Markets experienced a tumultuous 2025, going from DeepSeek and Liberation Day-mania in the first six month to the renewed optimism over artificial intelligence (AI) of the second half of the year. Most markets ended in the black, as demonstrated by the chart below.

Performance of markets in 2025

Source: FE Analytics

Little of this could have been foreseen in advance, and while no one’s crystal ball is better than anyone else’s, well-known managers that have been doing their job well for longer might be worth listening to. Below, we asked a number of them which investments they think will do well in 2026, and why.

The debate over AI

The debate over AI is polarising, with some managers still optimistic and others increasingly wary.

For James Cook, FE fundinfo Alpha Manager on the JPM Global Growth and Income Trust, the companies “translating AI investment into tangible financial results are emerging as clear winners”.

While it is important to be selective, semiconductor producers and those adopting AI at scale, such as TSMC, are poised to be the biggest beneficiaries, regardless of which AI company “comes out ahead as the world’s leading foundry”.

Nick Train, manager of the Finsbury Growth and Income Trust, said the rise of AI would continue to benefit UK stocks.

The strategic value of assets such as Experian will become clearer as the “arms race between competing AI agents” will cause businesses to pay more for companies with large, proprietary data sets.

On top of this, technology-driven productivity tends to drive down inflation and AI “looks set to be the biggest productivity driver yet”.

As a result, Train expects US and UK interest rates to be “notably lower” over the next couple of years. This would indirectly benefit companies such as Diageo, which have struggled due to a lack of consumer confidence.

Among the more cautious was James Thomson, manager of the Rathbone Global Opportunities fund, who has reduced his allocation to AI this year in favour of other areas.

While the AI story has performed very strongly, concentration in markets has become “eyewatering”, he said. Indeed, despite defensives and cyclicals trading strongly in recent years, “both have shrunk before a tech-trained one-trick pony”.

Market cap weightings in the US

Source: Rathbones, Topdown Charts, LSEG. Data as of 3^rd December

To satisfy this growing demand for tech, there has been “a tidal wave” of leveraged exchange-traded funds (ETFs), which represent almost 25% of total new fund launches last year.

“There’s a lot of highly speculative bets being made by tourist investors with fear of missing out. That sort of behaviour can cause volatility to spike when the mood turns,” Thomson said.

Raheel Altaf, Alpha Manager of the Artemis SmartGARP Global Equity fund, also took of a more cautious stance and said AI is the area that “investors should be most wary of” in 2026, as valuations and concentration risk “remain a serious concern.”

Opportunities beyond AI

Some experts saw attractive opportunities in areas beyond AI, with Altaf believing that the rotation from growth to value could still have further to go.

The gap between the cheapest and most expensive companies on the market “remains quite large versus history” due to the dominance of passive funds, which are positioned away from value stocks and make them “unusually cheap”.

Altaf saw compelling opportunities in financials, commodities and cyclicals.

Mike Fox, head of equities at Royal London Asset Management, is also bullish on financial stocks, which have performed very well in recent years.

The FTSE World Financials index is up 76.9% over the past three years, but it could have further to run, according to the manager. Part of this is because economic growth is “likely to surprise on the upside” next year, which should benefit the sector.

“This has been a feature for several years now, as investors have hedged the wrong risk (recession), whereas they should have been hedging for higher-than-expected growth. This is one of the reasons financials have done so well,” he said.

On top of this, banks are becoming much less regulated and much more efficient, which should be supportive even if interest rates fall.

Which markets will outperform?

For Rathbone’s Thomson, the US remained the “barometer” of global investor sentiment. While the market may be expensive, this does not mean it is overvalued, the veteran manager said.

US companies are innovative, adaptable and have mission-critical growth, benefitting from higher research and development spending than many competitors, he said.

“[This] is why the US has $6trn companies and Europe has none”.

Investors shouldn’t underestimate the structural growth opportunity in emerging markets, according to Artemis’ Altaf.

The manager is “cautiously optimistic” that China could have another strong year, as domestic “national champions” look well-positioned to drive growth over the long-term. Additionally, policy measures are supportive, with fiscal and monetary easing creating a “strong picture” for another rally.

Across the market, corporate balance sheets have “resilience which we’ve not witnessed for years”. In regions such as Latin America and Brazil, this has been supported by robust demand for commodities and low valuations.

“When you look at emerging markets, it's not just about China or India. There is a broad range of themes that are really driving the upsurge,” Altaf concluded.

Value investing has struggled to stay in favour in recent years, as investors piled into growth stocks in increasingly concentrated equity markets benefiting from the artificial intelligence roll-out.

However, Sean Peche, manager of the $2.2bn Ranmore Global Equity fund, argues that it is impossible to fully forecast what lies ahead and that investors overpaying for growth or quality stocks will suffer significant losses when expectations are not met.

While many value strategies run the risk of lagging during periods of exuberance, Peche said there is strength and safety in capital preservation.

“The future is unforecastable, so don’t pay too much for it,” he said. “Quality doesn’t work all the time and neither does growth. The difference is that when value doesn’t work, you generally don’t lose much money.”

The fund has delivered strong returns over one, three and five years, gaining 29.8%, 75.9% and 153% respectively.

Performance of the fund vs sector and benchmark over 5yrs

Source: FE Analytics

Central to Peche’s approach to investing is the “clean sheet” mindset. “If a cat walked across the computer keyboard and sold all your stocks, which ones would you buy back? This helps you avoid endowment bias, where we value the things we own more than if we didn’t own them.”

For Peche, resisting that instinct and avoiding the comfort of consensus is essential.

“If you run with the herd and it changes direction, then you are going to get trampled,” he said.

Against this backdrop, Peche spoke to Trustnet about how Ranmore’s value-driven, unconstrained approach has shaped portfolio decisions.

What are your reflections on the performance of the fund over 2025?

In 2025, we had almost 40 companies which individually contributed more than half a percent to performance in dollar terms, with our total gains in dollars up 34.7% [over the year to December 2025].

We have only had three positions that have detracted more than half a percent to performance.

We have been buying cheap European stocks and banks, in particular, have done very well for us. Financials overall have been our biggest recent contributor to performance. Consumer discretionary has also done well.

