Funds and stocks attracting the money versus the herd

There are a few different methods that can be used to judge the popularity of an investment, but two of the most common are how many people are buying it and how much money is being invested in it.

Though it may seem counterintuitive, these two metrics can often show very different patterns. On a broad scale, deals by individuals make up quite a small portion of the overall market, with institutions like investment banks making up the rest. But it’s a pattern we can see even among DIY investors at AJ Bell. While many buyers flock to the same investments, the money can often go in a different direction.

While it can be interesting to see where the largest sums of money are invested, it’s also worth noting that this can be highly influenced by a single investor, and just because they have large sums to invest, doesn’t mean they’ve necessarily made the ‘right’ choice.

Here are the most popular funds among AJ Bell investors, measured by both the net buys and the net flows (amount of money going in).

There are a few investments that seem to attract both the crowds and the money: general funds covering world indices or the S&P 500, the most popular global market, are top buys in both metrics. But slightly further down the list, a bit of disparity emerges.

Scottish Mortgage Investment Trust

While Scottish Mortgage Investment Trust has been one of the most-bought investments from AJ Bell’s DIY investors, it has actually had net outflows on the AJ Bell platform during that same time period. Meaning, while many investors are buying in, some of the big fish are jumping out.

Scottish Mortgage Investment Trust holds large tech companies, such as Space X, Nvidia, and TSMC. One reason for the outflows may have been the Space X IPO that took place in June. The share price of Scottish Mortgage Investment Trust moved dramatically around that date, suggesting that some investors may have decided to sell out following the IPO and take their returns. In the past year, it’s had a share price total return of 30%, but only 6.7% over the past five years.

ESG and ex-US funds

Some of the top funds in terms of flows over the past three months were global funds that excluded the US, and ESG funds, which focus on investing with environmental, social, and governance factors in mind.

Global funds excluding the US have crept up in popularity over the past few years. It gives investors more control over the large exposure that global funds typically have to the US, which often ranges between 60% and 75%. A global fund excluding the US doesn’t necessarily mean that an investor doesn’t invest in the US at all, it might mean that they just prefer to invest there separately so they can have more control over how much of their money goes to the region. Some investors use this as protection against a possible AI bubble burst, because many of the largest tech companies are US-based.

ESG-focused funds are perhaps one of the more surprising appearances on this list, because this style of investing has been out of favour in recent years. But the Vanguard Global ESG fund has managed a return of 25% in the past year, and 62% in the past five years.

The most popular stocks

While funds had quite a lot of similarities, the difference in flows and buys when it comes to stocks is stark. The only stock that is in the top five for both, and has topped the charts, is Space X, which was extremely popular leading up to its IPO in June. However, investors have not reaped the rewards of their investments yet, as the stock has dropped 17.9% since its IPO, as of 10 August.

Not only have net buys and net flows revealed different favourites for this group, but some disagreements as well. Besides Space X, the other four stocks most popular among net buys had negative outflows. Interestingly, all four of Legal & General, Aviva, Rolls Royce and Lloyds Banking Group have experienced share price increases since May. So, it’s possible that this simply reflects investor mindsets: while there’s a group of investors trying to get in on the action, there’s another group that’s taking their winnings and getting out as the FTSE 100 hits all-time highs.

Top stocks by flows

The top stocks according to flows offer a much more varied picture that is not as heavily focused on the UK. Along with Space X, it features Strategy Inc, which is a Bitcoin treasury company. The two UK names on the list are AstraZeneca, which is listed on the London Stock Exchange as well as in the US, and Primary Health Properties, a Real Estate Investment Trust (REIT).

Micron also made the list for top flows, as it’s come into the limelight for its role in the AI supply chain. The company makes computer memory and data storage and has increased its share price by 607% in the past year, becoming a trillion-dollar company. Despite its big year and becoming a popular stock on the AJ Bell platform, the overall price of Micron has started to even out in the past month, leaving it just above where it started three months ago.