SpaceX has become Scottish Mortgage’s biggest contributor over the past year, with manager Lawrence Burns describing it as “one of the most important geopolitical assets in the world”.

Its contribution over the past 12 months has more than offset the losses from the bankruptcy of former private holding NorthVolt, as Burns explains below, while also discussing new holdings and the main risks for Scottish Mortgage shareholders.

Performance of trust against index and sector over 5yrs

Source: FE Analytics

What’s the trust’s process?

We are looking for the world's most exceptional companies from anywhere in the world, whether they're public or private. We try and own them for five or 10 years, sometimes more, to fully benefit from the upside.

Having a stake in the future comes with a degree of uncertainty and volatility, so you need a five- to 10-year time horizon. That said, everyone should have a stake in the future in their portfolio, but it's about the size of the position.

When does the trust tend to do well and when not?

Our portfolio generally delivers over the long run, but there will be some periods where it does less well, for example, when digitisation slows down, as it did at the end of the Covid lockdowns. Higher interest rates and risk-off markets also don't favour the trust.

However, outlier companies can deliver exceptional returns even in the most difficult of macroeconomic and political backdrops. We have seen that time and time again with [Latin American e-commerce] Mercado Libre. Latin America has not been a pretty place to invest over the past 10 or 15 years from a macro perspective, but Mercado Libre has been able to generate huge amounts of shareholder value.

What do you see as the biggest risk in the portfolio right now?

You could point out different macro factors that would be less helpful to us, for example, if you had a massive historic rise in interest rates like we did a few years ago.

But if the development of AI turned out to be massively disappointing, that would also impact the trust. If you look at the technical capabilities of large language models today, you don't need to develop them further – you've got years of the current ones percolating through companies and improving them. If that was to end overnight, it would be difficult.

Are tariffs a risk?

They are a risk for the global economy, and all of our companies operate within the global economy. So far, however, our companies seem to be navigating that a lot better than even we would have hoped. Shopify’s success in recent quarters probably speaks to that, and it was thought to be one of those companies that might be particularly vulnerable.

We don't have a lot of exposure to companies that make things in one country and export it to another, so that reduces the immediate risk profile. When that is the case, for example for companies such as Ferrari and Hermes, they have incredible pricing power, and to buyers of their products, the idea of paying 30% extra for the Ferrari they've waited more than a year for is less of a problem than most people might imagine.

What was the best call of the past year?

The top contributor in the past 12 months to the end of August was SpaceX, which contributed 4.43 percentage points to net asset value (NAV).

The stat that always stuns me is that about 78% of the active satellites in orbit are SpaceX’s Starlink satellites. That's the degree of domination it's got in terms of access to space.

The potential is huge, because every day, you can read articles about what people think it might be able to do in space, from science experiments to computing in orbit with data centres. I suspect SpaceX is probably one of, if not the most important geopolitical asset in the world.

The US government has realised that SpaceX is an important partner for America's security interests, whether they like it or not. There is a degree of irreplaceability.

Why did you sell Tesla?

It was more around valuation. After the November election, the share price of Tesla had around $500bn of market cap added to it within the space of a month or so.

We owned Tesla for the potential in electric vehicles, but we also thought it could leverage its advantage in autonomy into robotics, particularly humanoid robotics. We maintain a small remaining holding because this is a company trying to do big and ambitious things, and frankly, if we see more evidence of it working, particularly on the broader robotics side, we could end up building that holding up again in the future.

What was the worst contributor over 12 months?

Moderna, which detracted 3.45 percentage points. It has been a very difficult holding for us for a while. We still believe that there is a huge amount of potential in its mRNA technology, and the cancer vaccine has had very good trial results, but the sizing of the markets and the commercial execution haven't come through as we would have hoped.

We look back on that, and it's right that it might still have potential from here, but we've been wrong to hold it so far.

Performance of stock over 5yrs

Source: FE Analytics

What about Northvolt?

Northvolt was trying to build a battery supply chain for Europe and a few things went wrong. The execution of building up the capacity did not go as well as we would have hoped: there was a slight degree of overstretching. Also, the degree to which the various stakeholders that were willing to support it made it more difficult than we would have anticipated.

What matters more, however, is the things you get right than the things you get wrong. Over the past 12 months, the valuation of SpaceX has made more money for Scottish Mortgage shareholders than the downward valuation of Northvolt.

We absolutely need to learn from Northvolt and improve on it and recognise the mistakes that we made in analysing it. But at the same time, the nature of growth investing is you will invest in some companies that deliver a very high multiple return and work very well, and you will deliver some that can't. The real job we have is to improve the odds of that each time we go through with new holdings.

New holdings like the Chinese CATL, another battery manufacturer?

Yes. The big picture is the same – the huge opportunity for demand for batteries as the world transitions from combustion to electric. The difference to Northvolt is that CATL is a radically different company in terms of maturity, with around 40% market share globally. That's the attraction.

What held us back historically was whether the market opportunity within batteries was large enough that, even with a dominant share, you could make a very large multiple from this starting point.

A combination of increasing conviction in the competitive edge of CATL and the view that you can start with car batteries and then move to ships, makes it a multi-decade structural growth story where CATL is uniquely well positioned. In some ways, the failing of Northvolt only adds to that strength.

What do you do outside of fund management?

Read, travel, and I have two young children, so the combination of those three takes up most of it. Travelling with children gives you an excuse to go and do things that you want to do, but might otherwise feel too old to do.

The UK economy is fragile. That was the main message from experts this morning as domestic GDP figures flatlined in July.

It follows a 0.4% month-on-month rise in June and means that economic growth stood at just 0.2% for the three months to the end of July.

Manufacturing production fell sharply and the trade deficit was worse than expected, with multiple market commentators noting that the figures showed just how “fragile” the UK economy truly is.

Scott Gardner, investment strategist at Nutmeg, said: “Few positives can be found from this latest batch of GDP data.”

On Wednesday this week, Rathbones multi-asset fund manager David Coombs, warned there was a “super high” risk of recession in the coming months, a notion that these figures will have done little to dissuade.

What’s causing it?

There are myriad domestic factors that experts pointed to, ranging from Labour’s National Insurance changes in April finally feeding through to the economy to businesses remaining wary as speculation on how the government will approach its financial woes in November’s Budget ramps up.

Any fiscal tightening by the government to address the ‘black hole’ in the country’s finances will likely be prohibitive to growth.

AJ Bell head of financial analysis Danni Hewson noted that many businesses that had already delayed investment and job creation due to the impact of last year’s Budget on labour costs (mainly through its rise in National Insurance contributions), “have kept their fingers on the pause button as they consider what taxes might go up in order to fill the hole in the public finances”.

Although the retail sector held up well in July, there are concerns over consumer confidence too, which could fall as we approach the chancellor’s policy announcements.

Then there are external factors, such as US president Donald Trump’s tariffs, which are impacting global trade, leaving few countries unscathed.

The issue also impacts the Bank of England. While the central bank expects inflation to lift in the coming months to around 4%, it has made clear that its focus at present is on improving the economy.

This implies interest rate cuts, but this will be thrown into doubt if price rises continue or pick up more than currently forecast.

What should investors do?

Coombs said there was little reason to own a small or mid-cap fund in the short term, something I agree with. Although they are already cheap compared with larger companies, these stocks are overly reliant on the domestic economy (in the main), and therefore are hit harder than their large-cap peers when the economy wobbles.

While I am invested in a UK smaller companies fund myself for the long term, right now it appears they are under pressure.

There is also a case to be made to avoid active managers. A large swathe of active managers have underperformed over the past year as they typically hunt for new ideas further down the market capitalisation spectrum, a topic Patrick Sanders covered earlier today.

In my own portfolios, I have leaned into the Vanguard LifeStrategy 100% Equity fund, a passive fund of funds that is actively tilted. It has an historic and entrenched overweight to the UK but does so through a large-cap tracker, meaning it is not as exposed to those stocks that will be hit harder by a potential domestic recession.

But there are no guarantees. The Bank of England and the chancellor could pull a proverbial rabbit out of a hat and in 12 months the UK could be flourishing again. Or we could be in the midst of a recession with endless problems to solve.

With such a wide range of outcomes, caution is advised. While there may be big gains to be made in certain areas, diversification will remain key.

Ditching UK active funds for passive exposure is a mistake, according to several experts, even despite the poor performance of active funds this year.

In 2025, just 14% to 24% of active funds have beaten the benchmark in each of the main Investment Association (IA) equity sectors (IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies), according to recent Trustnet research.

This comes at a time when the UK market has been thriving, benefiting from investors searching for diversification away from the US, and may leave some wondering if they can get all they need from the UK with a low-cost passive, rather than relying on an active fund that may not deliver.

Dan Coatsworth, investment analyst at AJ Bell, said: “Too many active funds have drifted along, failing to add value for investors. This situation is unsustainable.”

Below, Trustnet asks experts if investors still need an active UK equity fund in a period where tracking the market has done so well.

Performance

Chris Rush, investment manager at IBOSS, agreed that active funds have struggled to make their mark, in part due to the extraordinary performance of the FTSE 100.

