Top stocks in 2022: What investors bought most and why tech is still popular

After a decade long bull run in technology stocks, markets were brought back down to earth this year.

For those who only started investing during the pandemic, it has been their first time experiencing any serious market volatility.

In the face of this year’s storm, data from the top investment platforms shows investors are sticking with their investments as tech stocks remain popular despite the macroeconomic backdrop.

We have a look at why investors are sticking with tech, and why passive funds have proved most popular this year.

Why are investors sticking with technology stocks?

It has been a brutal year for technology stocks this year with the tech-heavy Nasdaq index losing nearly 30 per cent since January.

Interest rate hikes and rising inflation have knocked the wind out of markets and have had a significant impact on growth stocks.

Tesla, a firm favourite of DIY Investors, has plummeted 60 per cent this year as demand softens. Pressure has also accelerated as concerns grow over Elon Musk’s acquisition and management of Twitter. Tesla has lost around 30 per cent since the closure of the deal.

Despite this, the electric vehicle maker remains among the most popular stocks across the top investment platforms.

Freetrade customers continue to favour Tesla, which was the second most popular stock this year, and it topped the list of eToro’s most held stocks amongst UK users too, unchanged from 2021.

Ben Laidler, global markets strategist at eToro says: ‘The most popular stocks are still dominated by big tech despite this year’s sell off, but when we look at these tech names – Apple, Microsoft, Meta, Alphabet – we are talking about giants with fortress balance sheets and now cheaper valuations, which will have encouraged more to buy in.’

Despite the challenging macro environment, there hasn’t been a huge rotation to value and tech that we’ve heard so much about. 

Instead it seems DIY investors are using the current volatility as an opportunity to invest in profitable companies on the cheap.

‘The vast majority of retail investors are taking a long-term view and seeing this for what it is, just part of an ongoing market cycle,’ says Max Rothery of Finimize. 

‘When fears of a major recession peaked in the third quarter, we saw a rotation toward index funds. But the economic picture became clearer the following quarter, retail investors turned to big tech as they felt falling valuations were an over-correction.’

Some of the major tech stocks have started to stage a small comeback ahead of Christmas. Over the past month, Netflix and Meta are up 2.46 per cent and 3.85 per cent respectively. 

Dan Lane, senior analyst at Freetrade adds: ‘Judging these businesses on their long-term value rather than the near-term interest rate environment could be one reason why Freetrade users are holding onto those companies now.

‘Price corrections are par for the course in markets and while some stocks may have got cheaper throughout the year, that doesn’t mean investors are giving up on them.’

Which other stocks have been popular?

UK financials have proved to be popular choices among DIY investors as they look for income from dividends.

Hargreaves customers have favoured beaten-up financial firms, in particular insurers Aviva and Direct Line which have seen their share prices drop sharply.

This is partly because of the wider sell-off, but Sophie Lund-Yates, lead equity researcher at Hargreaves, says this is also because of ‘tough industry conditions as claims increase compared to lockdowns and wider pricing.’

Barclays also featured in the top FTSE 100 stocks after falling 20 per cent this year.

Lund-Yates says ‘investors took advantage of the fall in price from the aftershock of the group’s mishandling of the sale of US securities. 

‘Regulatory slaps-on-the-wrist are never a good look, but Barclays’ diversified income model could hold it in good stead in the difficult economic climate.’

Interactive Investor customers favoured Lloyds Banking Group, which topped the list ahead of Rolls Royce and Tesla.

Keith Bowman, investment analyst at Interactive Investor, says: ‘Despite rising interest rates, dividend yields remain a high priority for investors, with sectors such as banks and life assurers offering income attraction.

‘Despite concerns for the housing market, a dividend yield of over 4 per cent has seen big mortgage provider Lloyds remain a favourite, while the added investment banking exposure brought by Barclays sees it also favoured.’

Travel stocks Carnival and British Airways owner IAG have proved a hit among Hargreaves customers, as bookings rebound from the pandemic – but their financials have been shaky.

‘Carnival is still growing its debt pile to fund ongoing losses. That’s not a great place to be and the need to refinance in a higher interest rate world is another obstacle to the return to profit,’ says Lund-Yates.

‘The shares are down over 50 per cent in the year-to-date, reflecting these challenges and there could be further pain to come.’

On IAG, she added: ‘IAG has had a lightly less bumpy, but still a tough year. The group was thrust into the spotlight during the busy travel periods as airports struggled to cope with travel demand, this may well have contributed to the group’s popularity with investors.

‘Ultimately, ever since the pandemic started, we’ve seen a real increase in interest for travel stocks. 

‘Their volatile journeys over the last couple of years and the fact these brands are tangible and well understood by non-professional investors add to their appeal.’

Active or passive funds?

Red hot inflation and rising interest rates have been a significant drag on the performance of investments this year.

Investors seem to have been sceptical of how much value active managers can add when markets are so volatile.

Laith Khalaf, head of investment analysis at AJ Bell, says: ‘In a year when most markets have fallen and long-standing trends have gone into reverse, you might have expected investors to flock to active managers, who exercise discretion over what to buy, rather than simply following the index.

‘But quite the opposite has happened, with our most popular funds list being dominated by tracker funds. Only Terry Smith of Fundsmith and Jeremy Podger of Fidelity are holding the active fort against the passive hordes storming the top ten.’

Interactive Investor customers have also favoured passive funds, which now account for 8 out of the top 10 bestselling funds on the platform. 

Six are from Vanguard’s stable: Vanguard LifeStrategy 80 per cent Equity ranks highest in second position ahead of the 100 per cent equity and 60 per cent equity variants.

Fundsmith Equity tops the list for both Interactive Investor and AJ Bell customers, suggesting Terry Smith still has plenty of credibility among investors.

Khalaf says: ‘It’s notable that DIY investors aren’t throwing out Terry Smith’s baby with the bathwater. 

‘Fundsmith Equity is down 13 per cent so far in 2022, on track for its first calendar year fall since launch in 2010, but it has still proved a popular investment across the year.

‘The style winds that have been blowing in the fund’s favour for the last decade have gone into reverse, with high quality growth stocks taking a licking from rising interest rates. 

‘But after so many years of exceptional performance, Terry Smith still has plenty of credit in the bank with investors.’

How have investment trusts fared?

Where investors have opted for active management, they have gone for investment trusts with an income or capital preservation focus.

Geopolitical tensions as well as rising inflation and rates have hindered the performance of investment trusts this year, which have been trading at their widest discounts in years.

Income-focused trusts have seen the most appetite with City of London and Greencoat UK Wind appearing in Interactive Investor’s most-bought trusts list.

‘Given how volatile markets have been this year, combined with the backdrop of inflation being at its highest levels in decades, the increased appeal of income-focused strategies makes sense,’ says Kyle Caldwell, collectives specialist at Interactive Investor.

‘After all, providing income is paid, dividends give investors a tangible return.’

City of London and Greencoat UK Wind have weathered the stock market storm in 2022, with their share price returns notably above their respective sector averages. They both have high yields, of around 5 per cent.

‘While dividend heroes owing to their long histories of raising their dividend each year, F&C and Alliance Trust have lower yields, 1.5 per cent and 2.5 per cent. 

‘They have also held up well this year versus their peers. Both are multi-manager trusts offering a one-shop stop for investing.’