We have also found that, where there is a crisis, there is opportunity.

So, following Liberation Day in April, a lot of companies were also given away at a low price and we were able to take advantage of that. For example, we bought Foot Locker in early May – 10 days later, it was bid for at a 100% premium to the price we paid.

Why is the fund low conviction?

Like The Beatles, we don’t want to be totally reliant on one hit.

There is a lot of risk involved in high conviction – a lot of investors had high conviction that Novo Nordisk was going to be the winning stock in the obesity treatment race, yet having a big position would have cost you a lot of money.

We like to take smaller positions and we like to sell when a stock reaches what we think is fair value. If we buy a $100 stock for $50, we aim to get back to $100 as quickly as possible so we can sell that $100 stock for two other things valued at $50.

However, when a stock rallies hard and gets close to what we deem to be fair value, we will still take our profits. If a stock is close to it, I don’t want to wait another three years for the potential of an extra bit of return.

What were your best calls of last year?

Our biggest winner of 2025 was Alibaba – but that was only 3.8% of our total winners.

We started buying Alibaba in December 2023 at HK$72 as the stock was down on a price-to-earnings ratio of 8x – it was being completely ignored at the time, as consensus thinking was that China was uninvestable.

We knew Alibaba was out of favour because investors feared the government was cracking the whip and getting too involved in companies.

This kind of situation gives us opportunity. We felt the government was going to ease up on the pressure, so felt it was worth buying a company like Alibaba which has lots of free cash and was trading at 8x earnings and ultimately has benefited from a lot of Chinese stimulus.

As such, we took our profits at HK$110 in July 2024 and then there was a pullback in the market and we were buying the stocks back at around HK$82 and then we sold it again at HK$136.

Then you have European banks like ABN Amro, which were practically being given away because consensus thinking was that banks are horrible businesses with Silicon Valley Bank going bust [in March 2023]. But Silicon Valley Bank and a conservatively run Dutch bank are very different propositions.

We started buying ABN Amro in 2020 at around €8 and sold at €13. [After Silicon Valley Bank went bankrupt] we started buying more aggressively at around €13 to €14 in May 2023.

In December 2024, we were still buying at €14 and then suddenly consensus thinking was that European banks weren’t so bad. We ultimately exited our position at €23.

We did arguably sell too early but that is typically the problem with value investors – we buy too early and sell too early.

And your worst calls for the fund?

While we have had nine positions that have contributed more than 1% to the portfolio, two have detracted more than 1% and B&M is one of those two.

It has been a very good business historically as it delivers value to consumers, is low cost and has been a rapidly growing business. However, when a business is rapidly growing there are high future expectations attached.

We bought B&M at just over £4 in September 2024 – it is now around £1.63. We have collected a little bit in dividends along the way, but it has de-rated from some 10x earnings to 7x expected earnings during our ownership period due to a couple of hiccups such as a management change and an accounting scare.

To put this into perspective, there were times in 2021 when people thought the company was worth 17x earnings.

What do you do outside of fund management?

We have a charity called Help More, through which we support around 15 smaller charities, both in terms of contributions to stay in business and helping them expand their support base. I’ve also got dogs and I like snow and water sports.

Dodge & Cox Global Stock has been added to the AJ Bell Favourite Funds list while Barings Europe Select and Schroder Global Recovery have been ousted, the firm revealed this week.

It was a relatively quiet year for best buy lists, with just 17 new names added across the five major platforms, as Trustnet revealed last week.

The latest moves match the number of changes made to the buy list in the entire fourth quarter of 2025, when the firm removed BlackRock UK Special Situations and BlackRock UK Income, while adding FSSA Asia Focus.

Paul Angell, head of investment research at AJ Bell, said: “Our Favourite Funds list is under constant review to ensure we have the highest conviction in our selections. We analyse each fund’s investment strategy, fund managers, and their teams-"  

Starting with the additions, Dodge & Cox Global Stock is a £5bn global fund that buys high-quality businesses that appear undervalued due to short-term disruptions but have long-term potential.

It is managed by a committee, which AJ Bell research analyst Alex Wickham said he liked as it placed an “emphasis on group management over individual leadership”.

“We feel this ensures consistency, embeds robust succession planning and brings together a blend of experience and perspectives,” he said.

The committee looks for businesses that have sustainable earnings, strong cashflow prospects and valuations lower than the wider market, investing in between 80 and 100 underlying holdings.

Despite the value style lagging during the 2010s and the artificial intelligence (AI) boom in the early part of the 2020s, the fund has performed well over the long term, up 238% over 10 years – a second-quartile effort in the IA Global sector, although slightly behind the MSCI ACWI benchmark. It is in the top 25% of its peers over one and five years, beating the benchmark over these periods.

Performance of fund vs sector and indices over 10yrs

Source: FE Analytics

“Pleasingly, the fund is ahead of its style-adjusted benchmark, the MSCI ACWI Value index, since its launch in 2009 and has outperformed the broader MSCI ACWI index over five years to the end of November 2025,” said Wickham.

“The stability of the team provides us comfort that they are well placed to continue to deliver positive returns going forward. Additionally, we believe the fund’s 0.63% OCF (ongoing charge figure) is very reasonable for active management in the sector.”

Making way for the Dodge & Cox Global Stock fund was Schroder Global Recovery. It boasts impressive performance, sitting in the first or second quartile of the IA Global sector over one, three, five and 10 years, but this was not enough for the fund to keep its place on AJ Bell’s best-buy list.

“This switch improves diversification within our global equity selections, given the overlap of investment process and underlying holdings between Schroder Global Recovery and Schroder Global Equity Income, which remains on the list,” Wickham said, noting that the firm retains “conviction” in the Schroder value team and the investment approach.

In Europe, Barings Europe Select Trust was also on the chopping block at the start of 2026 as AJ Bell analysts lost confidence in the £426m fund’s ability to beat its benchmark over the long term.

In the IA European Smaller Companies sector, it has failed to register above-average performance over one, three, five and 10 years, while also unable to beat the MSCI Europe ex UK Small Cap benchmark during these periods.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

Managers Nicholas Williams, Colin Riddles, Rosemary Simmonds and William Cuss use a growth at a reasonable price (GARP) approach, looking for businesses with durable franchises by assessing competitive advantages and their sustainability over time.

