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Andrey Dobrynin, InvestEngine

InvestEngine reports ETFs tracking equity indexes dominate investor choice in the UK

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The UK-based DIY investment platform InvestEngine’s managing director, Andrey Dobrynin has written a specialist commentary on investor appetite for ETFs over 2021.

“Investors have increasingly turned to ETFs for a simple, low-cost way to put their money into the stock market. This year has seen record inflows, with investors pouring billions into popular funds such as iShares Core MSCI World ETF and Vanguard S&P 500 ETF,” Dobrynin writes.

“As stock markets have continued to recover following their Covid crash of early 2020, many investors have enjoyed good returns from ETFs tracking equity indexes. Bond ETFs, which are generally less popular with investors, have suffered in 2021 as concerns about rising inflation have hit US Treasuries, UK Gilts and other major bond markets.”

Dobrynin notes that among InvestEngine’s DIY investors, the most bought ETFs have been equity funds including HSBC MSCI World, iShares Core S&P 500 and Vanguard FTSE Developed World, with iShares Physical Gold ETC a favoured non-equity pick. 

“Commission-free investing is no longer a novelty of app-based start-ups — even some of the biggest platforms are moving in this direction,” Dobrynin writes. “At the same time, some of the pioneers of ‘free’ investing are reaching scale, showing that this customer-friendly business model can be sustainable.
“It comes as no surprise that the ‘old guard’ investment platforms are changing their ways. It reinforces what we have seen with our customers for some time: investors want an accessible app-based service, user-friendly features and the lowest cost possible.

“With price competition likely to remain fierce, investors should keep their eyes open for less obvious service charges such as for ISAs and foreign exchange, while also considering the tools and features a platform may offer.”

Dobrynin notes that increased awareness of climate change issues, spotlighted recently by COP26, has been a key driver for ESG [Environmental, Social and Governance] investment in 2021. 

“For some ETF companies, inflows to their ESG ranges have even beaten those into their non-ESG funds. The number of ESG-screened ETFs has multiplied over the past year and we expect this growth to carry forward into 2022.

“ETFs focused on energy transition and other themes such as cyber security and digitalisation have caught investors’ imagination, with iShares Global Clean Energy ETF and WisdomTree Cloud Computing ETF among the popular picks.” 

Dobrynin writes that as inflation climbs higher, debate continues about when interest rates will rise and by how much. “But while inflation and rate rises may spark stock market volatility, returns on cash are likely to remain disappointing for some time yet,” he says.

“With many savings accounts paying minimal interest of 0.1 per cent or less, is a rate hike or two from the Bank of England really going to transform the appeal of cash — particularly when inflation of 4 per cent or more means savers are still losing money in real terms?

“Individuals investing for the longer term should therefore see market volatility as an opportunity to top up their portfolios at a potentially lower price, rather than a reason to head for the ‘safety’ of cash.” 

Dobrynin notes that increased interest in investing since the pandemic, along with the accessibility provided by the new generation of investment apps and platforms, have been steps in the right direction for transforming the savings habits of the British public.

“But making investing easier remains an ongoing challenge. ETFs, with their simplicity, low costs and diversification are ideal building blocks for investors wanting to put together a long-term portfolio. Platforms and apps should also be looking to use the power of digital technology to create tools and features that save time and effort, whether auto-investing customers’ cash or bringing ‘deep dive’ transparency to their investment holdings.” 

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