The blue-chip index has surged this year, ranking in the top decile against the various UK IA Sectors, he explained. Meanwhile, there has been a large variance in active fund performance, with the best UK strategy up by almost 25%, while the worst has slid 7%.

“This means it has been very possible to get the asset allocation call right this year (i.e. buy the UK) and still underperform considerably due to poor fund selection,” Rush explained.

Performance of UK indices and sectors YTD

Source: FE Analytics

Despite this backdrop, the IBOSS team maintained a bias towards active funds for their UK exposure.

There are still some “very impressive” fund managers who have benefited from being flexible this year, instead of sticking rigidly to something that was not working.

For example, he pointed to Artemis UK Select and Fidelity Special Situations, which have both smashed the FTSE All-Share, while also beating the FTSE 100. Outperforming funds are difficult to find, but certainly not impossible, he explained.

Performance of funds vs indices YTD

Source: FE Analytics

AJ Bell’s Coatsworth agreed: “There are some smart fund managers in the industry and their skills, together with technological advancements in stock research, suggest that active management still has a future. The strong could get stronger, but the weak could fade away.”

A truly great active fund, he continued, is one that has proven to be a consistent outperformer, rather than posting an occasionally exceptional return.

For a good example, he pointed to Artemis SmartGARP UK Equity, which has posted top-quartile returns over the past one, three and five years in the IA UK All Companies peer group.

Rob Burgemann, wealth manager at RBC Brewin Dolphin, added that, when buying an active fund, investors need to understand that “active managers offer the potential – if not always the reality of outperformance”. If they are comfortable with this, active funds can remain a good choice for many investors.

Diversification

Equally, experts noted that passives were not flawless products when it comes to investing in the UK market.

First and foremost, they are generally highly concentrated, Rush explained. When buying passively, investors tend to favour a market-cap-weighted index, giving more exposure to the blue-chip FTSE 100 at the expense of smaller stocks, he explained.

Yet minnow stocks are incredibly cheap versus their history, which has led active managers favouring them. As a result, active funds can look significantly different to the average tracker, as managers target stocks they think have exciting growth potential, he explained.  

This approach has paid off over the very long term, Rush said, with both the FTSE 250 and IA Smaller Companies peer group beating the FTSE 100 over the past 20 years, even after major falls such as following the Liz Truss mini-Budget.

Performance of UK indices over 20 years

Source: FE Analytics

Brewin’s Burgeman added that, while passives are very good at tracking the large caps that dominate the index, their record tracking small and mid-caps is “far more variable”.

This allows active managers to “add some real value” by giving more exposure to opportunities further down the market that may not be as prominent in a tracker.

Additionally, active funds can come in “all different shapes and sizes”. Investors could choose a thematic fund, a certain style, or a strategy focused on a specific sector, allowing investors to add “a spin to their portfolio” that reflects the market environment and their views, he said.

“A mixture of passives and actives offers – to us – the best way of capturing returns from the UK market," Burgeman concluded.

Bond markets are unpredictable. Gilts and treasuries (to name just two) have dropped in recent weeks as fixed-income investors reacted poorly to several macroeconomic factors around the world.

Greg Peters, co-chief investment officer of PGIM Fixed Income, said: “As economies and policies diverge, dislocations are likely to lead to sector dispersion. This will benefit some countries, industries and issuers, while hurting others.

“Paradigm shifts in trade, technology and/or policy would further amplify dispersion and reward tactical allocation.”

Below, Trustnet asks experts about the landscape in different parts of the world and how they are investing during this volatile times.

The UK

Starting with the domestic market, uncertainty around November’s Budget and how the government will fix its ‘black hole’ in the country’s finances has caused consternation, with 30-year gilt yields rising over the past few weeks.

David Coombs, multi-asset fund manager at Rathbones, said he is “a buyer of gilts at these levels”, but said he was doing so without any “massive enthusiasm”.

“As long as inflation hovers around 3% you are getting a reasonable real return from those gilts, so on weakness we would be adding tentatively to gilts.”

However, he was less sure on corporate bonds, which he said are at “unbelievably narrow spreads”. As such, he has taken his weighting to “pretty much zero”.

The US

Although interest rates are expected to fall (typically a good thing for treasuries), fears over the future independence of the Federal Reserve, the impact of president Donald Trump’s tariffs and a weaker dollar have all contributed to market volatility.

Vincent Chung, co-portfolio manager of the T. Rowe Price Diversified Income Bond strategy, said risk assets are popular thanks to supportive fiscal stimulus, central bank easing and solid corporate earnings.

However, there is the potential for inflation to remain sticky, as he expects the Federal Reserve to allow the economy to “run hot” by cutting rates. As such, he has trimmed duration towards the lower end of his fund’s historic range.

“Furthermore, the OBBBA [One Big Beautiful Bill Act] is projected to add $4trn to national debt over the next decade, raising questions about fiscal sustainability,” he said.

“Combined with the administration’s political pressure on policymakers, these risks are driving a sell-off in long-end duration and we prefer curve steepeners as a result.”

Christian Hoffmann, head of fixed income at Thornburg Investment Management, said there was “considerable risk” in the current assumptions that the Federal Reserve will cut rates as aggressively as currently priced in.

The current five or six cuts by the end of 2026 expected by markets implies a “smooth landing” where inflation is under control and the economy remains stable, but higher inflation could lead to fewer cuts, while weaker-than-expected economic data could cause the Fed to up the pace.

Then there is the “potential interference at the Fed” by president Trump, who has attempted to fire one member and has repeatedly criticised chair Jerome Powell. He described it as “truly unprecedented” and something that investors should not be “too sanguine” about.

In all, he said investors should take “some credit risk and some duration risk”, but he would not lean too heavily into either area. He was active in March, buying up high-yield bonds when spreads widened to 450 basis points, but has been quiet throughout the summer.

Peters he is using a barbell approach of AAA-rated structured credit alongside shorter-duration high-yield bonds, which he described as “core allocations”.

“While corporate credit spreads remain tight, government bonds appear to reflect much of the market’s risk premium. In this environment, we see value in rate exposure, particularly given the asymmetric return potential and the opportunity to add duration at attractive levels,” he said.

While not overweight investment grade, there is an opportunity among the high-quality, short-term bonds, such as those issued by banks. On the high-yield side, however, he said the current universe is “less levered and shorter in duration with better credit visibility”.

Emerging markets, Asia and Europe

Away from the US, political issues seen in countries such as France and the ongoing war in Ukraine have impacted some European bonds, while Japanese bonds are under pressure after prime minister Shigeru Ishiba resigned this week.

On the latter, Chung noted that inflationary pressures remain above the central bank target range and real rates are still negative.

“This has led to a reduction in long-end duration exposure, as we anticipate eventual policy normalisation,” he said.

There could be alternatives elsewhere, he noted, particularly in the emerging markets (EM), where a weaker dollar is providing opportunities for EM central banks to cut interest rates.

“We are seeing selective opportunities within this space as a result. Local rates within Colombia and Brazil look particularly appealing, with elections possible in both countries next year, which could produce a more positive political outlook,” he said.

Coombs is also looking further afield, to places such as Portugal, Romania, New Zealand and Australia. He is also now doing his due diligence in Scandinavian and Asian countries as well.

“The reason it is a good opportunity to do that is because in many of those countries, when you hedge it back to sterling, you get paid. For example, our Romanian bonds are in euros, so you are getting 2% to hedge, so get a 6% yield and 2% hedge, so 8% on a short(ish) dated bond in Europe,” he said.

“There are pockets, but they are quite illiquid markets, so you have to be careful, because the markets are not as deep.”

The US has recently imposed new tariffs on Indian goods, raising concerns over trade competitiveness. Yet India’s economy is largely domestically driven, with exports to the US representing only a small share of GDP.

While textiles may face pressure, most key export categories remain resilient.

Tariffs

Since early August, US president Donald Trump has introduced a 25% tariff on India, as well as an additional 25% penalty related to India's energy trade with Russia.

Although the imposition of tariffs has understandably generated concerns regarding potential effects on economic growth, we would like to highlight that India remains a largely domestically driven economy, with relatively low trade intensity compared to other emerging markets. Exports to the US ($87bn in 2025) represent approximately 2% of India’s GDP.

India’s principal export categories to the US comprise electronics, gems and jewellery, textiles, and pharmaceutical products. At present, both electronics and pharma exports remain exempt from tariffs.

Gems and jewellery exports represent a highly specialised and labour-intensive industry with limited credible substitutes globally. Consequently, the incidence of higher tariffs is expected to be partly transferred to end buyers.

However, India’s textile and apparel exporters are likely to encounter greater competitive pressures, as the tariff rates applicable to them are higher relative to those imposed on peer exporters from Bangladesh, Pakistan, and Turkey.

Outside the merchandise goods category, it is worth noting that the largest export from India to the US is software services ($100bn), which is currently not within the ambit of tariff discussions globally, as the US runs a services trade surplus with the rest of the world.

From an equity market perspective, the direct impact of tariffs could be more muted than believed considering only 1.4% of MSCI India IMI revenue is subject to tariff risk.