“Whilst we acknowledge that this style has been out of favour in recent years, particularly during 2025 to date, the scale of underperformance has been disappointing, especially when compared with peers who have fared better,” said Wickham.

“Additionally, following a recent review we have conducted into customer demand across different asset classes , the lack of customers investing in a dedicated European smaller companies fund was evident. We therefore no longer believe the asset class warrants a pick on the list.”

Last year saw a surge in investor research into Artemis’ sector-topping equity funds while strategies focused on equity income, gold and Europe stocks also proved to be popular, analysis of Trustnet traffic data shows.

Vanguard LifeStrategy 80% Equity remains the most researched fund on Trustnet. In 2025, its research share was 1.33% of factsheet views in the entire Investment Association universe. This is down from 1.28% in 2024, when it was also the most-researched fund.

Stablemates Vanguard LifeStrategy 60% Equity and Vanguard LifeStrategy 100% Equity were the fourth and fifth most-popular funds, but they were pushed out of the top three by Artemis Global Income and Fundsmith Equity.

Source: Trustnet, Google Analytics

However, a more insightful view of investor sentiment can be gained by looking beyond the funds with the most pageviews to discover those that have witnessed large increases or falls in their overall research share. To do this, we take the research share of each fund in 2025 and compare it with its share for 2024 to identify the relative winners and losers over the past 12 months.

Under this approach, Artemis Global Income had its best year as it increased its research share from 0.41% in 2024 to 1.24% in 2024. At the same time, it went from being the 20th most-viewed fund in the Investment Association universe to the second.

Managed by Jacob de Tusch-Lec and James Davidson, the £4.4bn fund made a 45.2% total return in 2025, significantly outperforming the IA Global Equity Income sector (where the average fund made 12.8%) and the MSCI AC World index (up 13.9%). It is also the sector’s best performer over three and five years.

In an update last year, de Tusch-Lec said: “It would not be surprising if the ‘winning’ asset classes, regions, currencies and stocks of recent years do not have such a stranglehold over returns going forward, while other areas are experiencing a renaissance.”

He pointed out that European banks have more than doubled the return of the Nasdaq over the last three years, South Korea was well ahead of the Nasdaq over 2025, and German defence company Rheinmetall has outperformed Nvidia since August 2022.

“We skewed our portfolio towards many of these new areas of outperformance a couple of years ago and reaped the rewards from doing so,” the manager added.

Source: Trustnet, Google Analytics

Artemis Global Income is not the only fund run by Artemis to benefit from greater interest from investors last year, thanks to top performance in 2025. The asset management house had a strong 2025 after its active, long-term approach, which often has a preference for value stocks, came back into favour.

Artemis SmartGARP European Equity, Artemis Monthly Distribution, Artemis SmartGARP UK Equity, Artemis UK Select, Artemis SmartGARP Global Equity and Artemis SmartGARP Global Emerging Markets Equity all had some of the largest increases in research share; most of the funds are in their sector’s top decile for 2025 (aside from the emerging markets fund, which made second-decile returns).

Equity income investing is another theme of the funds with the biggest increase in research from Trustnet users, with Artemis Global Income being joined on the table by M&G Global Dividend, Fidelity Global Dividend, Schroder Income and Schroder Income Maximiser.

There was also more interest in gold funds, following the strong rally in the price of the yellow metal as investors looked for safe havens and hedged against a weaker US dollar. BlackRock Gold & General and Jupiter Gold And Silver are among the funds with the largest upticks in research share.

Of course, some funds will have been losing research share as others get more popular. Jupiter India, Royal London Global Equity Select, Baillie Gifford Managed, Vanguard LifeStrategy 60% Equity and Fundsmith Equity are among those being researched less in 2025 than they were in the previous year.

On a sector level, the most popular peer groups in absolute terms in 2025 were IA Global, IA Mixed Investment 40-85% Shares, IA UK All Companies, IA Volatility Managed and IA Mixed Investment 20-60% Shares.

Change in research share by Investment Association sector

Source: Trustnet, Google Analytics

But it was the IA Global Equity Income peer group that captured the highest increase in research. In 2024, it accounted for 4.04% of fund factsheet views in the Investment Association universe; this grew to 4.68% last year.

Last year, the IA Global Equity Income sector made an average return of 12.8%, outpacing the 11.2% from the IA Global sector, although – as seen above with the example of Artemis Global Income – some funds were able to generate much higher gains.

Investors also paid a lot more attention to the IA Specialist sector, which is a very diverse mix of funds. The five funds here with the biggest increases in research share, however, were BlackRock Gold & General, Jupiter Gold and Silver, Algebris Financial Equity, Ninety One Global Gold and SVS Baker Steel Gold & Precious Metals, reflecting the surge in interest in precious metals.

The IA Europe Excluding UK sector was a beneficiary of a rebound in investor sentiment towards the region, as investors were cheered by pledges of higher defence and infrastructure spending and looked to diversify away from the US.

Artemis SmartGARP European Equity, WS Ardtur Continental European, Waverton European Dividend Growth, WS Lightman European and JPM Europe Dynamic Ex UK recorded the largest improvements in research share.

Meanwhile, the presence of IA Sterling Strategic Bond, IA Volatility Managed, IA Short Term Money Market, IA Mixed Investment 20-60% Shares, IA Mixed Investment 40-85% Shares and IA Targeted Absolute Return towards the top of the chart hints at investor caution during the years of often turbulent geopolitical backdrop.

Finally, investors increased research into the IA Global Emerging Markets sector (through funds like Artemis SmartGARP Global Emerging Markets Equity, Lazard Emerging Markets, Redwheel Next Generation Emerging Markets Equity, Invesco Global Emerging Markets and Ninety One Emerging Markets Equity) after the asset class started to outperform developed markets.

Last year was a tough one for FE fundinfo Alpha Manager Terry Smith’s enormously popular Fundsmith Equity, which languished in the fourth quartile of the IA Global sector for the first time in its 15-year history.

