profile fallers.
Kyle Caldwell:So two active funds that have fallen considerably in the rankings are Fundsmith Equity and Jupiter India. Sam, what are your thoughts on why both of those funds are now in less prominent positions in our index? So just to put the figures on it, in the second quarter of last year, Jupiter India was in seventh place. It's now in thirty ninth. And Fundsmith Equity, it was also in the top 10 a year ago.
Kyle Caldwell:It was in eighth place, and it's now in twenty third.
Sam Benstead:Let's start with Fundsmith, and I think it's clear that performance has been the biggest issue here, and that's actually driven lots of outflows. So the past four calendar years, Fundsmith equity has underperformed the MSCI World benchmark index. And so far this year, it's down about 2% versus a slight gain for that index. So it is looking like five calendar years of underperformance, and people are seeing that and they're thinking, why am I paying 0.94% for the iUnits to underperform the index when I can buy a a cheap global tracker from as little as 0.1% and do better. What will happen later?
Sam Benstead:Who knows? Funsmith is has still has a very good long term record, but this year, Terry Smith has blamed it on his large position in Novo Nordisk, which is the Danish pharmaceutical company, which owns the Ozempic weight loss drug. So shares in that company are down about 25% this year and about 50% down from their peak, and that's been a standing top 10 position for Terry Smith. So it's really hurt his overall performance. And the other factor is the dollar.
Sam Benstead:So in his half yearly letter to investors, Terry Smith said that the dollar weakening about 9% has been a big drag of performance because he owns lots of American shares, about 75% in there. And because the dollar's fallen, that means the returns in pounds have fallen as well. He said that was part of the the reason for the underperformance, but actually, if you look at the index, it's also got about 70% invested in dollar assets. So for me, it's not a very good excuse that currency movements and actually the main problem has been stock picking. Jupiter India is an interesting one.
Sam Benstead:So it's still managed by the same team, and they've been very successful over the long run. But for this one, I think it's more a case of the theme that they invest in going out of favor. So Indian equities are just less popular than they were a year ago. A lot of money moves into the sector, and I think a lot of money is probably moving out now because returns have been less good. So over the past twelve months, this fund is flat.
Sam Benstead:Over three years, it's up 79%.
Kyle Caldwell:Another trend we've been seeing is demands cool for US focused funds. In the second quarter, we saw the number of US funds decline from seven to five. Two funds that exited our top 50 index were Pershing Square Holdings and Artemis US smaller companies. Both of those are active funds and managed by professional stock pickers. The five US funds that remain in the index are all index funds or ETFs with each giving investors broad exposure to US shares.
Kyle Caldwell:Now it's important to bear in mind that if you have exposure to, say, The US index funds or ETF and also have exposure to a global index funds and ETF, there will be a large overlap in terms of holdings because in the global stock market index, around 70% is US shares. Due to this, investors with global exposure already have a sizable weighting to The US. And the reason why is because US shares, they become more and more dominant in global stock markets because over the past decade, past fifteen years, they have performed really well and led higher by technology stocks. So therefore, increasingly, if you invest globally, it has become more and more a bet on the fortunes of The US equity market continuing to perform well. So with active funds that invest globally, some professional investors do have a large amount of their funds in The US.
Kyle Caldwell:Some have around the same level as the MSCI World Index, and you may also see a full manager have a bit more than the MSCI World Index, although it is quite rare to see that. However, you also do see some full managers go against the crowd in having less exposure to The US than the MSCI World Index, and two of them, a new entrance to our top 50 in the second quarter. I mentioned them both earlier. They are Artemis Global Income and Ram Moor Global Equity. Sam, you took a look at the percentage weightings to The US in both of those funds.
Kyle Caldwell:Could you run through those weightings, and could you also detail how both of those funds invest?
Sam Benstead:Yeah. Think I'll just start by saying these have been amazing performers over the past decade. So they're all top quartile versus peers over five, ten, one, three years. They've been amazing funds, and they've done that with not much invested in The US, which is even more impressive. So Artemis Global Income is just 25% invested in US shares, and Ram Moore Global Equity has 17% in US shares, so significantly less than the index.
Sam Benstead:So in the case of Artemis Global Income, they're finding the best income opportunities in financials and industrial shares, mainly in Europe, The UK, and Japan. Meanwhile, Randmore is a deep value fund, and it's got 43% invested in Asia. And in a recent note to investors, it said that Korean equities, because they are classified as an emerging market still, are being ignored by many global funds, and there are lots of really, really good value opportunities there. So very impressive from both of these funds, and it's been quite a successful strategy, I think, for many holding these alongside a passive fund, which just tracks companies based on their market cap weighting.
Kyle Caldwell:So, Sam, you mentioned the Randmore Fund has a deep value investment style. So for those that are perhaps less familiar to investment styles such as value investing, I'll just give a brief description of what value investing is. So if you see that a fund invests in value shares, then they're looking for shares that they think are out of favor and potentially mispriced. However, a full manager adopting this approach, they don't just simply hunt for value shares that are looking cheap in terms of their valuations. They're also looking for and also hoping for a catalyst to revive an underpriced company's financial fortunes, and this could be through the form of a restructuring, refinancing, or a management change.
Kyle Caldwell:Sam recently wrote a data piece pointing out that value focused funds have been faring well in the 2025 on the back of stock market volatility picking up early this year. Could you pick out some of the value funds you mentioned within the article, Sam, which are not in our top 50 index?
Sam Benstead:So Orbis is one of the fund managers I would highlight. So they run the Orbis Global Equity Fund and the Orbis Global Balance Fund, and actually Ranmore manager Sean Pesch used to actually work there. So it's a very good value investment house, and we actually had the manager of the Orbis Global Balance Fund, Alec Cutler, in the studio about a month ago to talk through their investment style and where they're finding opportunities at the moment. And, actually, one of the little nuggets of information in there was that he still thought defensive shares were still cheap and also gold had further to run. So Orbis, a very interesting fund manager that performed very well recently.
Sam Benstead:I'd also highlight Brickwood Asset Management. So Ben Whitmore is the key manager there, and he used to run about £10,000,000,000 at Jupiter in global and UK value equities, and he's split from Jupiter to launch his own fund management firm, and these funds have a track record going back just until February. So very new, but if you're interested in following what he's up to, I also had him in the studio recently, and he talks through his investment style and what types of companies he likes at the moment. One other, which is also being featured in our video series, is the Schroeder Global Recovery and Schroeder UK Recovery Strategies. So the UK manager is Nick Carriage, and he's a very interesting value investor.
Sam Benstead:So that's worth a listen or a watch if you're interested in that style of investing. And the final one I would highlight is the Dodging Cox Worldwide Global Stock Fund, and that is a member of our super 60 list.
Kyle Caldwell:So Sam just mentioned three recent videos that he recorded with for managers, and they're available on our website, ii.co.uk, and you can also watch them on our YouTube channel. If you search for interactive investor on YouTube, our channel will come up. And if you subscribe to our channel and it's for free, then you'll be able to see all the videos that we record with full managers in the coming months. And that's it for this episode. My thanks to Sam, and thank you for listening to on the money.
Kyle Caldwell:If you enjoyed it, please follow the show in your podcast app and do tell a friend about it. And if you get a chance, please do leave us a review or a rating in your podcast app too. Can You join the conversation, ask questions, and tell us what you'd like to talk about via email, which is otm@ii.co.uk. And in the meantime, you can find more information and practical pointers how to get the most out of your investments on the interactive investor website, ii.co.uk, and I'll see you next week.