Square Mile: Capital growth funds tussle with income funds for advisers’ attention

Aegon Diversified Monthly Income took the top spot for the most-searched fund

Runners on a track

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Capital accumulation funds piqued advisers’ interest in the final quarter of 2023 as a brightening market outlook took some attention away from income strategies, according to Square Mile Investment Consulting and Research.

‘Income funds’ was the most-searched category on the firm’s site the previous quarter but went neck and neck with capital growth funds in the fourth quarter, with each accounting for 40.6% of searches over the three-month period.

There was a market rally among growth funds investing in areas such as technology, smaller companies and biotech after the US Federal Reserve hinted at an end to interest rate hikes in December, which could explain the renewed interest from advisers.

However, Aegon Diversified Monthly Income still took the top spot for the most-searched fund over the final quarter of 2023, accounting for 3.5% of all views – increasing by 1.7 percentage points from the previous quarter.

The £821m fund was up 10% in 2023 and offered investors the highest yield in the IA Mixed Investment 20-60% Shares sector at 6.1%.

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In at second was Amati UK Listed Smaller Companies, which gained a considerable amount of attention in the fourth quarter considering UK equities have been out of favour for some time.

Indeed, two UK sectors – IA UK All Companies and IA Sterling Strategic Bond – were the most searched groups in the final three months of 2023, accounting for 11.8% and 10.4% of all searches.

After 28 months of divestment from IA UK All Companies funds (resulting in £19.3bn of outflows), Square Mile business development director Scott Dakers said this could represent the beginnings of a return to the sector.

“The UK, which has been unloved by asset allocators for several years, saw an increase in interest, possibly suggesting a shift to a more positive sentiment towards our domestic market,” he said.

The most searched responsible funds – Wellington Global Impact Bond, FSSA Asia Focus and CT UK Social Bond – all invested in fixed income, which is unusual for ESG funds according to Dakers.

“Historically, the responsible investment field was dominated by funds investing in equities and this shift perhaps reflects the greater diversity of options available and the maturity of responsible investment as a whole,” he added.

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