It is likely that this set of tariff announcements on India is an opening salvo in a trade negotiation process. Ultimately tariffs could settle down at more reasonable levels, in-line with other trading partners (~15-25%), mirroring the negotiation pattern with EU.

Further, domestic policy support to mitigate the relative disadvantage in sectors such as textiles cannot be ruled out.

Macro outlook

Beyond the recent tariffs, macroeconomic fundamentals remain robust, as demonstrated by S&P's recent upgrade of India's sovereign credit rating from 'BBB-' to 'BBB'. This action follows S&P's adjustment of India's outlook to positive in May 2024.

The upgrade is attributed to three main factors: improved fiscal management through higher-quality government spending, strong economic growth and stable monetary policy.

Additionally, S&P noted that the overall impact of US tariffs imposed on India is expected to be marginal and unlikely to undermine India's long-term growth trajectory.

The government has also proposed a simplified goods and services tax (GST) structure with fewer tax slabs, which is likely to improve compliance, boost efficiency and increase the size of the formal sector.

Overall, various measures such as monetary easing, income tax cuts, and a reduction in GST rates are likely to support near-term economic growth.

Over the long term, India is projected to be the fastest-growing major economy in the world and, according to estimates by leading global agencies, will be the third-largest economy by 2030.

Favourable demographics, superior corporate profitability and megatrends of digitalisation and formalisation, complemented by policy reforms, remain the structural drivers of India’s growth.

However, what remains the most attractive aspect of investing in India is the opportunity to generate outsized alpha. One of the reasons for the alpha opportunity is that India still remains a highly under-researched market and hence very inefficient. This makes it a fertile ground for bottom-up stock pickers.

While there are strong opportunities across the market capitalisation spectrum, India has a vast, heterogeneous mid-cap and SMID-cap segment, which is typically even less well researched and hence more inefficient, thereby providing strong alpha generation potential.

Ayush Abhijeet is an investment director of the Ashoka India Equity Investment Trust. The views expressed above should not be taken as investment advice.

The traditional portfolio with a 60/40 split between stocks and bonds is doing a disservice to investors, leaving them with a lighter wallet and significantly more risk, according to BlackRock’s latest Autumn Investment Directions report.

The asset manager argued that investors need to “rethink portfolio construction principles” to account for a new investing regime, which began in 2020, where the correlation between stocks and bonds is shifting in ways not seen for decades.

During the “old investing regime” from 2010 to 2020, when inflation was subdued and central banks consistently supported markets with low rates and quantitative easing, a 60/40 portfolio delivered an annualised 8% return.

Crucially, it did so with an annualised standard deviation just above 6%, meaning investors enjoyed high returns for relatively little volatility.

In today’s “new regime”, which BlackRock dates from the Covid-19 shock and the resurgence of inflation, the same portfolio has delivered only 6% annualised returns.

That might not sound like a huge drop, but investors have had to endure significantly higher volatility: a standard deviation of 10%, an increase of roughly 35% in risk for a lower reward.

Source: BlackRock

This regime change has upended the long-standing assumption that bonds act as a natural hedge against equities.

“Fixed income’s role in multi-asset portfolios has changed as stock-bond correlations have become less dependable: once a reliable hedge in the standard 60/40, duration’s ability to offset equity drawdowns has deteriorated – while equity and fixed-income volatility has risen. This puts multi-asset portfolios like the 60/40 under strain,” the report read.

Since 2020, periods of equity market stress have often coincided with bond sell-offs, leaving investors with few places to hide.

BlackRock’s researchers stressed that the current environment is not a temporary aberration but a structural shift. Inflationary pressures, supply-chain realignment, fiscal expansion and the transition to net-zero carbon emissions all contribute to a backdrop in which macroeconomic shocks drive both equity and bond markets in the same direction. The firm’s solution is to find diversification elsewhere.

“Unreliable stock-bond correlations underpin the case for a broader array of diversifiers”, read the report. Among the options highlighted were hedge funds and absolute-return strategies, which seek to exploit inefficiencies and deliver returns uncorrelated to equities or bonds.

BlackRock modelled alternative allocations to illustrate the impact. Adjusting the traditional 60/40 to 60% equity, 20% bonds, 10% BlackRock Tactical Opportunities and 10% BSF BlackRock Systematic Global Equity Absolute Return, for example, produced higher returns with lower volatility, according to its analysis.

In the report’s chart above, this improved outcome was shown by the orange dot, positioned above and to the left of the ‘new regime’ 60/40.

To achieve an even more meaningful change, BlackRock presented a 50/30/10/10 allocation, where equities were cut back in favour of a larger bond exposure alongside the two alternative sleeves.

This portfolio, represented by the purple dot, significantly reduced overall volatility while still delivering returns comparable to the ‘new regime’ 60/40.

The report did not stop at hedge funds, as today’s new investment landscape requires even more adjustments.

In the old regime, exposure to the US dollar served as a diversifier against equity volatility, tending to push higher when the equity market fell. In 2025, that correlation flipped, with the currency falling alongside equities, as shown in the chart below.

12-month rolling correlation of dollar and stock markets (DXY and S&P 500 indices)

Source: BlackRock.

Against this backdrop, there is less value in unhedged equity exposure, the report claimed, arguing for “more granular share class selection, such as using currency-hedged share classes”.

Bitcoin was cited as another possible allocation: while highly volatile, its return drivers are distinct from those of traditional assets, giving it a correlation to other investments below 0.5%, the study claimed.

“For investors concerned about US fiscal risks and the dollar, a modestly-sized allocation to bitcoin may be a logical part of a broader diversification strategy,” the report read.

Finally, static exposure to factors, such as growth, inflation or style, “has become a drag on returns”, so Blackrock argued allocating to active managers with a go-anywhere mandate, who have the best chance at “exploiting different market inefficiencies for broadly uncorrelated alpha streams”.

As higher-alpha strategies often carry greater short-term volatility and tracking error, which could deter portfolio constructors, the study suggested blending them with other more  benchmark-aware solutions.

Some investors believe we are in a higher for longer interest rate environment with the Bank of England likely to keep rates hovering around 4%, but this thesis is “not sensible”, according to Ed Legget, manager of the Artemis UK Select fund.

“There’s a view going around right now that interest rates will remain around 4% on average in the next few years. To us, this doesn’t stack up as a sensible thesis,” he said.

Instead, the FE fundinfo Alpha Manager argued “Inflation will start to fall sharply” to somewhere around 2% as early as March next year and, as such “expectations around interest rates will follow suit”.

Most investors are not pricing this in, he explained, because they have become too short-termist, with most focused overwhelmingly on the upcoming Budget.

He conceded that there is some short-term uncertainty around the Budget, particularly over concerns about how the government can raise money and what tax levers it might need to pull to make this happen.

He expects this to result in a short-term drop in consumer confidence but argued the government will be very keen to avoid another inflationary Budget. Adding something like VAT to food will only serve to “hit their core demographic”, he noted.

As a result, once there is more clarity, consumer confidence will start to return.

Another issue that will affect interest rates and inflation, he argued, is the labour market. Unemployment has started to edge up in the latest Office of National Statistics data, he explained.

“In our view, there are only two expectations that make sense. Either growth is ok and interest rates remain about where they are, or growth declines and interest rates start to fall sharply,” Legget said.

Inflation will decline, giving the central bank reason to cut rates and growth will remain subdued and below the BoE's 1.5% forecast, Legget expected. As such, to boost economic activity, “the Bank of England will continue to be comfortable cutting rates”.

In preparation for this, Legget and his co-manager Ambrose Faulks have pivoted the portfolio this year, taking profits from prior favourites such as financials and moving into other opportunities in anticipation of potential rate cuts.

For example, he pointed to real estate investment trusts (REITs) such as Shaftesbury Capital, where shares are down 7% over the past year,.

Share price performance over 12 months

Source: FE Analytics

It is well poised for a turnaround in a lower-rate environment, however, Legget said.

“Come January or February, I think every strategy on the market is going to realise that if rates are going down, you want to own something like REITs, which did terribly last year,” the manager noted.

“That multiple expansion will come very quickly because everyone will decide owning a REIT is a great idea for the year ahead, so you want to buy in anticipation.”

Housebuilders are in a very similar position, he explained, with higher rates leading to more punitive remortgage payments and causing some to struggle to get a loan.

However, poor performance for housebuilders is not a 2025 phenomenon, with the sector struggling in many different periods over the long term, including in 2023, when rising rates hit the sector hard.

Nonetheless, the managers are optimistic, with Faulks noting last year that housebuilders could be at the “epicentre” of a stock market revival in a lower-rate environment.

The team maintained this view going into 2025, increasing their allocation towards Bellway, despite share prices sliding roughly 8% year-to-date and more than 20% in 12 months.

Share price performance YTD

Source: FE Analytics

Legget explained: “We’re going to make our money if interest rates are lower and planning is easier, both of which I think are likely. In that environment, buying early at a big discount to book value has been a historically profitable strategy.”

Indeed, this approach has paid off for Legget’s Artemis UK Select fund.