Performance of fund vs sector and MSCI World in 2025

Source: FE Analytics

Contributing most to the difficult year was Novo Nordisk, the Danish pharmaceutical giant, which Smith said had “managed to reaffirm my belief that you should never say ‘Things can’t get any worse’”. It was the biggest detractor to the fund in 2025, contributing a 3 percentage point loss overall.

“The company has parlayed a market-leading position in what is probably the most exciting drug development for about three decades [referring to its Wegovy weight-loss drug] into a secondary position and has failed to prevent illegal generic competition in its core US market.”

This development led Smith to reveal a mantra that he has used in his firm – to buy businesses that can be run by “idiots”, as it means the business is less reliant on the abilities of senior management.

“We have been made painfully aware that the range of businesses which can be run by an idiot is much more limited than we thought and hereafter we will aim to be more aware of the impact that poor management can have,” he said.

The veteran fund manager also acknowledged that engagement with struggling businesses “is less effective than selling the shares”.

However, with a new chief executive in place and “wholesale board changes”, he noted that its current valuation of 13x earnings suggests the market appears to be “expecting very little” from the stock.

“If we did not already own it, I suspect we would contemplate buying it as a good business which has been depressed by a ‘glitch’, albeit a rather large glitch,” he said.

In his annual letter to shareholders, the Fundsmith Equity manager also reiterated his more commonly associated mantra: buy good companies, don’t overpay and do nothing.

On this, he noted that the return on capital, gross margins and operating profit margins of his companies were “all high and steady”. Meanwhile, the portfolio’s weighted average free cash flow yield (the free cash flow generated as a percentage of the market value) ended the year at 3.7%, compared with 2.8% for the S&P 500 and 3.1% for the MSCI World.

“Our portfolio stocks have become a lot more lowly valued than the S&P as the free cash flow of many of the major stocks, which now dominate the index, has shrunk or disappeared in the face of massive capex spending on AI,” he said.

On doing nothing, he noted portfolio turnover stood at 12.7% for the year, costing less than 1 basis point. The firm sold its stakes in Brown-Forman and PepsiCo and purchased shares in Zoetis, EssilorLuxottica, Intuit and Wolters Kluwer. It was also given shares in Magnum Ice Cream, which was spun out from consumer brands giant Unilever.

While this has worked over the long term, with the £16.2bn fund the third-best performer in the IA Global sector since its launch in 2010 (up 612.9%), last year it failed to keep pace with its rivals or the MSCI World index.

Performance of fund vs sector over 10yrs

Source: FE Analytics

There are three key reasons for this, he explained: index concentration, the rise of index funds and dollar weakness.

On the first point, Smith noted that the ‘Magnificent Seven’ names of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla now equate to 39% of the S&P 500 index, up from 34% in 2024. Additionally, despite issues for some of these stocks last year, they contributed 50% of the returns in the index.

“It was difficult to even perform in line with the index in recent years if you did not own most of these stocks in their market weightings and we would not do so even if we became convinced that they were all good companies of the sort we seek to invest in, which we are not,” he said.

“It would, in our view, represent too much of a portfolio risk to own them all, just as we would not own all five of the drinks companies we have in our investible universe even if we thought that prospects for the sector were good.”

The last time the index was this concentrated was in 1930, a period followed by the great depression and the Second World War. It took 24 years for the market to reach its previous high.

“Although this is regarded as prehistoric by most investors today, it is wise to remember that the S&P (not the NASDAQ) did not regain its 2000 high until 2007 and then promptly lost it again in the Credit Crisis until 2013,” Smith noted.

Next, he turned to the rise of passives, which also boosted the returns of the mega-cap US tech giants. In 2023, the proportion of fund-owned US equities held in index-tracking funds passed 50% for the first time.

“John Bogle, the pioneer of index investing who founded Vanguard, the index fund manager, was asked at the 2017 Berkshire Hathaway annual meeting if there was a level of assets in index funds which would distort markets and he agreed that there was, although he had no method of determining that level. We may already have reached it,” Smith said.

He warned that this is “laying the foundations of a major investment disaster” as was the case in the early 2000s dot-com bubble or in Japan in the late 1980s.

This time around, “the dominance of index funds now makes the rise of these large stocks a self-fulfilling prophecy,” he noted, suggesting that the scale and length that the bull run can continue for is unknowable.

“I have no clue how or when it will end except to say badly.”

His final point was about the US dollar, which fell against the pound from $1.25 to $1.35 by the year’s end. This affects the sterling value of the fund as most of its companies are listed in the US.

In his view, there are two solutions to the above issues. Smith could start buying stocks in the largest companies that dominate the index and/or become a momentum investor, trading shares performing well regardless of the underlying fundamentals.

“We are not going to do either. If you want an index fund, you can buy one with much lower costs than we or any other active investment manager apply. Nor are we momentum investors, and there are better exponents of this investment strategy than us,” he said.

“Whilst we are going to stick to our investment strategy, we will of course seek to do it better.”

Back when I was a lad, liquidity – and its corollary, price discovery – were prized investment features. Active trading with real-time marks-to-market were generally valued by investors.

Since the global financial crisis, however, heads have been turned by eye-popping returns generated in private equity. Underpinned by the belief that the real money is made before a company goes public – the proverbial everyman has been clamouring for access to private alternatives –, the US Department of Labor paved the way for inclusion of alternatives in retirement.

While it’s tempting to attribute lucrative returns to sponsor acumen and/or to the private vehicle structure itself, most of the kudos should go to the zero interest rates that prevailed when these investments were made.

The ample capital readily available in the years following the global financial crisis and resulting low hurdle rates enabled private equity sponsors to acquire young and/or broken businesses and monetise their investments through sale to a strategic or financial buyer or to the public through initial public offerings.

Since the interest rate environment shifted higher in 2022, the cost of acquiring and building businesses has increased, as have the financing costs and return targets for subsequent buyers.

The private-equity model comes at a cost 

While a long lockup period has been characteristic of private investment vehicles, the fundamental qualities of an investment ultimately underpin its returns.

Moreover, illiquidity can convey a false sense of security. The 2025 bankruptcies of Tricolor Holdings and First Brands Group surprised bankers and syndicated loan investors alike. A similar unravelling was seen at Renovo Home Partners. While these occurrences have been characterised as idiosyncratic, more systemic risk may become apparent over time.

