Each quarter, investment platform Interactive Investor publishes insights into the latest investment trends. It looks at what its customers are buying and how these investments have performed. This is known as the Interactive Investor Index.
The index has been up and running for over four years now, with the average investor having gained 18.4% during this period.
Looking at the most popular investments can be a useful exercise, as it can prompt some investment ideas for your own ISA, self-invested personal pension (SIPP) or investment account – a bit like MoneyWeek's share tips. It can also give you a sense of investment trends as they emerge.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The latest data revealed several interesting insights – from younger investors outperforming their older counterparts over the past year, to women beating men over longer performance periods.
It also revealed which asset classes investors are favouring, with bonds proving particularly popular right now. We take a closer look at these findings.
1. Young investors have been outperforming older investors
Those aged 18-24 were the most successful investors last quarter, according to the Interactive Investor index. They returned 5.1% on average, beating the over-65s (the worst performing group) by a margin of 1.1%.
This continues the winning streak that the youngsters have enjoyed for the past year. They have outperformed all other age groups over the six-month, nine-month and one-year performance periods too.
The age group’s outperformance can partly be explained by their preference for investment trusts, according to Interactive Investor.
Trusts are investment vehicles (or baskets of assets like shares or bonds) that trade on a stock exchange. This means their market value can fall below the value of the assets they hold.
In recent years, many trusts have been trading at a discount, but this has narrowed recently, boosting returns for investors.
“Given that investment trusts had a reputation for being the City’s best-kept secret historically – a tag that they have since shrugged off – their popularity among our youngest cohort might come as a surprise”, says Myron Jobson, senior personal finance analyst at Interactive Investor.
“However, our recent research on exploring how young adults manage their junior ISA when it matures into an adult ISA suggests that many maintain the investment strategy crafted by their parents, with investment trusts being a prominent component of a diversified portfolio,” he adds.
2. Women have earned slightly better returns than men over longer periods
Women continue to earn slightly better returns than men over longer performance periods, according to the latest data.
While men have generated slightly higher returns over the past three, six, nine and 12-month periods, women have done better over the past two and three-year periods.
Overall, this means the average female client with Interactive Investor has earned 18.7% in cumulative returns since the index was launched in January 2020. Meanwhile, the average male client has earned 18%.
Of course, this isn’t a huge margin – but it is interesting to dig into the factors driving this outperformance.
“Men and women run their accounts among broadly similar lines, but women tend to have a discernibly higher exposure to investment trusts (23% versus 17.9% for men) which may have contributed to this longer-term outperformance,” Interactive Investor explains.
The key takeaway here could be that investment trusts are worth a look. The latest data from Interactive Investor suggests they have benefitted both younger investors and women in recent years, thanks in part to the valuation discount they often offer.
3. Bonds are back
The latest data also shows a resurgence in the popularity of bonds. Interactive Investor’s clients have upped their weighting to the highest level since the index was launched.
Over the course of 2022 and 2023, central banks around the world hiked interest rates aggressively in an attempt to bring inflation under control. This caused bond yields to rise dramatically, which in turn caused bond prices to plummet on the second-hand market.
This makes sense when you think about it – why would you buy a second-hand bond offering 2% interest when you can buy a brand new bond offering 3% interest?
While the second-hand value of bonds fell in 2022 and 2023 when interest rates went up, the silver lining is that the ‘income’ in ‘fixed income’ is now back.
If you buy a new bond issued today, the level of income on offer will be considerably higher than you could have earned on a bond bought a few years ago. Against this backdrop, it is unsurprising that the asset class has seen inflows.
Gilts have proved particularly popular among Interactive Investor’s client base – in particular the TN25 Gilt. This government bond is due to mature on 31 January 2025, and pays an annual coupon of 25p for every bond maturing with a £100 par value.
This isn’t an attractive yield, at a measly 0.25%. However, investors have been snapping this instrument up for tax reasons. Gilts are exempt from capital gains tax, which makes them attractive to investors, particularly if they have already maximised their annual ISA allowance.
The low yield on offer on these gilts means investors can buy them up at a discount on the secondary market, knowing they will receive the full £100 back when the bond matures. The gain they make will be tax-free.
What’s more, if you buy the bond at a discount, the coupon looks more attractive on a relative basis too. Let’s say you buy the bond for £95, for argument’s sake. The annual 25p coupon payment now constitutes a 0.26% yield. In other words, by buying the bond at a discount, you are getting access to the same income flows at a lower price.
4. Private investors have rivalled fund managers’ performance
Interactive Investor has also compared its clients’ average returns with those of professional fund managers. It used the Investment Association’s Mixed 40-85% Shares Sector as a proxy.
“Over the period covering January 1, 2020, to March 31, 2024, fund managers edge it by a slither, returning 18.66% on average versus 18.4% for the average ii customer”, the report explains.
“Over three and two years, ii customers come up trumps (12.6% versus 10.67% and 6.8% versus 5.02%, respectively)”, it adds.
It is worth remembering that many Interactive Investor customers will hold funds in their portfolios, as well as individual stocks and bonds. This means their performance may have indirectly benefitted from the skill of a fund manager, even if they carried out the fund selection process themselves.
5. The rise of index-trackers continues
As the ‘active versus passive’ debate wages on, it won’t come as a surprise to hear that index-trackers continue to be popular with DIY investors.
Some are sceptical about a fund manager’s ability to consistently beat a benchmark – particularly by enough of a margin to justify a high management fee. As a result, they prefer to track a broadly diversified stock market index using a passive fund.
The average Interactive Investor client now holds 8.9% of their portfolio in passive funds, up from 5.7% three years ago.
This is only set to increase in the years to come, as passive funds are particularly popular with younger and middle-aged investors. Those aged 25-34 have 15.9% in passive funds, while those aged 35-44 have 16.5%.
-
FTSE 100 hits record highs – why is it rising and will we see more gains?Advice UK equities have been described as unloved for a long time but as the FTSE 100 hits new highs, we explain if now is the time to buy British.
-
How to invest in copperIt may be time to invest in copper as the red metal appears poised for a big jump. Dominic Frisby looks at what should investors should buy