So far this year, it is the fifth-best performing fund in the entire IA UK All Companies peer group, delivering a return of 19.2%, outpacing the average peer and the FTSE All-Share.

Over the long term, it has continued to deliver, with further top-quartile returns over the past one, three, five and 10 years and was one of the most-bought UK funds in the first half of the year.

Performance of fund vs sector and benchmark YTD

Source: FE Analytics

Legal & General has launched three developed world factor-based index funds for wholesale investors in the UK.

The new offerings are the L&G Developed World Momentum Factor Index, the L&G Developed World Quality Factor Index and the L&G Developed World Value Factor Index funds. Each tracks a customised iSTOXX index built on L&G’s proprietary factor scores and provides targeted exposure to developed market equities.

Ben Cherrington, head of UK wholesale, asset management at L&G, said: “Factor investing has been underrepresented in wholesale portfolios and so we have pooled our internal expertise to develop something that is both differentiated, while meeting the distinct requirements of our end-investors.”

The momentum fund delivers exposure to companies with strong recent performance or rapid short-term growth, while the quality tracker targets companies with positive income, high profitability and low leverage. The value fund invests in companies that appear undervalued compared with peers.

The iSTOXX indices tracked by the funds also take account of turnover and transaction costs, which L&G describes as a key practical feature of the strategies.

Factor investing is well established among institutional investors but remains less common in the wholesale market. L&G said the new funds respond to evolving investor demand for specific factor exposures.

Stefan Bilby, head of index distribution, asset management at L&G, added: “With the market environment remaining volatile and uncertain, the role for factor strategies is highly relevant given their ability to enhance diversification, manage risk and capture persistent sources of return.

The funds will be managed by L&G’s index team, which oversees more than £517bn in assets and has more than 35 years of experience.

Funds investing in emerging market stocks have surged to the top of the performance tables this year, with those run by the likes of Jupiter, Artemis and M&G making gains far higher than once-dominant US equities.

The MSCI Emerging Markets index has risen 13.4% in 2025 so far (in sterling terms), compared with a 6.2% gain for the developed markets-focused MSCI World. Developed markets have been derailed this year by US stocks, with the S&P 500 up just 3.1%.

Strategists at the BlackRock Investment Institute said emerging markets have had “a stellar year so far” in 2025 and put this down to three drivers: a weaker US dollar, a steady macro backdrop and mega forces.

Performance of MSCI Emerging Markets vs MSCI World in 2025 to date

Source: FE Analytics. Total return in sterling between 1 Jan and 10 Sep 2025

Emerging market currencies have strengthened in 2025, supported by a roughly 10% decline in the US dollar against major currencies, according to LSEG data. A weaker dollar tends to lift emerging market performance – including stocks – by lowering the cost of servicing dollar-denominated debt while increasing local-currency returns when converted back to dollars, BlackRock said.

On the supportive macro backdrop, the growth gap between emerging and developed markets is narrowing, but structural reforms in countries such as India, Vietnam and Brazil point to more resilient long-term growth, the firm added.

With inflation falling below pre-pandemic levels and rate cuts underway across several emerging markets, BlackRock thinks central banks may gain further room to ease policy once the US Federal Reserve begins to lower rates.

BlackRock’s current thinking is that mega forces, rather than macro factors, are the new drivers of returns but noted that their impact is uneven across emerging markets. It pointed to structural shifts such as supply chain realignment, technological innovation and the low-carbon transition as driving opportunities across emerging markets.

Countries like Mexico, Vietnam and Brazil are gaining from trade diversification, while Taiwan, South Korea and China are advancing in AI and semiconductors.

Performance of emerging market funds vs global funds by calendar year

Source: FE Analytics. Total return in sterling between 1 Jan and 10 Sep 2025

Against this backdrop, the average fund in the IA Global Emerging Markets sector has outperformed its IA Global peer, with an 11.4% return versus 6%. As the chart above shows, emerging market equities funds had underperformed global strategies for seven years in a row before 2025.

Some 162 IA Global Emerging Markets funds are beating their global peers over 2025 so far, or 92% of the 176 in the sector. In 2024, only 26 emerging market funds outperformed the IA Global average.

Global emerging market funds are also beating the IA North America sector, with their average 11.4% return significantly ahead of the 2.1% made by the US peer group.

There are 166 IA Global Emerging Markets funds ahead of the IA North America average this year, compared with just one in 2024.

Source: FE Analytics. Total return in sterling between 1 Jan and 10 Sep 2025

Over this period, Principal GIF Origin Global Emerging Markets has been the best-performing member of the sector with a total return of 24.8%.

Managers Chris Carter, John Birkhold and Tarlock Randhawa ran the fund at boutique Origin Asset Management, which was acquired by Jupiter Asset Management at the start of 2025.

The fund is overweight China, Greece and Poland, all of which have made strong returns over the year to date and outpaced the wider emerging market universe.

With assets under management of £54m, it is one of the smaller members of the peer group. However, the table above does contain some larger and better-known funds, such as Artemis SmartGARP Global Emerging Markets Equity, Redwheel Next Generation Emerging Markets Equity, M&G Global Emerging Markets, Invesco Global Emerging Markets and abrdn Emerging Markets Income Equity.

While IA Global Emerging Markets is one of the best sectors to be invested in this year – ranked ninth of the 56 peer groups in the Investment Association universe – more focused ones have done even better.

IA Latin America is the best sector over the year to date with an average return of 24%, thanks to low stock valuations combined with better-than-expected economic data.

BlackRock GF Latin American has been 2025’s best performer here, up 28.6%, followed by abrdn Latin American Equity (27.5%), iShares MSCI EM Latin America UCITS ETF (26.5%) and Barings Latin America (25.4%).

China is also having a strong year, with the average IA China/Greater China member up 18.9%, good enough for second place. Invesco ChiNext 50 UCITS ETF (up 37.7%), Jupiter China (30.4%) and Jupiter China Equity (29.6%) are the leaders here.

IA Asia Pacific Excluding Japan trails a little behind the global emerging markets sector, with a 10.9% average return. This makes it the 11th-best Investment Association sector this year.

Top performers include Barclays GlobalAccess Asia Pacific (ex-Japan) (up 20.3%), Federated Hermes Asia ex-Japan Equity (19.3%) and HSBC MSCI AC Far East Exjapan UCITS ETF (19.1%).

However, BlackRock Investment Institute also said that “selectivity across countries and sectors remains key” when investing in emerging markets.

The data backs this up. FE Analytics shows that not all emerging markets have been good investments this year, as IA India/Indian Subcontinent is the worst peer group; the average Indian equity fund has made a 9.3% loss in 2025 so far.

As markets debate the path of interest rates, Jon Mawby, co-manager of the Pictet Strategic Credit fund, is turning his attention squarely to the UK, and he does not like what he sees.

“The one market I'm very bearish on at the moment is the UK. It's a small, open economy with a political regime that seems to be falling apart, and that's not somewhere I generally want to be invested,” he said.

The turmoil the country is in, he argued, is not confined to politics but extends to the Bank of England, whose decisions tend to have global repercussions.

“What happens in our economy generally happens in the US after 18 months – it's all correlated. All my eyes are on the UK at the moment.”

To avoid disaster, he expects the monetary committee to act decisively: “The Bank of England will have to cut rates probably fairly aggressively before the end of the year, at least 75 basis points,” he said.

His projection is based on economic data (“consumer trends are going down so quickly”) but also anecdotal observations: (“I've got three kids and the cost of living is going absolutely monumental”).

If the UK is the most pressing concern, Mawby sees more stability elsewhere, for example the US.

While many are worrying about Donald Trump’s interference with the Federal Reserve, through his attempts to influence its head Jerome Powell and ouster members who are not in favour of rate cuts, Mawby sees the US as more stable ground.

“If they get rid of Powell, they will probably appoint someone who will cut rates aggressively – Trump is not going to appoint someone who will raise rates. For me the US is way more stable,” he argued, as at least there is a clear expectation for the path of rates.

Germany, meanwhile, falls somewhere in between. “Consumer demand in Germany has dropped off enormously and you have the same political maelstrom as in the UK, but they have a bigger economy and, for lack of a better term, the country is more stoic than the UK.”

Against this backdrop, the fund has been positioned defensively. At the moment, the manager is focusing on short-dated hybrids, national champions and national champion AT1 bonds, which give “the biggest yield for the lowest risk.”

That positioning reflects caution about valuations. “I'm not particularly constructive on markets at the moment and those short-dated corporate hybrids in national champion investment-grade names have a natural liquidity event in the next 12 to 18 months”.

The portfolio also carries a 10% allocation to emerging markets, particularly in hard-currency corporate bonds rather than sovereigns. In them, Mawby finds “good fundamentals, lower leverage and decent yields”.

“To me they look more attractive than a lot of developed-market credit right now.”

The strategy is designed to remain patient until more attractive opportunities arise. At present, he is looking to redeploy capital into high yield “when we get a market correction”, but has not pulled the trigger yet as this has yet to occur.

“When will it come? It's impossible to say – I've been calling for it for three years, but we're getting closer to it. Risk markets are getting more and more overpriced,” he said.