Vintage matters. We would be surprised if the returns realised on private investments entered into today kept pace with those made between the global financial crisis and rate tightening in 2022, and expect the lure of private and illiquid assets to ease within the general investing populace.

Should private equity sponsors eventually be laden with investments they can’t monetise, redemption gates likely will go down, leaving investors barred from the exits. As the pendulum swings from one extreme to the other, liquidity may reemerge as the old, and more desirable, new thing.

Fundamentals remain our lodestar

As fundamental investors, we continue to believe that underappreciated earnings potential is the true holy grail and has historically been rewarded in the marketplace. For the past three years, small-cap earnings have been overshadowed by those generated by S&P 500 companies – especially the Magnificent Seven – which also were able to sidestep such small-cap challenges as access to capital and management depth. But there are signs that a recovery in small-cap earnings may at last be underway.

Among the most compelling potential earnings drivers are:

Technology-driven growth. Outsourced software and servicing may provide resources that enable small companies to scale their operations, improve efficiency and facilitate the conversion of some costs from fixed to variable, easing the need for working capital.

More specifically, artificial intelligence (AI) may benefit small-cap companies over a very long cycle. Pick-and-shovel suppliers to infrastructure and data centre construction, for instance, can expand their customer base without triggering incremental spending on research and development (R&D), thus supporting margin expansion. In addition to reduced spending on R&D and selling, general and administrative expenses (SG&A), AI may also enhance the development of superior products to drive pricing power.

Supportive trade and monetary policy. Prospective policy developments and lower interest rates could also bolster small-cap earnings. Although the domestic orientation of many smaller companies has provided some insulation against tariffs, additional relief on this front may come from the Supreme Court as it considers president Trump’s ability to impose tariffs under the International Emergency Economic Powers Act.

A resurgent IPO market. We anticipate the initial public offering (IPO) market to continue reopening, to the potential benefit of small-cap companies. With free money a thing of the past and meaningful hurdle rates, private equity sponsors are incentivised to monetise their investments through the public market, even if they are unable to realise previously hoped-for returns.

The past decade has generally favoured larger stocks

The 39.3% rally in the Russell 2000 index from its post-Liberation Day swoon through the end of November outpaced the S&P 500 index by nearly 300 basis points, and reminded us that the small-cap beast still has claws. Despite this recent show of strength, longer-term performance trends remain skewed toward large names. The relative performance of small-caps remains near previous cyclical troughs. Respecting the tendency for reversion to the mean, our confidence in eventual strong sustained returns from small caps – driven by fundamentals – remains firm.

Bill Hench is portfolio manager at First Eagle Investment Management. The views expressed above should not be taken as investment advice.

The new year has started with renewed geopolitical worries and a promise of further volatility ahead. According to Chelsea Financial Services managing director Darius McDermott, investors are facing “elevated valuations and the late stages of the interest rate cycle”, with the opening week of the year reinforcing the need for selective exposure.

Against this backdrop, he has identified six funds in areas where valuations, fundamentals and portfolio characteristics warrant investor consideration.

Emerging markets

The first of those areas is emerging markets, which he highlighted on the basis that they have been out of favour for an extended period and could benefit from a less supportive backdrop for the US dollar and easing global financial conditions.

M&G Global Emerging Markets was his preferred option as “a standout in this sector”. With a maximum FE fundinfo Crown rating of five and $1.2bn of assets under management (AUM), the fund is run by Michael Bourke, who emphasises real cashflow.

McDermott said is particularly important given the volatility and unpredictability that can characterise emerging economies.

Performance of fund against index and sector over 1yr

Source: FE Analytics

Its long-term track record and clearly articulated process are cited as reasons for its inclusion, with McDermott viewing this approach as a way of balancing growth opportunities with financial resilience.

UK smaller companies

UK smaller companies have endured a prolonged period of weak performance, remaining well below their 2021 peak. For McDermott, this has left valuations depressed and sentiment extremely low, creating the potential for recovery if conditions stabilise.

IFSL Marlborough UK Micro Cap Growth is his chosen vehicle for accessing this part of the market. Another five-Crown scorer and “a stellar performer”, it is run by Guy Feld and Eustace Santa Barbara, whom McDermott pointed to for their long-standing focus on UK small- and micro-cap stocks, selected from the bottom-up rather than with macroeconomic calls.

Performance of fund against index and sector over 1yr

Source: FE Analytics

The fund picker also noted the structural features of the fund, including that it is a unit trust investing in smaller companies, which can lead to wider bid–offer spreads at times of heavy inflows or outflows.

Specialist equities

Chalsea Financial has increased exposure to specialist equity areas that have lagged while investor attention has been concentrated elsewhere. In particular, it is backing healthcare as a sector offering diversification and cashflow visibility.

The five-Crown holder Polar Capital Healthcare Opportunities is recommended as a way to access the breadth of the healthcare universe, with Gareth Powell running a concentrated and unconstrained portfolio spanning large pharmaceutical companies through to biotechnology.

Performance of fund against index and sector over 1yr

Source: FE Analytics

The complexity of the sector makes specialist expertise essential, according to McDermott, who viewed the fund’s structure as a means of gaining exposure to both defensive and higher-growth areas within healthcare through a single strategy.

Real estate investment trusts

After several years of pressure from rising interest rates, parts of the listed real estate market are beginning to look more attractive for McDermott, who said: “Selectivity is key, but we see opportunities where balance sheets are robust”.

Many real estate investment trusts (REITs) are trading at wide discounts to their net asset value, he noted, with income levels that reflect the reset in valuations. For European property exposure, he pointed to Cohen & Steers European Real Estate Securities, which was selected based on the specialist nature of real estate investing and the resources available to the team in analysing balance sheets, asset quality and local market drivers.

Performance of fund against index and sector over 1yr

Source: FE Analytics

This vehicle is proposed as a way of accessing the asset class while maintaining a focus on risk management following a difficult period for the sector.

Artificial intelligence

While cautious about valuations in parts of the artificial intelligence (AI) theme, McDermott opted to retain exposure through a fund he believes has a differentiated approach.

