ii Top 50 Fund Index Q3 2024: passive funds dominate

interactive investor, the UK’s second-largest investment platform for retail investors, has published the second iteration of its newest index – the ii Top 50 Fund Index – covering Q3 2024. 

The investment barometer, which ranks the most-popular funds, investment trusts and exchange-traded funds (ETFs) each quarter, has found that passive funds have dominated this quarter, with 30 passive funds making their way into the Top 50. The index also revealed that a global approach remains the most popular choice for investors, and technology has retained its top spot when it comes to sectors. 

Key findings

• A global approach continues to be popularwith investors, with nearly one in three funds (15) in our index invested in global shares.
• The US market has retained its position as the second most-popular region, with seven funds featuring.
• However, investors are beginning to warm to the UK, as the number of UK funds in the list has doubled from three to six.
• Technology strategies account for nine of the top 50 funds – rising from seven in Q2.
• The rising dominance of passing funds, with 30 passive funds in the top 50 versus 20 active funds. This has changed from 26 and 24 respectively.
• Fundsmith Equity plummeted down 12 places in Q3 2024 – dropping from eighth place to 20th.
• However, the Invesco EQQQ NASDAQ-100 ETF GBP (LSE:EQQQ) rose 12 places – moving from 23rd to 11th place.

You can view the full research here.

Kyle Caldwell, Funds and Investment Education Editor, interactive investor, says: “Our latest Top 50 index has revealed one enduring trend – investors are continuing to opt for funds that invest globally, providing diversification and plenty of exposure to the world’s biggest technology stocks, which continue to be the key driver of global stock markets. 

“Yet, over Q3, investors warmed more to the UK, with the number of funds in our index increasing from three to six. For several years, commentators have been highlighting how cheap the UK market is versus its own history and compared to other regions, particularly the US. It seems that investors are now looking more closely at the value opportunities on offer.

“The biggest mover over the three-month period was Fundsmith Equity, which fell 12 places, from eighth to 20th. Long-term investors of the fund, managed by Terry Smith, will surely have no complaints as it has comfortably outperformed the wider global market and most global fund rivals since launch in November 2010. 

“However, performance has lagged global markets over the past couple of years. Smith, like other professional investors, is facing into the headwind of global stock market returns being heavily influenced by a small number of US tech companies, the so-called Magnificent Seven: Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN), NVIDIA Corp (NASDAQ:NVDA), Alphabet Inc Class A (NASDAQ:GOOGL), Apple Inc (NASDAQ:AAPL), Meta Platforms Inc Class A (NASDAQ:META) and Tesla Inc (NASDAQ:TSLA).”

The dominance of passive funds 

“There was also a sizeable decline in the number of funds managed by stock pickers. Active funds, managed by professional investors who aim to outperform a comparable index, now stand at 20, down from 24 funds. As a result, the number of funds that “passively” track the up and down movements of a particular index, have become more popular, rising from 26 to 30 funds.

“ETFs were an increased area of focus in the third quarter and have become the most-favoured fund type in our index, with 19 ETFs featuring. Leveraged ETFs proved to be more popular, coinciding with higher levels of volatility over the summer for tech stocks, as well as the stock market as a whole. 

“However, care needs to be taken, as these funds are very high risk and are generally designed for day traders. It is not prudent to hold leveraged ETFs for more than one trading session.”