Duration, too, has been kept under control, currently at 4.5 years.

Mawby describes Pictet Strategic Credit as deliberately contrarian and value-driven. “We try to go where the value is, which is generally the contrarian part, and the value-driven part is the bottom of credit selection.”

With a track record stretching five years, the fund has maintained an average second-quartile performance against its IA Sterling Strategic Bond peers across key time frames, with the exception of the past 12 months, when it slipped to the third.

Performance of fund against index and sector since start of data

Source: FE Analytics

Ultimately, Mawby views the fund’s role as a diversifier.

“We don't aim to be active beta on the upside but to be a diversifier when risk assets start to sell off,” he concluded.

Urbanisation has long been viewed as a growth theme. But for income investors in Asia, it is becoming increasingly relevant as a driver of maturing business models and more sustainable cash returns.

The link is not always obvious at first – Asia is clearly growing, with GDP growth across Asia typically averaging 4–5%, compared to just 1.5-2% in developed markets.  

Urbanisation is about infrastructure, migration, and rising incomes. But what follows is often a tipping point in company behaviour.

As firms expand to meet urban demand – whether in consumer goods, banking, logistics or utilities – they begin to generate more predictable earnings and, over time, return more capital to shareholders. The result is a wider and more resilient set of dividend payers across the region.

India’s shift from growth to cashflow

India is perhaps the clearest example. The scale of urban migration and middle-class expansion is unprecedented. In 2025 alone, the country is expected to add around 47 million new middle-class consumers, according to World Bank estimates.

That shift is already visible in spending patterns, from food and healthcare to insurance and financial products.

Historically, many Indian companies focused on reinvestment, and payout ratios remained low. But that is gradually changing. As businesses reach national scale and capital intensity falls, we are seeing more formal dividend frameworks emerge, particularly in consumer-facing sectors.

Businesses such as Bajaj Auto are not just growing – they are also becoming more consistent in how they return capital.

From an investor perspective, this represents a structural change. India has developed beyond a growth story into an income market, albeit one that still offers above-average earnings expansion.

Southeast Asia’s dividend emergence

Southeast Asia is undergoing a similar transition, although the drivers are more digital in nature. Smartphone adoption, e-commerce and digital banking are reshaping how people access services in markets like Indonesia and Vietnam. These trends are closely linked to urbanisation, which is often where digital infrastructure is rolled out first.

As demand scales, certain businesses are now reaching the point where they can commit to paying dividends.

Indonesian banks are a good example. Financial inclusion is increasing, supported by a young, urban customer base, and the leading institutions have maintained strong capital positions while introducing more formal payout structures.

We are also seeing second-order effects. The rise of digital commerce is increasing demand for logistics, warehousing and payment infrastructure.

Some of these businesses are earlier in their lifecycle, but a number are already generating stable enough cash flows to enter the dividend-paying space.

Large-scale industrial income is part of the picture too

Urbanisation also supports the rise of industrial leaders with consistent cashflow and dividend discipline. TSMC is the most prominent example. Best known as the world’s largest contract chipmaker, it has also become one of Asia’s most consistent income payers.

Despite its high capital expenditure, the company has grown its dividend per share by 14% annually over the past five years, underpinned by robust free cashflow and a clear commitment to shareholder returns.

This sort of dividend behaviour is becoming more common among large-cap technology and infrastructure firms in Asia. Companies such as Samsung Electronics and Power Grid India have introduced or strengthened their payout frameworks while continuing to invest in long-term growth.

These are not cases of sacrificing reinvestment for yield. They are signs of maturity and capital discipline.

More companies, better diversification

Across the region, the number of listed companies offering yields above 4% has grown from 190 to more than 330 over the past decade. The broader universe – those yielding above 1% – now includes over 740 names, compared to fewer than 400 in the UK.

This reflects not only stronger balance sheets and earnings growth, but also broader adoption of formal dividend policies in markets such as Korea, China and India.

Crucially, the sector spread in Asia is much wider than in most developed markets. Banks in Singapore, infrastructure firms in India, technology leaders in Taiwan and Korea, and resource companies in Australia all contribute.

For income investors, that means less reliance on a single source of yield and greater resilience during periods of volatility.

A long-term shift, not a short-term trend

Urbanisation is not new, but its income implications are often overlooked. It helps create the conditions – scale, demand, regulatory reform – that allow companies to evolve from capital-hungry to cash-generative. That process is unfolding now across much of Asia.

For long-term income investors, this is an important shift. The region is not just growing faster than the developed world. It is also maturing in ways that matter for dividend sustainability.

Urbanisation is playing a central role in that transition, and while eye-catching headlines around tariffs and trade wars may draw focus, it is quietly expanding the investable universe for those focused on reliable income.

Isaac Thong is co-manager of the Aberdeen Asian Income trust. The views expressed above should not be taken as investment advice.

“It is no secret: the bond market, international investors, myself and other fund managers are all saying ‘this government has completely lost all credibility, fiscally’.”

This was the warning from David Coombs, multi-asset fund manager at Rathbones, after gilt yields spiked last week. Last Tuesday, the yield on a 30-year gilt rose by 9 basis points to 5.73%, the highest level in almost three decades.

It has been a difficult period for the government, with deputy prime minister Angela Rayner resigning after she was found to have underpaid stamp duty on a second home – a breach of the ministerial code.

Meanwhile, concerns have been raised about how much faith prime minister Keir Starmer has in chancellor Rachel Reeves, after he hired new economics experts to aid her.

“The government has got itself in a real mess,” the manager of the £3.4bn Rathbone Strategic Growth Portfolio said.

The crux of the matter for Coombs is that ministers “haven’t done what they said they were going to do”, which was to ramp up economic growth.

“They might have focused on it, but they certainly haven’t achieved it. And they haven’t come up with any coherent strategy to produce it. In fact, they’ve done the opposite – they’ve reduced growth, or increased contraction, whichever way you want to look at it,” he said.

One example of this was the National Insurance changes made in last year’s Budget, which raised the rate from 13.8% to 15% and lowered the earnings threshold at which employers pay the charge.

Fears at the time were that this would hamper the economy, with companies finding it more expensive to employ staff.

“The NI tax, which everyone said was ridiculous, has had exactly the outcome everybody predicted. You would hope that they’ve learned from their mistakes, which is a big hope,” he said.

Underpinning these problems is a ‘black hole’ in the government’s finances, which the Labour Party has said was left for them by the previous Conservative administration.

Addressing this will require one of two solutions, according to Coombs. “They’re in a hole and everyone knows about it. So how do you get out of it? There are two things they can do. They can cut spending or they can increase revenue or borrowing,” he said.

With gilt yields rising (and therefore the price falling), he wished the government “good luck” in trying to sell more gilts, as the market is “telling them they can’t do that”.

So the only option available seems to be to “renege on the manifesto” and raise taxes. If the government were to add 1p on the income tax basic rate or 1% to VAT, for example, government bond yields would fall and the market would rally.

However, the manager noted this is unlikely as the government is “beholden to a very large backbench fraternity” who do not want this to happen. This faction have also made it clear that they are unwilling for the government to contemplate welfare spending cuts, he said, as evidenced by the dissent over axing the winter fuel allowance and changes to disability benefits.

One option available that Coombs thinks is more credible is ending the triple-lock on pensions. At present, the government is legally required to increase the state pension by the highest of either average earnings growth, consumer prices index (CPI) inflation or 2.5%.

“I think they will probably end the triple lock. I think it will get announced at the Labour Party conference by Reeves or Starmer that they are reviewing it, and they will stand back and see what the political fallout from that is,” he said.

“The bond market will like it, which might give them a bit of breathing space.”

By pushing back the Budget to the end of November (it is usually held in October), the government may be hoping that it can get the right policy mix to deal with the problems faced – a view Coombs is “not overly sympathetic with”.

“They’ve pushed the Budget right back, which I think is a mistake. My faith in them getting it right is pretty low,” he said.

However, the fund manager noted there is no specific issue with the under-fire chancellor. Although Reeves “has little credibility”, the problems the government faces are “not personal” and replacing her would not fix anything, he argued.

“You need some political bravery, which is in short supply on either side of the house right now. The previous administration was equally as incoherent – let’s be clear about that.”

So what should investors do?

With so much uncertainty, Coombs said there is a “super high” risk that the UK will fall into recession. As such, he is not in favour of owning smaller companies, as these tend to be more domestically aligned.

“The cost of borrowing is rising and the economy is not growing, so do you want to be in a UK small-cap with the UK consumer as your customer? No,” he said.

Similarly, he would be wary of large-cap companies that are tied to the UK consumer. While he owns retailer Next in his highest-risk Rathbone Enhanced Growth Portfolio, he has sold out in the medium and lower-risk portfolios, such as Rathbone
Defensive Growth Portfolio and Rathbone Total Return Portfolio.

“Next is the best retailer in the country by a country mile so it will probably grow through a shrinking market. But looking globally, would you rush into Next right now? Probably not,” he said.

However, he is overweight the UK market, with large holdings in the likes of oil giant Shell, which he is using as an “oil hedge”, as well as stocks that derive most of the revenues in the US, such as food services firm Compass and equipment producer Ashtead.