“Despite widespread scepticism, earnings continue to come through, and this does not feel like a late 1990s style bubble,” the fundpicker said. “Don’t be surprised to see AI-related stocks continue to perform if earnings momentum is sustained.”

Landseer Global Artificial Intelligence was his fund of choice, which has been operating in the space since 2017, predating the recent surge in interest in the field.

Performance of fund against index and sector over 1yr

Source: FE Analytics

McDermott saw the length of the track record and the systematic approach as key distinguishing features, rather than relying on more thematic or narrative-driven exposure. The fund uses its own AI system to identify companies expected to benefit from AI adoption.

Silver

Silver is described by McDermott as a higher-risk allocation, but one where supply and demand dynamics remain supportive. In a recent Trustnet article, he noted a structural deficit in the market and rising industrial demand, alongside silver’s role as a precious metal during periods of uncertainty.

To profit from that dynamic, he picked Jupiter Gold & Silver, “a truly unique fund”.

Performance of fund against index and sector over 1yr

Source: FE Analytics

The strategy invests across physical gold and silver bullion as well as mining companies, with the flexibility to allocate up to 70% to silver.

This stood out to McDermott as a distinctive feature that increases potential upside, while acknowledging the higher risk profile that comes with such concentration.

Source: FE Analytics

Active managers in technology, commodities and emerging markets beat passive counterparts last year, but investors in the UK, Europe and financials might have performed better with a tracker, Trustnet research has found.

The debate between active and passive funds remains ongoing but has largely been in favour of those who have tracked the market, rather than trying to beat it. Indeed, active funds have posted generally “dismal results” due to underweighting large-cap stocks, according to Laith Khalaf, head of investment analysis at AJ Bell.

But how did active and passive vehicles fare in 2025? To test this, we compared the performance of the average active and tracker funds in each Investment Association (IA) sector, excluding sectors with no passives.

Active funds outperformed their passive counterparts in 22 sectors last year, according to Trustnet data, although it remained a year where most were better off tracking indices.

Areas where actives beat passives in 2025

Source: FinXL. The table is sorted by outperformance.

Among the sectors where stockpickers came out on top, IA Infrastructure tops the table, with active portfolios outperforming passives by 8.3 percentage points. There are three trackers in the sector, the best of which return 5.4%. Some 26 active funds in the 36-strong sector were ahead of this.

Elsewhere, active funds beating trackers in the IA Technology and Technology Innovation sector may come as a shock, given the dominance of stocks such as the Magnificent Seven. However, the best-performing strategy in the peer was an active fund: Polar Capital Global Technology, with a 43% total return.

Additionally, the worst-performing active technology fund was up 11.4%, while four passive vehicles in the sector lost money in 2025, according to FE Analytics data, as the market started to broaden out.

Investors were also paid to go active in commodities, where passives trailed by 5.8 percentage points. The top fund in the IA Commodities and Natural Resources sector was the YFS Charteris Gold and Precious Metals fund (up 165.4%), closely followed by WS Amati Strategic Metals, which was up 162.1%.

Performance of funds vs sector in 2025

Source: FE Analytics.

However, some passive funds were not as far behind as the average may suggest. For example, the UBS Solactive Global Pure Gold Miners UCITS ETF was up 152.6%, outperforming the next best active fund by 66 percentage points.

Stockpickers also proved themselves in three regional equity sectors: IA Global Emerging Markets, IA Japan and IA Asia Pacific excluding Japan, where they outperformed the average tracker by 2.3, 1.7 and 0.6 percentage points, respectively.

The sterling bond sectors were another area where active managers pulled ahead by 0.4 percentage points (IA Sterling Corporate Bond sector) and 0.5 percentage points (IA Sterling Strategic Bond sector).

On the other side of the coin, passives were the better choice in 27 peer groups last year, as seen by the chart below.

Areas where passives beat actives in 2025

Source: FinXL. The table is sorted by outperformance.

IA Financial and Financial Innovation funds stood out, with four passives outperforming active funds by an average of 23 percentage points.

This is partially due to the exceptional performance of the Amundi Euro Stoxx Banks UCITS ETF, which rose 100.5% in 2025, the best return in the sector by 57 percentage points. Conversely, some active funds in the group lost money.

Investors may have also been better off with a passive in the IA UK All Companies sector, where the average tracker was up 21.9%, compared to the average active return of 13.2%.

The UK market was one of the best-performing global equity markets in 2025 but its rally was not evenly distributed. The blue-chip FTSE 100 surged 25.8% while small-caps and mid-caps trailed behind by comparison, as demonstrated by the chart below.

Performance of indices in 2025

Source: FE Analytics.

This was a headwind for active funds, which tend to favour smaller companies and are usually underweight in the largest positions in the benchmark.

The picture is even worse in the IA UK Smaller Companies sector, where the sole tracker (iShares MSCI UK Small Cap UCITS ETF) beat all but two active funds.

Passive outperformance also occurred in three European sectors. Eurozone equities rallied last year, benefiting from increased infrastructure investment in Germany and strong earnings from large European defence companies.

Trackers captured this rally, with seven of the top 10 funds in the IA Europe ex UK sector last year passively managed.

Other sectors where investors would have performed better in a low-cost tracker included IA Global, IA Global Equity Income, IA North America and IA Latin America.

Last year was tumultuous for markets, but that didn’t mean that the opportunities were scarce. In fact, the nation’s best-known fund pickers, who compile and maintain the UK’s main platforms’ best-buy lists, found 17 new funds worthy of their – and investors’ – attention.

Below, we reveal what they are, as we kick off Trustnet’s yearly review of the UK’s top best-buy lists: Hargreaves Lansdown’s Wealth Shortlist, AJ Bell’s Favourites List, interactive investor’s Super 60, Fidelity’s Select 50 and Barclays’ Funds List.

The recommendations below do not mean investors should necessarily make changes to their portfolios. Best-buy lists are designed as a research starting point – investors should then make sure any decision matches their investment goals and attitude to risk.

Emerging markets and Asia

The area with the most changes was emerging markets and Asia, with five newly ranked funds. Invesco Global Emerging Markets was a new entry in December to Hargreaves Lansdown’s Wealth Shortlist. It is a £1bn strategy with a maximum FE fundinfo Crown Rating of five run by contrarian fund managers looking for value companies.

