Many equity portfolios are clustering their assets into the same stocks as the rest of their peer group, research by FE Trustnet shows, while funds in different sectors might be investing heavily in the same ideas.
Funds allow investors to easily diversify their portfolios but there is also the chance that different funds could be buying the same stocks and giving the investor more exposure than they thought they were taking.
In addition, funds in different sectors might have invested significantly in the same companies – global funds often have plenty of US and UK stocks, for example, while Asian equity strategies can have lots in common with emerging market funds.
Below, we look at seven equity fund sectors and reveal the 15 stocks that are the most held among their members’ top-10s so investors know what to look out for if they think they have accidently doubled-up on their exposure.
IA UK All Companies
Source: FE Analytics
Starting on home shores and it should come as little surprise that the most held stocks in the IA UK All Companies sector are household names such as oil majors Royal Dutch Shell and BP, pharmaceutical giants GlaxoSmithKline and AstraZeneca, and consumer stalwarts Unilever and Diageo.
Banking group HSBC, the largest stock on the FTSE All Share index with a market cap of £119bn, is the ninth most-common stock in the top-10 holdings of this sector.
Several active members of the sector have all five of the most common stocks within their top-10, with the £944.4m HSBC UK Growth & Income fund being the largest.
IA Global
Source: FE Analytics
Over in the IA Global sector, which is the second largest peer group in the Investment Association universe, the dominance of the US clear with names such as Microsoft, Apple and Visa being commonly owned.
Those with stocks in the UK should also note that domestic names such as Unilever, BP and GlaxoSmithKline are found in the largest holdings of more than 5 per cent of the 333-strong sector.
The £1.2bn Merian Global Equity and $321.6m Merian World Equity funds are the only members of the IA Global sector to hold the five most common stocks in the top-10 positions. However, the highly diversified nature of these strategies means that only small positions have been taken in each stock.
IA Global Emerging Markets
Source: FE Analytics
Within the IA Global Emerging Markets sector, we can see that a significant number of funds have exposure to the same stocks in their top-10 holdings.
In the case of South Korean tech name Samsung Electronics, two in five of the peer group’s have taken a significant stake. Almost as many own Taiwan Semiconductor Manufacturing and more than one-quarter hold Naspers.
However, there are no active IA Global Emerging Markets funds that have established top-10 positions in all of the five most popular holdings.
IA North America
Source: FE Analytics
Given the dominance of the US market in the global equities opportunity set, many of the most common holdings in the IA North America sector have been seen among IA Global funds.
The clustering is more pronounced in this peer group, however, with close to half of the funds in the peer group putting Microsoft in their top 10. More than one-quarter of portfolios also have a significant weighting to Apple, Amazon, Visa and JPMorgan Chase.
Despite this, it is only index trackers that have all of the five most common holdings in their top 10s.
IA Europe Excluding UK
Source: FE Analytics
The IA Europe Excluding UK sector is another where some stocks are very common among its members but there are no active funds with all of the five most popular in their major holdings.
More than 35 per cent of the funds have Swiss multinational healthcare company Roche in their top 10 holdings. It’s worth keeping in mind that this stock is also a favourite in the IA Global sector, where 5.52 per cent of funds have it in their top 10.
Those with UK holdings should also note that Unilever, which is dual-headquartered in London and Rotterdam, is a popular stock with European equity managers.
IA Japan
Source: FE Analytics
Over in the IA Japan sector, more that 45 per cent of funds are holding Toyota Motor Corp in their top 10 while stocks familiar to those in the UK – such as Honda Motor and Sony – are also well represented.
Popular holdings that might not be household names over here include sensor manufacturer Keyence, pharmaceutical company Daiichi Sankyo and industrial chemical major Shin-Etsu Chemical.
Only index trackers have all five most popular stocks in among their top holdings.
IA Asia Pacific Excluding Japan
Source: FE Analytics
In this sector, Samsung Electronics is by far and away the most popular holding in the IA Asia Pacific Excluding Japan with close to two-thirds of its members owning it. Taiwan Semiconductor Manufacturing is also very common.
Investors that own a fund from this peer group would do well to compare it against any global emerging markets portfolios they hold, as stocks such as Samsung, Taiwan Semiconductor, AIA, Ping An and Tencent are favourites there too.
However, the inclusion of Australasia in this peer group’s investment universe means that stocks which are not often seen in other strategies – such as Westpac Banking Corp, National Australia Bank, Australia & New Zealand Banking Group and Commonwealth Bank Of Australia – are major holdings here.