A tale of two fund sectors

The Global sector is the largest fund sector, according to the Investment Association, but it might not be quite as global as you think.

* To 17/10/2023 Source: Trustnet.

The largest fund sector by value is Global, according to the Investment Association (IA), the UK’s investment trade body. At the end of August 2023, Global funds accounted for £171.1bn of investments, about a seventh of the IA’s fund total, which covers over 50 sectors. Second on the list, at £138.9bn, was the UK All-Companies sector. Three years previously, the UK All-Companies sector had been top dog with £149.7bn worth of assets.

The decline in popularity for the UK All-Companies sector goes back a long way. The IA data shows it to have been the worst sector for individual investor sales in six of the last ten years (2013­–2022). As of August 2023, the sector had also been at the bottom of the pile for ten of the last twelve months, suggesting 2023 will be another bad year.

The prolonged decline of the UK All-Companies sector has a range of causes:

·     Investors, both individual and institutional, have become increasingly internationally focused. The advantages of diversification are now widely understood and have encouraged a global outlook to creating portfolios.

·     The importance and relative size of the UK stock market has waned. For evidence of this, look no further than the various announcements from UK companies that their main listing will be in the US, not the UK.

·     The UK stock market offers investors little exposure to the technology and communications sectors, which account for only about 2.5% by value.

·     The performance of UK shares has been lacklustre compared with other international markets, as the graph above indicates.

The IA requires funds in the Global sector to invest at least 80% of their assets globally in equities. In addition, the IA says funds must be diversified by geographic region. You might expect the IA rules mean global funds are broadly spread around the world. However, that is not necessarily the case. Many global funds use either the MSCI World or MSCI ACWI indices as their portfolio benchmark. The former has a near 70% weighting to the US, while the ACWI, which also includes emerging markets, has a 62% weighting.

As ever, if you want to know what you are buying, it pays to look past the name to the list of ingredients and seek advice.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.