March's 10 most-bought funds

UK-focused funds, including those heavily weighted in UK smaller companies, continued to be a priority for traders on Interactive Investor during March, the latest data shows.

After popularity for emerging markets waned considerably in February, investors' interest seemed to return for the sector, with two funds with majority holdings in emerging markets making the 10 most-bought ranking.

However, the AXA Framlington Biotech fund was the most-popular on Interactive Investor for the second month in a row.

The fund is managed by Linden Thomson and has an 87.46% regional weighting in the US, with its largest holdings including Gilead Sciences, Celgene Corporation, Amgen, Biogen and Illumina. At 28 March, the fund's size was £326.3 million and had grown 36.7% over the past 12 months.

However, head of investment at Interactive Investor Rebecca O'Keeffe warns that this sector could encounter some turbulence: "Whilst the US is forging a steady path, technology and biotech stocks are starting to look overvalued, which is putting the Nasdaq under pressure."

UK equity funds

Instead, O'Keeffe points to volatility in global markets, which has likely buoyed interest in UK-focused funds.

"UK funds continue to be a popular option for investors, with over half of the top 10 dominated by UK-focused funds. Against a backdrop of issues for many large global economies, investors have clearly decided that the UK is a good option. Europe is struggling with low inflation and Japan and China are both encountering their own domestic issues."

Positioned second in its sector over a three-year period, Unicorn UK Income was the second most-bought fund on Interactive Investor in March and Marlborough UK Micro Cap Growth took eighth place.

Investors' liking for the UK was confirmed by February data from the Investment Management Association (IMA).

Chief executive of the IMA Daniel Godfrey said: "Strong fund sales continued in the second month of 2014 with investors continuing to favour equity funds. UK equity funds in particular are seeing the best net retail sales for some time."

Invesco Perpetual High Income returned to Interactive Investor's ten most-bought funds in March and was placed fourth. Previously managed by Neil Woodford, the fund is now run by Mark Barnett.

The Invesco fund was joined by the HSBC FTSE All Share Index, which tracks the index of the same name and took ninth place.

Three of March's most-bought funds were from the UK Smaller Companies sector: River and Mercantile UK Equity Smaller Companies, Investec UK Smaller Companies and CF Miton UK Smaller Companies fund.

All three outperformed the IMA UK Smaller Companies sector once again, which saw one-year growth at 29.7%.

Managed by Ken Hsia and with a growth of 47.3% over the last year, Investec UK Smaller Companies came in at number five. The fund now has assets of over £660 million.

The fund is positioned fourth out of 53 in its sector for its performance over the last year and seventh out of 52 for the last three years.

It has a majority holding in the Consumer Services sector, closely followed by the Technology sector and its largest holdings include Quindell, National Express Group and Utilitywise. The stocks make up 3.6%, 3.3% and 2.3% of the fund's investments respectively.

Another of March's most-popular funds was the CF Miton UK Smaller Companies fund, which came in at number seven.

The fund, which has assets worth £17.2 million, is managed by Gervais Williams and it holds the top position in its sector, according to Trustnet. With growth over the last year of 29.8%, the CF Miton fund's largest holdings are in SQS Software Quality Systems, Seeing Machines, Conygar Investment and, like the Investec fund, Quindell and Plus500.

The River and Mercantile UK Equity Smaller Companies fund grew by 48.1% over the last year and is ranked as the 10th most-bought fund on Interactive Investor. Managed by Daniel Hanbury, the fund had £296.3 million worth of assets on 31 March.

Supportive investment infrastructure

O'Keeffe puts the rising popularity in smaller company-focused funds down to a growth in supportive investment infrastructure.

"Within individual markets, the continuation of central bank support for pro-growth and full employment policies should ensure that smaller companies continue to outperform their large-cap counterparts, so investors are taking advantage of that continuing trend," she said.

After falling out of investors' favour in February, interest in emerging markets seemed to slightly pick up in March and Aberdeen Emerging Markets Equity was the sixth most-bought fund.

"The underperformance of emerging economies has been dramatic compared to better-performing developed markets," explained O'Keeffe. "But, with some of these established markets now appearing to look increasingly stretched, emerging economies are starting to look relatively attractive and early money is returning to the sector."

First State Asia Pacific Leaders was the third most-bought fund in March, with a size of just under £6 billion. The fund has a 20.3% weighting in India and has a majority investment in the Financial sector.

Managing director at Willis Owen Jason Chapman said: "As with the national picture, UK funds and sectors are proving particularly popular with our customers at the moment. But we're seeing real interest in the global sector too, which suggests people are conscious of the need to diversify their portfolio in order to achieve healthy long-term growth."