Passive investment funds are a popular choice for investors with stocks and shares ISAs. In fact, they make up most of the 10 most popular investment funds in the UK right now.
Here, I take a look at the top five passive investment funds for your stocks and shares ISA. I also investigate why they are so popular and how they could help you grow your wealth.
What are passive investment funds?
Passive investment funds invest in the whole of a share index. For example, a UK FTSE 100 passive fund invests in the whole of the FTSE 100 index. They are sometimes called tracker funds because they track a whole share index.
They are different to actively managed funds where a manager picks the shares they think will increase in price. Many investors use passive investment funds as a core part of their stocks and shares ISA.
Top 5 passive investment funds for your stocks and share ISA
Let’s start by looking at the current top five passive investments funds in the UK. These were the most popular funds for investors in December 2021, including stocks and shares ISA investors as well as SIPP pension holders.
1. Vanguard LifeStrategy 80% Equity
This fund has a three-year return of 44%. The fund’s objective is to invest 80% in shares and 20% in bonds and other similar fixed-income investments. The fund invests at least 90% in “passive funds that track an index and are managed or operated by the ACD or its associates.”
2. L&G Global Technology Index
This fund has a three-year return of 170%. The fund’s objective is to “track the performance of the FTSE World Technology Index … after the deduction of charges and taxation.”
The Benchmark Index includes shares in technology companies from the developed and advanced emerging markets that are included in the FTSE World Index. This fund’s amazing performance reflects a stellar few years for technology stocks.
3. Vanguard LifeStrategy 60% Equity
This fund has a three-year return of 35.1%. The fund’s objective is to invest 60% in shares and 40% in bonds and other similar fixed-income investments. Like the 80% fund (above), this fund invests at least 90% in passive funds that track an index and are managed or operated by the ACD or its associates.
4. Vanguard U.S. Eq Idx
This fund has a three-year return of 82.1%. The Vanguard U.S. Equity Index Fund “seeks to track the performance of the S&P Total Market Index.” This is an index that includes the broad US equity market, including large-, mid-, small- and micro-cap companies. The fund’s impressive performance reflects the fact that US stock prices have outstripped the prices of most other geographies over the last three years.
5. Vanguard LifeStrategy 100% Equity
This fund has a three-year return of 53%. The fund’s objective is to invest 100% in shares. The fund has beaten the Vanguard LifeStrategy 60% and 80% due to its higher shares allocation.
Why are these funds popular with stocks and shares ISA holders?
Passive investment funds are popular among stocks and shares ISA investors for several reasons, including:
- Low cost – passive funds have low management charges, starting at around 0.15%. This is because they don’t need an active fund manager to make fund choices.
- Diversified – passive funds are diversified across the whole of an index rather than being invested in just a few companies.
- Lower risk – passive investing funds are arguably lower risk than actively managed funds. This is because the risk is spread across the whole index and these funds aren’t prone to fund managers sometimes picking the wrong shares.
However, stocks and shares ISA investors should bear in mind that shares prices fluctuate over time. So, passive investment funds may not be suitable for short-term investors. That’s because they won’t have time to wait for the market to bounce back from a slump.
How can you invest in passive investment funds through a stocks and shares ISA?
Stocks and shares ISAs give you the option to invest in individual shares and investment funds. Passive investment funds are a type of investment fund that invests in a whole index and tries to closely track that index.
Take a look at our top-rated stocks and shares ISAs to see where you could invest.
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About the author
Alice is a Suffolk-based personal finance writer specialising in pensions, tax, investment and small businesses. She is a qualified Chartered Accountant and has previously worked for KPMG London and Tesco Plc.
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