On gilts, the manager noted that if the 10-year bond hits a 5% yield he would add to his position.

“I am a buyer of gilts at these levels. Not with massive enthusiasm it has to be said but as long as inflation hovers around 3% you are getting a reasonable real return from those gilts,” he said.

“On weakness we would be adding tentatively to gilts.”

Choosing the right manager to entrust your money to is no easy feat, especially when the choice is vast and marketing campaigns are loud and persuasive.

The challenge has become even harder in the past few years as uncertainty and unprecedented situations have upended historical norms.

Since Covid, for example, investors have rediscovered how equities and bonds aren’t always uncorrelated, growth investing doesn’t always outperform other styles and that inflation isn’t a thing of the past but very much alive. This year, they had to come to terms with fresh blows to globalisation due to president Donald Trump’s nationalist agenda.

Once upon a time, it would have been advised to turn to managers with long track records. Yet, this also faces pressure. Top managers such as Nick Train are struggling at present, while investors may be put off investing in star managers altogether after the Woodford debacle in 2019, when those who backed the previously beloved stock picker were left nursing heavy losses as his eponymous fund group was wound down.

Speaking with Trustnet recently, iBoss managing director and chief investment officer Chris Metcalfe said that “the value of data before November last year is much lower”, because “everything has changed,” suggesting that many veterans’ track records were forged in conditions that no longer apply.

The decade from 2010 to 2020 was relatively calm, with lower interest rates and negligible inflation providing a golden age for investors to make money. As such, managers may look like they have long track records, but in reality these ‘veterans’ are now dealing with their first crisis.

In other words, they were caught up in what Ian Rees, Premier Miton head of multi asset, called a “wave of momentum that has persisted for longer than has been comfortable” – from the end of the financial crisis up to last year.

“Investors ended up selecting ‘veterans’ on the basis of how they've performed or operated over that one cycle,” he said. “This is the thing that's being challenged at the moment – and quite rightly so – because good investment management isn't just about delivering investment returns, it's also about sensible risk management of portfolios.”

For Simon Evan Cook, fund-of-funds manager at Downing, portfolios that consist only of top performers between 2010 and 2024 “run the risk of being reliant on too many funds that only ‘worked’ in that deflation-heavy environment”.

These tend to be long-duration equity strategies such as the quality-focused, buy-and-do-nothing style of Fundsmith Equity, which have struggled recently, as the chart below shows.

Performance of fund against sector over 10 and 5yrs


Source: FE Analytics

Managers who developed a great track record over the 2010s did so in “certainly a bad decade for active fund management”, said Evan Cook, as the dynamics of the market along with the real-world dynamics behind them “suited the passive approach perfectly”.

“Today we shouldn’t necessarily dismiss them, for if those conditions return, they may again rise to the top.” However, he continued, investors “should attach more weight to recent performance – while not assuming that the game has changed for good.”

So what is working now?

The best-performing funds since 2022 have been those with shorter time horizons that trade more frequently, Evan Cook noted.

“Shorter-duration strategies in which the manager is looking to profit from six-month moves, not six-year moves, have started to rule the roost,” he said. “This applies whether the funds are value or growth, so we suspect that this may be the thing that’s changed compared to the preceding period.”

For Rees, the stand-out has been those who have remained disciplined in providing diversification.

“The job of an investment manager is to demonstrate greater discipline, better insight, useful diversification and risk management. Those who have been disciplined with risk management and delivered more resilient returns are winning out,” he said.

One thing investors can look for is a track record that pre-dates the financial crisis, with Rees noting that “experience is really valuable at this time because it ensures you have grounding and an understanding”.

Similarly, Metcalfe’s approach is to look for managers with “the longest possible track record”, so that they can show they can cope with the unexpected.

To thrive in this volatile regime, therefore, investors may need to look not just at ‘veterans’ but ‘super veterans’, those rare managers whose experience spans cycles, whose discipline tempers risk and whose adaptability has been tested across crises.

In our next article, we will reveal which equity managers can truly claim that title, according to experts.

Cheap, low-cost passive funds are popular among those looking for exposure to the US, but for investors willing to pay up, there have been a handful active managers who been delivering bang for their buck.

While passives have shone in recent years as the US market has been dominated by large-caps (and in particular the Magnificent Seven of Apple, Nvidia, Tesla, Alphabet, Microsoft, Amazon and Meta), they have not been the only game in town.

Below, Trustnet examines the top-quartile North American funds over the past five years with an ongoing charges figure (OCF) of 1% or higher.

Source: FE Analytics. Returns in sterling to the end of August.

Top of the list is the VT De Lisle America fund, led by veteran stock picker Richard De Lisle, which has made its returns despite just 3.5% of the portfolio being invested in technology, some 30 percentage points lower than the S&P 500.

For example, “we don’t and won’t have any Nvidia,” De Lisle explained in the fund’s latest monthly factsheet.

Instead, the portfolio favours consumer stocks, such as Build-A-Bear Workshop or energy companies such as Cameco Corporation.

Despite a 1.04% OCF, it has delivered the fourth-best five-year return of 124% in the highly competitive IA North America peer group. All figures are returns after fees.

Performance of fund vs sector over 5yrs

Source: FE Analytics

This lack of direct exposure to tech has sometimes been a headwind, with the fund sliding into the third quartile in the past three years as these stocks have performed well. However, it has rallied year to date, which the manager attributed to holding companies that indirectly benefit from tech.

“We have tried to put ourselves in the way of anywhere big tech can think of spending. This is the essence of the performance difference: tech growth at nearly value multiples,” the manager said.

Next is the Natixis Harris Associates US Value Equity fund, which is the most expensive portfolio on the shortlist with a 1.25% charge.

While it does hold a member of the Magnificent Seven (Alphabet), its value style has led it to avoid many of these major tech names, with just 3% allocated to information technology.

Instead, the fund has a 25 percentage point overweight to financials compared with the S&P 500, with banks and financial services businesses, such as Citigroup and Charles Schwab, featured in its top 10.

This approach has paid off over the past five years, with the portfolio up 104.3%, beating the S&P 500. However, the low allocation towards growth stocks has been a headwind recently, with the portfolio in the third quartile over the past one and three years.

Performance of fund vs sector and benchmark over 5yrs

Source: FE Analytics

Its stablemate, the Natixis Loomis Sayles US Equity Leaders fund, also made the list, pairing a 1% OCF with a 94.4% return in the past five years.

Alger American Asset Growth also qualified. Run by FE fundinfo Alpha Managers Patrick Kelly and Ankur Crawford, this is a growth strategy focused on some of the most innovative companies in the US.

“If you’re not innovating in the US, you’re going to struggle to compete,” Kelly told Trustnet earlier this year.

This has led them to favour artificial intelligence (AI) stocks such as members of the Magnificent Seven. However, Kelly explained they have also found unexpected opportunities in areas such as utilities with Talen Energy, which are not traditional growth markets.

This has contributed to a 101.9% return over the past five years, a slight outperformance compared to the S&P 500, despite a relatively high OCF of 1%.

Performance of fund vs sector and benchmark over 5yrs

Source: FE Analytics

For investors looking further down the market capitalisation spectrum, three smaller company mandates delivered top returns despite high costs.

Firstly is the FTGF Royce US Small Cap Opportunity fund, where its 1.22% OCF has not dampened returns, with the portfolio up 101.9% over five years.

Managed by Brendan Hartman, Jim Harvey and Jim Stoeffel, it invests primarily in small and microcap companies, which the managers feel are undervalued.

Its wider performance has also been strong, with top-quartile results in the IA North American Smaller Companies sector over the past one, three and 10 years, as well as the five years studied.

Performance of fund vs sector and benchmark over 5yrs

Source: FE Analytics

The portfolio has also outperformed the S&P 500 by around seven percentage points, despite smaller companies lagging their large-cap peers over the past half decade.

The two other smaller company strategies on the short list are the Heptagon Driehaus US Micro-cap Equity fund and the GS US Small Cap Equity Portfolio.

This article is part of an ongoing series examining the expensive funds that have delivered top-quartile performance in their sectors over the past five years. Previously, we have looked at the global market.

Just 26% of savings accounts are paying more than the Bank of England base rate, according to data from Moneyfacts Group, with the Moneyfacts Average Savings Rate falling to 3.46% in September, down from 3.5% a month ago.

The percentage of accounts able to beat the Bank rate is up from last month, when just 10% paid more than the 4.25% interest rate. However, despite the UK central bank cutting rates by 25 basis points to 4% last month, this only increased to one in four.

It comes at a time when the Bank of England has warned it expects inflation to remain elevated, with the consumer prices index (CPI) forecast to rise to 4% between now and the end of the year.

Rachel Springall, finance expert at Moneyfacts, said: “Savers may have assumed that with the Bank of England base rate falling, there would be a bigger impact on the pool of deals able to beat it, but that’s not true.”

Additionally, as inflation is expected to climb higher in the coming months, current rates mean the “vast majority of savers” will see their pots eroded in real terms.

