Where experts are investing their Isa – and the most popular funds revealed

It’s human nature to be curious about what our neighbours are doing — and investors are no exception.

So if you’re in need of inspiration this Isa season, here’s a sneak peak at where investors who hold Isas with Interactive Investor, one of the country’s biggest stockbrokers, have been piling their money this tax year.

But be warned, just as with copying your neighbour’s answers in a test, there’s no guarantee they got it right. 

Some of the top investments are still cheap and could reward investors, but others may already have enjoyed a growth spurt and not have further to go — or could even lose value.

Do your homework before following the herd to make sure you don’t pool your money into the latest fads.

Most popular Isa funds

At the top of the list of the most bought funds this tax year by Isa holders at Interactive Investor is the Fundsmith Equity fund — a long-standing British favourite. Managed by City icon Terry Smith, it invests in global stocks and has historically had a strong track record.

However, in the past three calendar years the fund has underperformed its benchmark.

In 2023, it returned 12.4 pc, which was below the 24.42 pc return for the MSCI World index, a global basket of stocks.

Mr Smith blamed the poor relative performance on dramatic growth in U.S. tech giants and said those who did not invest in all of the ‘Magnificent Seven’ stocks, which includes the likes of Tesla, Apple and Nvidia would not have matched the benchmark.

The fund is off to a good start this year, returning 7.2 pc in the first two months versus the global index’s 5.5 pc.

Jason Hollands, of stockbroker BestInvest, says: ‘This fund has a real fan club behind it and it has had a tough time relative to the benchmark but Mr Smith has a great long-term track record.

‘He is sticking to his guns and investing as he has always done, which has been very successful in the past.’ 

As technology stocks continue to outshine other sectors, investors chose the L&G Global Technology Index Trust to gain exposure to the market. The fund returned an impressive 53.27 pc in 2023.

Dominating the list of most popular funds among British Isa holders over the past 11 months, is asset management giant Vanguard. More than five of its funds have found their way into the top ten, including two of its LifeStrategy funds.

These funds are typically a strong choice for investors looking for simplicity and a wide range of markets and offer a large mix of stocks and bonds. 

They don’t promise market-beating gains but low-cost and steady gains make them popular with long term investors.

The Vanguard Lifestrategy 90 per cent Equity fund, which holds just 10 per cent in bonds and the remaining in stocks and shares has been the most popular, followed by its 100 per cent equity counterpart.

Investors have also used Vanguard’s funds to gain exposure to the American market through the Vanguard US Equity Index and British stocks with the Vanguard FTSE Global All Cap Index. These funds are typically cheap relative to actively-managed funds, as they charge far lower fees.

Hollands says investors have increasingly flocked to tracker funds as many are more sensitive to the cost of fees in recent years.

One fund that stands apart from the rest is the Jupiter India, which is the only country-specific investment to feature in the list that doesn’t invest in Britain or the U.S. Investment in the world’s most populated country and largest democracy shows some investors are becoming more confident in their approach, according to Interactive Investor.

It’s perhaps no surprise, given the fund’s strong performance — it returned 31.12 pc in 2023, more than doubling that of its benchmark.

Myron Jobson, senior personal finance analyst at Interactive Investor, says: ‘The Indian market has gone from strength to strength over the past year, coinciding with strong economic growth.’

The fund was the most bought investment across funds, investments trusts and all single stocks at stockbroker giant Hargreaves Lansdown.

The favoured investment trusts

In the world of investment trusts, investors have sought out those known for their strong income, as they look to get in on the rising yields of a higher interest rate environment.

Jobson says: ‘The desire among many investors to protect their portfolios against the high levels of inflation has also contributed to the uptick in demand for income strategies.’

Equity income trusts can be a handy addition to your Isa portfolio as the dividend payouts give you more flexibility in how you spend your returns.

The investments allow you to take the payouts to boost income each year. You can also choose to reinvest the dividends to help your pot grow if you are more focused on long-term growth.

All bar one of the top ten most popular investment trusts pay a dividend but two have small yields — Scottish Mortgage and F&C.

The Scottish Mortgage Investment Trust, which invests in high growth businesses, is a favourite among investors and one that has paid off in recent weeks.

Earlier this month, bosses announced a £1 billion share buy-back programme — 9 per cent of its market value — which it intends to complete in two years. 

The shares had fallen to half the level of their pandemic peak and were looking cheap, trading at a 15 per cent discount to the net asset value.

The share price has jumped 9.55 per cent on the news, in what will be the largest ever buy-back by an investment trust.

UK equity income investment trusts have been a popular way to invest in a mix of dividend-paying UK companies and access one of the highest-yielding stock markets in the world.

One of the most renowned is the City of London Investment Trust. Job Curtis, who manages it, invests in good quality and stable companies that he can buy at a reasonable price and that can weather economic storms.

Hollands says: ‘The fund has had a pretty horrible run of performance but you can now buy the shares at a discount so it could be a good entry point.’

Renewable infrastructure fund Greencoat UK Wind has been a strong dividend payer, hiking its payouts above expectations in 2023. Last year, total shareholder return was 5 pc.

Investors over the age of 65 have picked the L&G Global Technology Index Trust and Polar Capital Technology Trust over the past year for exposure to the technology sector, says Interactive Investor.

Stocks winning investors’ backing

Dividend-paying stocks have topped the charts this year, as investors value steady returns.

Eight of the top ten most popular single stocks pay a dividend.

Shares in insurance company Legal & General have surged 8.35 per cent over the past year. The dividend yield stands at 8.2 per cent — making it one of the few companies in the FTSE 100 to pay more than 8 per cent. It increased its dividend in 2023 by 5 per cent.

Similarly, Lloyds shares are tipped to continue paying market-beating dividends over the next few years.

Shares in the High Street bank have surged 14.2 per cent in the past month, and it boasts a 5.5 per cent dividend yield, but the share price remains below historical highs.

Hollands says: ‘Banks are very cheap at the moment and they do tend to pay good dividends.’