Lifetime ISA investors plump for passives and cash-in on top-performing funds

Laura Suter
13 August 2018
  • Lifetime ISA investors prefer passive – making up half the top 100 investments

  • Global funds dominated, as did bets on Japan’s growth

  • A £5,000 LISA portfolio of the top 10 investments returned £793 in the past year, more than double the FTSE 100

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“It’s just over a year since we launched our Lifetime ISA and it appears that investors are plumping for low-cost passive funds as an easy way of starting their investment journey.

“We’ve seen a rush of demand for the Lifetime ISA since launch last summer, with people finding the 25% Government bonus hard to resist when building their house deposits and pension pots.

“Diving into where investors are putting their money, of the top 100 investments made by AJ Bell Lifetime ISA customers in their first year, 48% are passive funds – either tracking one index or multi-asset funds using passives. AJ Bell’s multi-asset passive funds take many of the top spots, as do Vanguard’s ever-popular range of LifeStrategy funds.

“Lifetime ISA investors opting for active funds are spreading their risk by plumping for global stock market funds, rather than placing their bets on one region. Of the top 10 funds, half have a global focus. The only exception to this is Japanese funds, which make up three of the top 10 funds, in addition to the Jupiter Asian Income fund, which invests in Asian companies excluding Japan.

“Investment trusts make up just 12% of the top 100 list, with investors focusing on trusts with proven track records that have been running for decades. Scottish Mortgage, Finsbury Growth & Income and City of London are the most popular. Woodford Patient Capital also made the list of most bought trusts, despite its share price plummeting by 20% in the past year.

“A portfolio evenly split between the top 10 investments, including funds, investment trusts and passives, would have returned £793 in the past year, on the maximum £4,000 annual Lifetime Isa contribution plus the £1,000 Government bonus. That’s more than double the £305 return you’d have got from investing in the FTSE 100 over the past year and also ahead of the £615 return from the MSCI All World index.”

Top 10 funds:

Funds Returns over the past year
Fundsmith Equity Fund 19.9
Lindsell Train Global Equity 24.4
Polar Capital Global Technology 30.1
Legg Mason Japan Equity 26.1
Baillie Gifford Global Alpha Growth 16.5
Baillie Gifford Japanese 12.0
Standard Life Global Smaller Companies 21.9
Baillie Gifford Japanese Smaller Companies 29.8
Jupiter Asian Income 2.6
Old Mutual UK Smaller Companies 9.2
MSCI All World 12.3

FTSE 100

Source: FE/AJ Bell. Data to 06/08/18

“Lifetime ISA customers have been savvy when it comes to picking funds, with all but one exceeding the returns from the FTSE 100 over the past year.

“Perennially popular names such as Terry Smith’s Fundsmith Equity and Nick Train’s Lindsell Train Global Equity made the top 10 list, as Lifetime ISA investors look for managers who have proven their worth over decades.

“Investors’ focus on Japan as a region has paid off over the past year, with Baillie Gifford Japanese Smaller Companies returning almost 30% and Legg Mason Japan Equity returning 26%, while Baillie Gifford Japanese handed investors a 12% return.

“Jason Pidcock’s Jupiter Asian Income fund has fared less well, and is the worst performer of the top 10 funds, delivering just 2.6% over the year. However, one year is not a long time period to invest nor judge the performance of a fund.”

Top 10 Passives:

Passives Returns over the past year
Vanguard LifeStrategy 80% 8.5
Vanguard LifeStrategy 100% 10.6
Fidelity Index World 13.2
Vanguard LifeStrategy 60% 6.37
Vanguard FTSE All World Ucits ETF 11.37
Vanguard LifeStrategy 40% 4.16
iShares UK Equity Index 6.3
Vanguard S&P 500 Ucits ETF 17.99
iShares S&P 500 Ucits ETF 17.86
Vanguard FTSE 250 Ucits ETF 5.95

MSCI All World


FTSE 100

Source: FE/AJ Bell. Excluding AJ Bell's own funds. Data to 06/08/18

“Lifetime ISA investors will often be investing for the first time, so it makes sense that the Vanguard LifeStrategy range of low-cost multi-asset funds feature heavily in the top 10 list. These funds are intended as a one-stop-shop and take the decisions about how much money to allocate to different regions and sectors out of investors’ hands.

“Elsewhere investors focused on developed markets, opting for trackers of the main UK and US indices, or of global markets. For those getting into investing for the first time, tracker funds can be an easy-to-understand entry point to help them build confidence with markets. They also present a low-cost option for investors who are conscious of the amount fees will eat into their ultimate returns.”

Top 10 Investment trusts:

Trusts Returns over the past year
Scottish Mortgage 30.04
Finsbury Growth & Income 14.39
City of London 3.98
Woodford Patient Capital -20.37
Edinburgh Worldwide 44.32
Pacific Horizon 24.93
Fidelity China Special Situations 6.73
Monks 22.58
Foreign & Colonial 22.06
Allianz Technology 48.94
RIT Capital Partners 10.2
Capital Gearing 6.07
MSCI All World 12.3
FTSE 100 6.1
Source: FE/AJ Bell. Data to 06/08/18

“Investment trusts only represent a small proportion of Lifetime ISA’s portfolios. This is a trend we see across many investors, who plump for funds over trusts, but is also understandable as first-time investors may find investment trusts harder to understand.

“Among the 12 trust selections two have failed to match the returns of the FTSE 100 index over the past year. Neil Woodford’s Patient Capital trust woes have been well documented, with shares in the trust falling in value by more than 20% over the past year. City of London also disappointed, delivering a 4% return in a year where the FTSE 100 returned 6.1%.

“However, stellar performance has been delivered by the trusts focusing more on technology companies, such as Allianz Technology and Scottish Mortgage, delivering 48.9% and 30% respectively. Meanwhile, Edinburgh Worldwide, which invests in early-stage companies including a number of technology firms, has returned 44% in the year.”

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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