“This will be incredibly demoralising for savers who use their interest to supplement their income,” she said.

However, this is not a new phenomenon, with Springall noting that the situation in the savings market has been “dire for many years”. Indeed, the last time the average savings rate was higher than 4% was January 2024.

“Savers would need to cast their eyes back to the start of August 2022 to find the last time that more than half of the savings market could beat the base rate, when 56% could do so, but the rate to beat was just 1.25%. The rate of inflation back then was abysmal, as it rose to double digits, so it was a terrible situation for saver,” said Springall.

Interest rate cuts are bad for savers and the past few months have been no exception. The average easy access rate has dropped to 2.59%, as the below table shows. Easy-access cash ISA rates are slightly higher at 2.82%.

Variable savings rates are now at their lowest levels for two years, the data shows, while most are now more than 1 percentage point lower than they were a year ago.

For a one-year fixed bond, the average rate is 3.96%, or 3.91% if held in an ISA. Longer-dated bonds pay less on average, at 3.89% and 3.83% respectively.

It was not all bad news, however. Savers now have more choice than ever before, with the number of options rising to 2,289, while cash ISA choice also hit a new record high with 662 deals. The number of savings providers rose to 155, another record.

Springall said savers may wish to use this time to lock in their cash for longer, either through a fixed bond or a cash ISA – something that many are already taking advantage of.

Savers are already showing their keenness for longer-dated products, according to the Bank of England, with money flowing into “interest-bearing time deposits” tripling in July to £4.3bn, up from £1.2bn the month prior.

Springall said: “Those who have yet to utilise their ISA allowance would be wise to do so, especially if savers fear a cut to the allowance could be announced in the Budget, so savers will no doubt want to maximise their deposits in the meantime.

“Locking into a guaranteed return with a fixed bond amid tumbling variable rates is wise, but savers must be aware of their Personal Savings Allowance (PSA), which in itself, could be reviewed or abolished in the future by the government.”

Although the average longer-dated bond is paying less than the average one-year options, the highest overall rates are for five-year bonds.

Using a £20,000 lump sum, Chetwood Bank, available through investment platform Hargreaves Lansdown, is paying out 4.35% per year – 10 basis points ahead of the second-highest rate and almost a full 0.5 percentage points ahead of the average. The provider also offers the best one-year rate at 4.32%.

Outside of ISAs, the top five-year fixed-rate bond is provided by JN Bank, paying a slightly higher 4.52%. This is followed by Chetwood Bank at 4.5%, with RCI Bank (4.35%) in third place.

The US healthcare sector currently offers a rare opportunity: it is as inexpensively valued as it has been in decades – within a macroeconomic environment that demands targeted stability and balanced diversification.

After a significant drop in valuations over the past year, the sector is currently trading at about a 20% discount to the forward price-earnings ratio of the broader market – the deepest relative valuation in almost 40 years. At the same time, the sector’s market share is down to just 10%, the lowest level in 15 years.

Despite political uncertainties – such as President Donald Trump's announcement to align US drug prices with international prices – we see the downside risk as limited.

Outflows in recent years, already priced-in negative scenarios and an overall depressed market sentiment, suggest that much pessimism is already reflected in current prices.

Historically comparable phases – such as in 1993 and 2016 – have also shown that when political uncertainty peaks, attractive entry opportunities often arise.

Technology meets resilience: Why healthcare is convincing over the long term

The healthcare sector benefits from an ageing population, which leads to increased demand for medical care and nursing services. Furthermore, the sector will participate in the achievements of AI like no other.

The technology is increasingly seen as a key tool to mitigate the effects of global challenges such as deglobalisation, demographic change, and climate change.

Although the full economic potential is still difficult to quantify, AI offers substantial opportunities within healthcare.

Concrete progress is already visible, for instance, through AlphaFold, an AI system from DeepMind that has revolutionised protein structure prediction. In addition, numerous fields of application with enormous potential are emerging:

• Better and cheaper medications: AI can help discover new active ingredients more quickly and cost-effectively, and make clinical trials more efficient. Novartis and Eli Lilly are already collaborating with Isomorphic Labs to use the AlphaFold model productively in research.
• Early diagnosis and therapy optimisation: AI-supported data collection and the analysis of large datasets enable earlier diagnoses, more personalised treatment plans and reduced need for invasive procedures – with better outcomes at lower costs.
• Personalised therapies: With the help of intelligent data analysis, hospital resources can be used more efficiently, diagnostics can be improved and personalised therapies can be developed.
• Boost in medical technology development: Lower research and development costs, predictive maintenance of medical devices, higher operational efficiency and the automation of administrative processes can lead to significant cost savings.
• Digital processes in hospital operations: The digitisation of medical records, automated workflows and intelligent data management relieves the burden on doctors and nursing staff. According to UnitedHealth CEO Andrew Witty, nurses are already using generative AI for faster document review.

While the US healthcare sector presents compelling investment opportunities, Europe is undergoing its own quiet revolution – powered by artificial intelligence and a surge of healthtech innovation.

European governments and institutions are actively integrating AI into national healthcare strategies, with the European Commission promoting AI adoption to enhance care delivery, reduce costs, and improve access.

Startups across the continent are leading the charge: from the development of a voice-based AI assistant for remote patient monitoring, to AI-powered imaging tools that are redefining early cancer detection.

These innovations are not only improving clinical outcomes but also attracting significant private investment, with healthtech emerging as Europe’s most funded sector in early 2025.

As AI becomes central to diagnostics, hospital operations, and personalised care, Europe’s healthcare landscape is becoming more efficient, resilient, and investor-friendly – offering a complementary growth story to the US market.

These are just a few of the areas in which AI can elevate the healthcare sector to the next level. AI will not only increase productivity and reduce development costs, but also accelerate innovation, especially in research & development and services.

In an environment where general growth drivers are under pressure, technology offers the healthcare sector immense long-term innovation potential.

Inigo Fraser Jenkins is co-head of institutional solutions at AllianceBernstein. The views expressed above should not be taken as investment advice.

The outlook for domestic stocks will “probably get worse before it gets better”, according to JP Morgan Asset Management’s Anthony Lynch, who said he is “nervous” about the UK economy.

UK companies have rallied this year, with the FTSE All-Share up 14.7%, outperforming the wider MSCI World (up 5.8%). However, not all parts of the capitalisation spectrum have performed equally.

Most of these gains have been limited to companies in the FTSE 100, which has broken an all-time high and is up 15.9%. By contrast, the FTSE 250 and the Deutsche Numis Smaller Companies excluding investment companies indices have trailed behind.

Performance of market indices YTD

Source: FE Analytics

As a result, the opportunity set for UK investors has changed, Lynch explained. Despite small and mid-caps remaining relatively cheap, there are several reasons “to be nervous about the domestic economy”.

Smaller UK stocks are domestically driven and sensitive to the spending power of the average consumer, which could come under pressure if the economy remains sluggish.

Lynch noted the UK economy has had “a difficult few years”, which has made it challenging for more domestic businesses. For example, both long-term and short-term interest rates remain high, which is restrictive for businesses that require capital to grow.

Another “warning sign” for the domestic economy is deteriorating wage growth. For example, he pointed to the ASDA income tracker (a barometer of household free cashflow after taxes and non-discretionary expenditures such as bills).

“The headline is still positive, but actually the majority of households are now seeing real wage decline,” he explained.

On top of this, the upcoming Budget is expected to be one where chancellor Rachel Reeves looks to address the government’s budget deficit, with tax rises a potential outcome. If so, this could slow the economy again and lead to “uncertainty for domestic-facing businesses”.

As such, Lynch said he “wouldn’t get too bullish on domestic stocks, because I think it will probably get worse before it gets better”.

While the team have been finding some opportunities in mid-caps that justify the risk, such as Cranswick and Dunelm, they have been more drawn to the FTSE 100.

“Historically, you’d expect to find your value opportunities in the FTSE 100 and your growth opportunities in the FTSE 250. Nowadays, the market has almost flipped on its head,” he explained.

Part of this is because companies in the FTSE 100 make around 70% of their revenues internationally, so are less reliant on the domestic economy.

For Lynch, this is currently a boon, as investors remain unsure of betting on the UK, as evidenced by the wide gap in price-to-earnings (P/E) ratios. “You could pay north of 20x for the global economy, or you could pay 11x for it in the UK,” he said.

Some may argue that the UK and US markets have very different compositions, with the UK underweight technology and overweight financials, oil and mining companies.

However, when comparing like-for-like sectors, the UK is cheaper than the US in almost every category. As such, he noted that the UK is “just a good value opportunity”.

Relative equity valuations of UK and US sectors

Source: JP Morgan Asset Management. Valuation shown is price to 12-month forward earnings, as of 1 July 2025.

And breaking it down even further to individual companies, the manager said the blue-chip index has some hidden gems that are growing their market share and expanding internationally, while still remaining modestly valued.

For example, he pointed to Coca-Cola Hellenic, which the team classified as a “quality compounder” in the UK market. The company is the bottling arm of the US soda manufacturer and has experienced sustained recent margin growth. Shares have responded, up nearly 87% over the past five years, but still have plenty of room left to run, Lynch said.