Hargreaves Lansdown investment analyst Tom James was particularly fond of Charles Bond, who has been running the fund since February 2020 and whom he described as “a knowledgeable yet humble investor, […] a quality we like as it shows continued development as an investor”.

He added: “Bond has learned his craft under the guidance of William Lam and Ian Hargreaves, who are co-heads of the team. They’re both experienced investors who have spent their whole careers investing in Asia, which forms a large part of the emerging markets universe.”

Performance of fund against sector under Bond’s tenure

Source: FE Analytics

We move on to Asia, where AJ Bell added two names: Schroder Asian Alpha Plus and FSSA Asia Focus (both of which are also recommended by Hargreaves).

The former is a £1.4bn portfolio run by Abbas Barkhordar and Richard Sennitt, which became a favourite because of its “strong team of research analysts and fund managers, who have delivered good returns within Asian equity markets over many years”.

Performance of funds against index and sector over 1yr

Source: FE Analytics

The much smaller (£448m) FSSA strategy gained its spot due to “the calibre of the team’s focus on quality businesses, underpinned by the expertise of lead manager Martin Lau”, who is flanked by Rizi Mohanty – both of whom are FE fundinfo Alpha Managers.

Interactive investor (ii) made two emerging market additions to its Super 60 list. The first one was the introduction of GS India Equity, which was added at the beginning of the year, put under review in May following the announcement that lead manager Hiren Dasani would leave the firm, and retained as of 30 July as Aman Batra was confirmed as the new lead manager.

“We have confidence in his market and analytical knowledge and feel he has the potential to successfully implement this fund's well-codified and time-tested investment approach,” ii analysts said.

“This approach is not expected to change and has always had a bottom-up focus with significant input from the experienced and dedicated analyst team, which remains in place.”

The passive HSBC MSCI China exchange-traded fund (ETF) also made the list.

Global

At the global level, passive strategies featured prominently among interactive investor’s additions. The Vanguard Global Small-Cap index fund joined the Super 60 list as a low-cost way to access nearly 4,000 small-cap companies across developed markets.

While the index has a heavy US weighting, analysts said it offered a reasonably representative exposure to global small-cap equities across 23 countries.

Interactive investor also added the SPDR MSCI World ETF, which tracks the mainstream MSCI World index of large and mid-cap stocks. With more than 70% allocated to the US, the ETF was selected for its competitive fees and its role as a broad, core holding covering around 85% of the free-float-adjusted market capitalisation in developed markets.

Hargreaves Lansdown, meanwhile, added two actively managed global equity funds to its Wealth Shortlist, both with a value tilt. Lazard Global Equity Franchise was included in January 2025, with analyst Aidan Moyle highlighting the experience and longevity of its four-strong management team, who have run the fund together since launch in 2015.

While the fund has lagged the MSCI World index during periods when growth and US technology stocks have dominated, HL analysts said it has delivered solid long-term results relative to peers and offered diversification from more growth-heavy global portfolios.

They also added T. Rowe Price Global Value Equity. The decision centred on lead manager Sebastien Mallet, who has run the strategy since 2012 and has more than two decades of experience in global value investing.

Analysts noted the fund’s strong long-term record relative to its sector and other value strategies, even if, like Lazard’s fund, it has lagged the MSCI World index during periods when growth investing has been in favour.

Performance of funds against sector over 1yr

Source: FE Analytics

Developed markets

In developed markets, analysts leaned on low-cost index exposure alongside a small number of actively managed strategies with long-standing teams.

In the US, the only active fund added was Neuberger Berman US Multi-Cap Opportunities, a concentrated, actively managed strategy run by Richard Nackenson since launch in 2006.

Added to ii’s Super 60, analysts highlighted the fund’s long-tenured manager and well-established process, noting that its flexible, multi-cap remit and blend style had produced good results over the longer term, albeit with the potential for more pronounced periods of volatility.

Among index trackers, ii analysts backed the SPDR S&P 500 ETF, noting that the decision reflected the ETF’s competitive fees and the fact the S&P 500 remains a “soundly constructed and representative” way of accessing large-cap US equities.

To reflect the growing concerns in the over-concentration of US indices in a handful of large-caps, Fidelity preferred to add an equally-weighted index tracker instead, which distributes its allocation equally between its holdings. Fidelity’s choice was Legal & General S&P 500 US Equal Weight index.

Turning to Europe, interactive investor added JPM Europe Dynamic (ex-UK). The fund is led by Jon Ingram, who has held that role since 2007 and runs the fund by combining a quantitative model with qualitative oversight.

While the process can result in a bias towards smaller companies at times, ii analysts said the depth of resources behind the strategy and the experience of the team were key positives, even if returns can lag when value and momentum fall out of favour.

Japan was another area of activity for interactive investor, which added the JPMorgan Japanese Investment Trust. The closed-ended fund has been managed by Nicholas Weindling since 2007 and runs a concentrated, high-conviction portfolio of 50-60 holdings.

Analysts pointed to Weindling’s consistency and the stability of the wider Japanese equity team, while acknowledging that the trust’s focused approach can lead to lumpy performance over shorter periods.

Fixed income

There were fewer changes in the world of bonds, but analysts still made selective additions across both global and emerging market bonds.

Interactive investor added Pimco Emerging Markets Bond to its Super 60 list as an adventurous global option. The fund focuses primarily on hard-currency sovereign debt, with limited exposure to corporates and local-currency bonds.

Yacov Arnopolin has led the strategy since 2019, working closely with Pimco’s head of emerging market debt, Pramol Dhawan, and a large specialist team. Analysts highlighted the depth of resources behind the fund and the combination of a well-regarded process with an experienced, risk-aware management structure.

AJ Bell also made a fixed-income addition, adding Rathbone Ethical Bond Income to its Favourites list due to the strength of its management team and its track record of delivering attractive risk-adjusted returns within the sector.

Hargreaves Lansdown’s only bond fund addition of the year was JPMorgan Global Bond Opportunities, which joined the Wealth Shortlist in July. The fund is led by Bob Michele and Iain Stealey, who determine overall positioning across global bond markets, supported by four additional managers with responsibility for individual segments.

