Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

During another volatile year for shares and bonds, it paid to be diversified beyond British shores. Among stock markets, the US, Japan and Europe all delivered attractive returns, easily surpassing gains in the UK1

It was also an ideal year for regular savings plans. After an uncertain start and sharp falls on markets during the autumn, shares came racing back in November and December. Investing a set amount each month automatically takes advantage of volatile markets, because it results in more fund units or shares being bought after falls and fewer once markets have risen.  

There is little reason to believe markets will turn more predictable this year. While the outlook for interest rates and inflation has improved over the past couple of months, the question remains have markets gotten ahead of themselves? Markets are now more optimistic about the outlook for rates than central banks, leaving room for disappointment.   

Over the next few months, whether or not corporate earnings can bounce back after plateauing in 2023 will also be a key factor. If they can – and the world continues to avoid a deep slowdown or recession – more clouds will clear from the horizon. However, without an earnings recovery, markets risk appearing overvalued around current levels.  

Professional analysts currently expect company earnings in the world’s largest market of the US to grow by about 12% this year, which would be a good result if they did2.    

No doubt these and other factors influenced the buying choices of investors at Fidelity Personal Investing over the year. A truly diverse bunch – money market funds, index trackers and technology funds – were all among the best sellers.

The Fidelity Index World Fund took top spot for ISA purchases, confirming that investors are sold on the idea of a diverse markets exposure at minimal cost. This fund tracks the MSCI World Index converted back into sterling. It has an ongoing charge of just 0.12%, so offers an attractive way of diversifying an investment portfolio composed mainly of UK shares. 

Meanwhile, the Legal & General UK Index Trust was the most popular route to a home market exposure. It tracks the FTSE All-Share Index on a net total return basis, so provides a good exposure to all of the UK’s listed blue chips plus companies ranging from second-tier mid-caps to some smaller companies too.   

With returns on cash heading over 5%, the Fidelity Cash Fund was another top choice. Following increases in the Bank of England’s Bank Rate since December 2021, money market funds now offer an appealing combination of safety and income.  

Many money market funds – the Fidelity fund included – aim to produce a return that matches or exceeds the Sterling Overnight Index Average, or “SONIA”. The SONIA rate is 5.2% at the time of writing3. The Fidelity Cash Fund is one of Tom Stevenson’s four fund picks for 2024

In fourth place, the Fidelity Global Technology Fund was the most popular actively managed fund. This fund targets three areas: growth companies with disruptive technologies; more cyclical businesses with stronger balance sheets; and special situations that are either undervalued or expected to benefit from a forthcoming catalyst.  

Being actively managed, it gets round the severe concentration risk suffered by indexed technology funds. The fund’s largest holdings at the end of November were: Microsoft (5.1%); Apple (4.5%); and Taiwan Semiconductor (4.0%). 

After a challenging year, the Fundsmith Equity Fund returned to Fidelity’s best seller lists in April 2023. The fund continued to pursue a strategy of emphasising consumer staples and healthcare companies, which now account for around 56% of the fund’s assets. Technology, on the other hand, takes up only around 11% of the portfolio.   

Despite this, Microsoft and Meta were among the among the fund’s largest holdings and biggest winners. The Wegovy weight-loss drug firm Novo Nordisk was another outstanding holding4

Two more tracker funds – the Fidelity Index US Fund and Fidelity Index UK Fund – occupied the mid-table, sandwiching another cash fund – the Royal London Short Term Money Market Fund.

In a similar vein to Fundsmith Equity, the Fidelity Global Special Situations Fund – in ninth place – provided evidence of investors still being prepared to back exceptional individual companies. This fund features on Fidelity’s Select 50 list.

As its name suggests, this is another “best ideas” fund, aiming to produce superior returns over the longer term. Current large holdings that aren’t US tech businesses include: UnitedHealth Group, the oil services company Baker Hughes and Japan’s TDK.

Rounding out the top 10 was another Select 50 choice – the Fidelity Global Dividend Fund, another of Tom Stevenson’s fund picks for 2024. This fund aims for a dividend based total return with capital preservation being the number-one priority. It also offers investors the chance to invest in some of the world’s strongest dividend payers, thereby reducing reliance on the UK stock market where payouts have become increasingly concentrated among a small number of blue-chip companies.  

For more investing ideas, Fidelity’s first Investment Outlook of 2024 is out tomorrow.    

Top 10 best-selling ISA funds on Fidelity Personal Investing in 2023 

  1. Fidelity Index World Fund 
  2. Legal & General UK Index Trust 
  3. Fidelity Cash Fund 
  4. Fidelity Global Technology Fund 
  5. Fundsmith Equity Fund 
  6. Fidelity Index US Fund 
  7. Royal London Short Term Money Market Fund 
  8. Fidelity Index UK Fund 
  9. Fidelity Global Special Situations Fund 
  10. Fidelity Global Dividend Fund

Source: Fidelity International. Gross ISA sales from 1 January to 31 December 2023 for Personal Investors only.

Sources

1 Bloomberg, 29.12.23 

2 FactSet, 05.01.23 

3 Bank of England, 05.01.23 

4 Fundsmith, 29.12.23

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing into a fund, please read the relevant key information document which contains important information about the fund. Eligibility to invest in a ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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