Share price over 5yrs

Source: FE Analytics

This is due to its international focus, with the business selling Coca-Cola products in parts of the world such as Eastern Europe, North Africa and parts of the Middle East, where the hotter climate encourages more spending on fizzy drinks. It also means the stock is less exposed to domestic concerns, he explained.

“This is a dynamic that has only really started playing through and has been very helpful. So, it’s both quite a good growth opportunity as well as a value one,” he said.

This approach has worked out for Lynch’s trusts, such as the £439m JPMorgan Claverhouse Investment trust. It has delivered a second-quartile return over the past year, since Lynch joined the team, beating the average peer in the IT UK equity income sector, while narrowly outperforming the FTSE All-Share.

Performance of trust vs sector and benchmark over 12 months

Source: FE Analytics

Investors have regained confidence in Europe, as the old continent is gaining momentum on the back of increased defence spending, as well as investors turning away from a concentrated and expensive US market.

This doesn’t mean, however, that all IA Europe Excluding UK funds have succeeded so far this year – in fact only one fund recommended by the top five investment platforms – Hargreaves Lansdown, Interactive Investor (ii), Fidelity, Barclays and AJ Bell – has achieved top-quartile returns against its peers: Schroder European Recovery.

Ranked by Fidelity in its Select 50 list, this concentrated fund invests across Europe by adopting a contrarian approach, buying companies with depressed share prices.

Manager Andrew Lyddon has been investing on this basis since before the 2008 global financial crisis and was praised by Fidelity analysts for his dedication to value investing, even when times were tough.

“Over the short term, like most equity funds, it sometimes loses value, but tends to recover well,” they said. This makes the fund, which tends to come into its own over periods of five years or more, “a good choice for an investor with a long time-horizon”.

The fund’s exposure to smaller companies has proven beneficial in the first half of 2025 as inflation receded and sentiment improved – contributing positively to performance.

Performance of fund against index and sector over 1yr

Source: FE Analytics

Earlier today, the manager told Trustnet that investors are overly concerned about owning “value traps” and have therefore not picked some of the biggest winners in recent years.

Although relative outperformance in any given timeframe isn’t the main focus of best-buy lists (but rather highlighting funds with the potential to meet or exceed their goals as part of a diversified portfolio), AJ Bell missed the opportunity to rank another top-quartile performer, Schroder European, when it decided to remove it from its Favourite Funds list in March this year.

According to the analyst note, this was done “due to reduced conviction in the fund’s manager and investment approach”.

Since then, the vehicle, which is managed by Martin Skanberg, posed a return in line with its benchmark, the FTSE World Europe ex UK index, and two percentage points above its sector, as the chart below shows.

Performance of fund against index and sector over 6 months

Source: FE Analytics

The list of top-quartile outperformers end here, but other platform-backed funds have performed well. The third-best platform-backed fund in 2025 so far has been WS Lightman European, backed by AJ Bell for manager Rob Burnett’s “consistent implementation of his investment process”.

It is typically invested in lower valued stocks and the performance profile is therefore likely to be volatile and different to that of the benchmark index.

Source: Trustnet

The strategy with most recommendations was BlackRock Continental European, which convinced all main UK platforms except Fidelity.

It achieved a second-quartile performance over the year to date by focusing on generating a growing income (the current yield is 3.81%). The portfolio is concentrated by design, so that stock-specific convictions can add value without getting diluted.

Hargreaves Lansdown analysts rank this fund for the strong track record of managers Andreas Zoellinger and Brian Hall, for the defensive and blended investment approach, which “could help limit volatility compared to peers in times of uncertainty”, and for the “attractive income” offered to investors.

There was another active fund by the same provider, BlackRock European Dynamic, backed by AJ Bell and Barclays, although it sits in the third quartile of performance so far this year.

According to Barclays analysts, it is managed by “one of the most experienced and talented European equity teams” with Giles Rothbarth at its head.

“Rothbarth isn’t constrained as to what he must invest in. Instead, he can take a dynamic approach and invest a substantial proportion of the fund into industries and sectors that may only represent a small part of the market, if that’s where he believes the best opportunities lie,” the analysts explained.

“Because of this dynamic and active approach to investing, we believe the fund has the potential to perform well in all market conditions.”

Index-tracking funds also made the list. Vanguard FTSE Developed Europe ex-UK Equity and iShares Continental Europe Equity both achieved second-quartile performances due to positive momentum in their benchmarks.

Fidelity European and CT European Select, backed by ii and Hargreaves Lansdown respectively, were stuck in the fourth quartile of performance against their peers.

This article is part of an ongoing series looking at the year-to-date performance of funds in each major sector currently backed by the main UK Investment platforms. Previously, we have looked at global equity, UK All Companies, UK equity income and multi-asset funds.

The past five years have been tough for Lindsell Train’s flagship funds and experts are mixed on whether patient investors should stick with FE fundinfo Alpha Manager Nick Train.

Last week, Train told Trustnet that the past few years have been “among the most disappointing of my career”, after we revealed his £2.1bn WS Lindsell Train UK Equity fund dropped to the second quartile of the IA UK All Companies sector over 10 years in July for the first time in its almost two-decade history.

Performance is even worse, however, on the £3.5bn Lindsell Train Global Equity fund. Although it has a shorter track record, its 48-month streak of top-quartile returns over 10 years ended in March.

In July, the fund dropped to the third quartile of the IA Global peer group, meaning long-term investors could have picked more than half of the sector a decade ago and made a better return.

Performance of funds vs sectors over 5yrs

Source: FE Analytics

Gary Moglione, portfolio manager at Momentum Global Investment Management, said the underperformance of the Lindsell Train strategy over the past five years is “primarily a result of style headwinds with stock selection being secondary”.

“Lindsell Train’s strategy is highly focused on quality and built around a concentrated, stock-specific portfolio. In such a framework, prolonged periods of underperformance are inevitable when the market favours different styles, particularly asset-heavy, cyclical sectors that the strategy structurally avoids,” he said.

“Quality-focused strategies have lagged significantly, with the quality factor underperforming value by around 8 percentage points per annum. This mirrors other quality-focused strategies, where asset-light, high-return businesses were derated while asset-heavy sectors like banks, commodities and defence surged,” he said.

Peter Toogood, chief investment officer at The Adviser Centre, agreed. While he noted there have been “some stock errors (or at least the timing of buys and sells)”, overall Train’s large-cap defensive growth funds have been hampered by a return to form for value strategies.

“Nick has staunchly, and correctly, refused to change his agenda with regard to his investment process. His style is simply out of favour,” he said.

“If you consider the dominance of the value investment style for the past four-plus years, his performance is not out of kilter with our expectations.”

Not all were as convinced, however. Richard Philbin, chief investment officer (investment solutions) at Hawksmoor Investment Management, said his style has not helped, but noted that stock picking has been a significant factor.

In particular, he highlighted Train’s concentrated approach, with very few names in his portfolios, which means the manager’s decisions are “magnified”.

“If you’ve got a concentrated portfolio, you only need one or two to turn south and it massively affects the portfolio. In the same way, you only need one or two to do well and suddenly it looks great again. The problem he has had over the past five years is that he has not had one or two winners that have made him look admirable,” said Philbin.

While there have been some successes, such as the privatisation of Hargreaves Lansdown, “he has had a lot of holdings that have not hit and have disappointed”.

Moglione also noted there have been mistakes, despite referring to these as the “secondary” reason for Train’s funds’ underperformance.

“Stock selection has played a role, particularly the prolonged overweight to consumer staples and the delayed pivot to digital platforms. Train himself acknowledged missing the early signals of digital business quality, such as Rightmove’s 70% margins and 100%+ ROE [return on equity], compared to traditional staples like Diageo,” he said.

The recent shift toward digital franchises is encouraging, but some legacy positions were held too long.”

Should investors keep faith?

Moglione said Train’s poor performance in recent years is a “classic case of style cyclicality”, noting that the “underlying fundamentals of the portfolio remain strong”.

“If you believe in mean reversion and the long-term merits of quality investing, this could be a compelling entry point,” he added, noting that he took an initial position in the Finsbury Growth & Income Trust earlier this year to take advantage of the trust discount.

“That said, investors must be realistic. Recovery may take time, and flows could remain negative in the short term. For long-term holders, this is a time to stay the course, especially given the manager’s track record and the strategic pivot underway. For new investors, this is not a ‘bang the table’ moment, but it is a strategically attractive entry point for those with patience.”

However, Philbin was less sure. While he said Train was a “good manager” who “talks a fantastic fight”, he has not had exposure to any Lindsell Train funds for many years.

While Train has “delivered” over the very long run and it is “quite probable” that the funds will enjoy another day in the sun, he noted that “we don’t really know” if or when his style will come back into favour.

“I think he’s a very good manager who has a lot of history and experience, but I do not have any exposure to him and have not had for a long time because I’ve felt there are better alternatives,” he said.

When asked whether it would be safer for investors to sell out of the fund and move back when there are signs that his style is back in vogue, Philbin responded: “Possibly.”