City winners: This year’s most popular funds and shares, which include BP, Rolls Royce, Tesla and Argo Blockchain

DIY fund buyers didn’t get the memo that value investing is back in fashion, instead largely plumping for growth strategies over the course of 2021.

“Success breeds success they say, and retail investors clearly have a high conviction that these funds will continue to prosper,” Laith Khalaf at AJ Bell told City A.M. as he discusses this year’s most popular funds and shares.

“There are sound reasons for buying growth-orientated investments, but investors shouldn’t entirely neglect value funds, in case market leadership changes,” Khalaf explained.

“The technological revolution we’re living through, combined with loose monetary policy, could stretch the reign of growth funds far into the future.”

Laith Khalaf at AJ Bell

He pointed out have seen in the past that either growth or value can dominate for a long time, but when there’s a changing of the guard, the results can be pretty brutal for the outgoing side.

“It’s just possible that the return of inflation could spark a reassessment of how valuable the distant cash flows of growth strategies really are.”

Fundsmith Equity steals the crown

Fundsmith Equity retains the crown of most popular fund with DIY investors, despite a relatively weak year for performance.

Investors won’t be too disappointed with a 17 per cent return, even if it is 4 per cent shy of the wider global stock market.

Credit in the bank hasn’t helped Lindsell Train Global Equity retain a place in the top ten though, and the long term Fundsmith competitor is somewhat conspicuous in its absence. Lindsell Train Global Equity has lost 1 per cent so far in 2021, compared to a market that has risen over 20 per cent.

Train and Lindsell are sticking to their guns, and clearly have pedigree as investment managers.

“The turn in performance shows how quickly and severely an investment style can fall out of favour, and highlights why it’s important to keep a diversity of manager styles in any active fund portfolio,” Khalaf said.

“Nick Train, Michael Lindsell, and their investors will be hoping that 2022 brings a return to form.”

Global funds

Investors also showed a clear preference for global funds, which seem to be cleaning up across the board when it comes to attracting new investment.

As does Baillie Gifford, which runs four of the most popular funds and two of the most popular investment trusts, despite some of these posting weaker performance than investors have become accustomed to, Khalaf stressed.

Two ethical funds feature in the top ten purchases, which shows the growing interest in this area, though there has been a bit of a backlash against greenwashing this year, and the FCA is now consulting on a new fund labelling regime which will hopefully improve the information available to ethical investors.

“Investment trust buyers showed a bit more willingness to buy local, with a couple of the most popular trusts investing in UK shares, and the Scottish Investment Trust even flying the flag for a contrarian, value approach to investment management,” Khalaf said.

“Interesting too that Blackrock World Mining and Fidelity China Special Situations feature, which shows trust investors are willing to look through Beijing’s crackdown on what it sees as disorderly capitalism, and the effect its chastening of the property market may have on demand for raw materials.”

Shares

Share investors have shown no shame about rummaging about in the bargain bucket in search of cheap items, with the likes of IAG, Rolls Royce and Lloyds proving popular.

Even Unilever seems to be reluctantly making its way from the premium shelf towards the discount aisle, and while its valuation is still elevated compared to the market at large, compared to its own history it’s trading at one of the lowest multiples seen in the last five years, Khalaf said.

“Tesla also found favour with retail investors over the course of the year, despite an eye-watering valuation, and a CEO who is starting to make Mike Ashley look like a compliant disciple of orthodox executive behaviour.”

Laith Khalaf, head of investment analysis at AJ Bell, on Tesla

Most popular funds, shares and trusts in 2021

Crypto

At the more speculative end of proceedings, some investors also chose to back the crypto miner Argo Blockchain.

Retail investors can no longer buy crypto ETFs, so it’s not too surprising to find crypto enthusiasts alighting on Argo Blockchain as a way to gain exposure to this emerging asset class within their SIPPs and ISAs, Khalaf pointed out.

“Needless to say, crypto assets are hugely volatile, and consumers should only invest a small amount of money which they are willing to lose.”

Likewise Gamestop shares, which saw a huge flurry of interest back during the shuttered madness of January, when a bunch of Reddit traders decided to take on both Wall Street, and market gravity, and met with an extraordinary measure of success.

“Today Gamestop shares are trading at $167, up from $17 at the beginning of the year. Sometimes utter bewilderment is the only rational response to events,” Khalaf concluded.