- Most popular investments with customers using AJ Bell investing platform in 2023
- Investors buy gilts as interest rates rise and taxes bite
- Money market funds have also proved popular with DIY investors
- The tracker tide shows no signs of abating
Laith Khalaf, head of investment analysis, AJ Bell:
“It’s been the year of the bond for DIY investors, who have committed large sums of money to the gilt market over the course of 2023. The fact the most purchased government bonds are short-dated suggests investors are using these as cash-like instruments, and this is reinforced by the fact that money market funds have proved similarly popular. After many years of near-zero interest rates, it’s perhaps no surprise to find some investors filling their boots given the yields on offer look far more appetising.
“There may well also be a tax motive behind the wave of gilt purchases. An ISA protects bond and cash interest from tax, but if held outside a tax shelter, low coupon gilts also come with a tax advantage compared to interest-bearing accounts and funds, as they are exempt from capital gains tax. While some may be using gilts as tax-efficient alternative to savings accounts, they are more risky and complicated, so are better suited to more experienced investors.
“Passive equity funds have also proved popular again this year, as investors look to allocate money to global markets cheaply and simply. Our most recent Manager versus Machine report found that only just over a third of active managers beat a passive alternative in 2023. That’s against a background of £9 billion being withdrawn from active funds over the last five years, compared to £75 billion going into passive funds, based on Investment Association data. The tracker tide shows no signs of abating, which means life will probably remain difficult for active managers for the foreseeable future.
“UK insurance company shares have also staked a claim with investors this year. The sector is pretty beaten up and as a result is offering appealing levels of dividends, which are backed by fairly stable business models. UK stock investors will be hoping that 2024 brings a reappraisal of the domestic equity market, which remains deeply out of favour, including with the UK’s own retail fund investors. Since 2016 retail investors have sold down £45 billion of UK equity funds, which is a measure of the negative sentiment towards the domestic market, and a concerning sign for the future of UK plc as this trend looks to be accelerating.”
Most popular investments with AJ Bell’s DIY investors in 2023
Based on £ net flows on AJ Bell’s DIY investor platform from 1 Jan 2023 to 15 December 2023
