The most popular funds with AJ Bell customers over the past year

Is the era of the star fund manager confined to the history books? The star is no longer shining bright, according to the investment choices of AJ Bell DIY investors over the past year.

There is only one product in the top 10 most popular open-ended equity funds actively managed by an individual or individuals picking stocks, and only three names in the top 20. These are Jupiter India, JPMorgan Global Equity Income and Polar Capital Global Insurance.

Instead, the bulk of the most popular equity funds with AJ Bell customers are ones either tracking an index or those making asset allocation decisions using passive funds.

Source: AJ Bell

Equity funds

Star managers have been a dying breed for years thanks to underperformance. They’re only stars when they’re on top and the shift in the interest rate environment in 2022 knocked many of them for six.

Investors pay fund managers to beat the market and they’re naturally going to rethink their investment choices if the funds underperform. Terry Smith and Nick Train are the biggest names in the UK fund management industry and they’ve both lagged the market for multiple years in a row.

The collapse of Neil Woodford’s funds is engrained in investors’ memory, another factor that might have caused people to lose faith in star managers. That trend now seems to have had a knock-on impact where even lesser-known managers are being shunned in favour of passive options.

Investors want simplicity and many are happy to simply track the market rather than beat it. That way, they are not exposed to a fund manager taking excessive bets on one or a handful of stocks and getting it wrong.

Source: AJ Bell

Actively managed funds using passive building blocks

Alternatively, investors are increasingly drawn to actively managed funds built using passive funds. Vanguard’s LifeStrategy funds adopt this approach, as does the AJ Bell fund range.

These types of funds involve a team of experts who decide the asset allocation and which products to use. For example, that might include 80% of assets in equities and 20% in fixed-income and achieved through holding specific exchange-traded funds selected by the team which cover various geographic regions or types of bonds respectively. The asset allocation and underlying fund choices are reviewed periodically.

Investment trust trends

The role of the traditional fund manager isn’t completely redundant. There is still a certain type of investor who likes active funds, particularly those structured as investment trusts.

Nine of the top 20 most popular investment trusts among AJ Bell customers based on net flows in 2024 were focused on a certain niche such as renewable energy or technology. This implies many investors are using passive funds for broad exposure and investment trusts for specialist areas. This theory is backed up by looking at trends for ETFs where the most popular products were ones tracking the US or global markets.

There are some exceptions to this broader trend, principally the rise of investment trust JPMorgan Global Growth & Income which seems to have toppled Scottish Mortgage as investors’ favourite way to get exposure to growing companies around the world in an actively managed portfolio.

JPMorgan Global Growth & Income’s 313% total return over the last 10 years is only slightly less than Scottish Mortgage’s 330% return (Source: AIC, 18 December 2024). The JPMorgan trust is arguably a lower-risk investment because it doesn’t have the big exposure to unquoted companies that is a key feature of Scottish Mortgage. It also offers a much more generous income stream.

Source: AJ Bell

Money market funds continue to grow in popularity

The other big trend we’ve seen in recent years is the rise of money market funds and they remained popular in 2024.

Higher interest rates have increased the appeal of cash-like assets and money market funds are sometimes described as cash funds. They invest predominantly in short duration debt and deposits to generate a return similar to cash savings held in a bank. This includes high-quality, short-term debt like treasury bills and commercial paper.

For those who want to earn a return on cash while they’re waiting to invest, and investors who need to hold some cash or cash-like assets in their portfolio – often the case for drawdown investors – money market funds offer an interesting alternative.

Data from AJ Bell’s DIY investing platform based on net flows in 2024 up to 6 December. AJ Bell’s own funds not included in data tables.