Do-it-yourself investors appear to be buying a range of passive funds and exchange-traded products in what looks like a low-cost way of portfolio diversification.
According to data on investor trends, sourced for FTAdviser by Hargreaves Lansdown, exchange-traded funds and passive investments have been persistently popular among investors over the past year, with strong inflows during October.
But the wide spectrum of passive choices - ranging from commodities-based ETFs to sustainable and emerging markets funds - suggests investors are seeking to create a diversified portfolio without the price tag associated with actively managed multi-asset portfolios.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said: "The most popular ETFs and passive funds on platform span a wide range of asset classes, suggesting clients are using passives to build diverse portfolios."
October's list of top funds (outlined in the table below), show that US equities and tech stocks are among the most popular – mirroring themes in active management – as clients chase past performance, she said.
Top funds and trackers - October (by net buy, alphabetical)
ASI Global Smaller Companies
Baillie Gifford American
Baillie Gifford Managed
Baillie Gifford Positive Change
BlackRock Consensus 85
HL Multi-Manager Special Situations Trust
HL Select Global Growth Shares
HSBC FTSE 250 Index
JPMorgan Emerging Markets
Legal & General Global Technology Index
Legal & General International Index Trust
Legal & General UK Index
Legal & General US Index
LF Lindsell Train UK Equity
Lindsell Train Global Equity - Distributing
Marlborough UK Micro-Cap Growth
Rathbone Global Opportunities
Schroder Managed Balanced
Vanguard LifeStrategy 100% Equity
Source: Hargreaves Lansdown, as at the end of October 2021
"Gold is also popular with clients, particular through an ETF structure, as it offers a hedge against the economic uncertainty brimming in the UK", Wall added, with the usual caveat that past performance is no guarantee of future performance.
However, she pointed out the importance of portfolio diversification, whether clients are investing in active or passive funds.
Wall told FTAdviser: “The importance of portfolio diversification stands, whether you are investing in active or passive funds. It is right to say that there is a concentration risk investing through too many broad market index-tracking passive funds or ETFs, but this can be managed.
"Investors should be index aware – know that while the FTSE 100 and FTSE 250 is made up of different components, the FTSE All Share includes both – and around 250 more UK stocks listed on the London Stock Exchange."
She added that global indexes can be confusing, so it was important that investors know what they are investing in.
Wall explained: "For example, the MSCI World only contains developed market stocks rather than offering allocation to the whole 'world', so investors should take care to read passive fund factsheets, and research the components of associated indexes."
Find out more
To understand the latest developments in ETPs, read FTAdviser In Focus's latest CPD feature: All you wanted to know about ETFs (but were afraid to ask).