Analyst Hal Cook said the result was an “extremely diversified” portfolio, typically holding more than 1,000 bonds across over 50 countries. Rather than aiming to outperform aggressively, the fund is designed to provide broad exposure to global fixed income markets, making it suitable as a core holding or a diversifier alongside equity-heavy portfolios.

Source: Trustnet

Cautious optimism characterised the final quarter of 2025, which was relatively quiet compared with the rest of the tumultuous year.

Despite the US government shutting down for more than a month, global markets delivered positive returns to round out a solid year of gains across all major asset classes. Between October and December the FTSE All Share led the way among major equity markets.

Francis Kinniry, head of the Vanguard Investment Advisory Research Center, said: “It’s often said that bull markets climb a wall of worry – and the fourth quarter of 2025 stands as a compelling testament to that adage.

“Despite the longest US government shutdown in history, a spike in job cuts, consumer sentiment hovering near record lows and a relentless stream of negative headlines, risk assets maintained their upward trajectory.”

Japanese, European and emerging market stocks were all higher, with the US languishing at the bottom of the rankings (although still up 2.7%).

Equities were not the only asset class that benefited investors during the quarter, as fixed income also posted positive as the Federal Reserve and Bank of England cut interest rates.

“From a portfolio perspective, a balanced 60/40 stock/bond portfolio returned [around] 2% for the quarter,” Kinniry said.

Source: FE Analytics

Among funds, healthcare specialists led the way between October and December as investors turned towards undervalued assets. Healthcare had underperformed for the past three years, making it a compelling entry point for the cost-conscious. Pictet Biotech topped the peer group, up 24.1%.

Meanwhile, commodity funds continued their strong year with gold funds once again performing well. WS Amati Strategic Metals topped the charts, up 32.5% in three months, while Ruffer Gold was in second place (29.2%).

Korea also enjoyed a strong bounce as investors backed the country, which has benefited from the restoration of political stability, corporate governance reforms and strong exposure to the global artificial intelligence (AI) boom.

China funds (down 3.8%) and those focusing on UK smaller companies (-0.6%) were at the bottom of the list and were the only two places investors would have lost money on average towards the end of the year. Both seemingly gave up some ground made in the third and second quarters respectively.

The fourth quarter was similar to the opening three months of the year, but more muted. Between January and March, markets were dominated by negative headlines around a potential trade war started by new US president Donald Trump and the risk of an economic slowdown.

US stocks sold off while equities outside of America (led by Latin America but including Europe, China and the UK) rallied. European equities in particular benefited from the rise of defence stocks, as countries committed to spend more on their military after Trump warned the US may not continue to back its allies in the same way as it has previously.

Arguably the most tumultuous period of 2025 occurred in the second quarter, however. Kicked off by Trump’s ‘Liberation Day’ tariffs, markets were sent into a tailspin on fears that the US government could be resetting a new world order.

Risk assets went into freefall in April as the US hit trading partners with higher tariffs than investors were expecting. Shortly after, a 90-day pause was introduced as bond markets in particular took umbrage with the measures.

Stocks rallied in relief and a new term was coined to describe the US president’s negotiating style: TACO (Trump always chickens out).

The relief rally was stronger than the fall, with many major markets ending June at or around record highs. Technology stocks were the big winners, recovering from their falls during the first quarter, while risk-on assets such as US and UK smaller companies jumped as investors became more comfortable adding to riskier positions.

AI remained the key theme driving markets higher, with market leaders such as Nvidia and Microsoft delivering strong returns during the second-quarter earnings season.

The healthcare sector was the biggest loser at this time, as investors worried about a concerning mix of regulatory uncertainty, pricing pressures and persistent investor rotation.

In particular, US policies expanding Medicare’s negotiating power and imposing international price comparisons intensified worries about future revenue and margins.

Chinese equities also continued their yo-yoing, making a 3.1% loss having been near the top of the tables in the first quarter.

As the summer rolled on to the third quarter, markets continued to melt higher, hitting ever-greater heights and passing new records along the way as trade-war tensions between the US and its trading partners lifted.

Meanwhile, the Federal Reserve moved to a rate-cutting stance with inflation slowing, a boost to equity valuations as lower rates reduce borrowing costs and boost risk appetite.

This benefited Chinese stocks, which rose 23.9% between July and September, although it was not the only factor.

Zara Nokes, global market analyst at JP Morgan Asset Management, said: “Policy support for domestic chipmakers, alongside an acceleration in AI spend and product rollout from some of China’s biggest tech names fuelled the rally.”

Wider Asian and emerging market equity funds also performed strongly, while US and tech funds also had a decent quarter and outperformed their global peers, with UK and European funds trailing behind.

With all quarters combined, it was commodity-heavy areas that won out last year, with IA Latin America and IA Commodity/Natural Resources taking the top two spots among Investment Association sectors.

However, there was a clear broadening out as investors moved away from the US and diversified to other markets, with Europe and China also making strong gains despite some up and down periods throughout the year.

Source: FE Analytics

At the other end of the spectrum, the IA India/Indian Subcontinent peer group was the only one to make a loss in 2025, giving back some of the strong gains made in 2023 and 2024 (up around 17% in each year) as investors took profits.

2025 is likely to be remembered as a strong year for global equity investors. President Donald Trump’s return to the White House, geopolitical uncertainty and renewed trade tensions all kept investors on their toes throughout the year.

Yet despite all the column inches dedicated to this uncertainty, global equities ended the year with double-digit gains.

As we pause to reflect, it’s worth considering the trends and lessons for investors in 2026.

The year of global diversification

If there’s one lesson for 2026, it’s the renewed importance of global diversification. Despite the predominance of fast-growing artificial intelligence (AI) stocks, the US market struggled to keep pace with international peers for the first time in over a decade.

A sharp decline in the US dollar boosted international equity returns, reversing a 14-year trend that had previously weighed on non-US assets and reminded investors of the need to look abroad for growth.

Emerging markets posted gains of over 20%, while Europe and Japan also outperformed the US market. The first half of 2025 surprised many as, despite the prevailing market consensus, market leadership shifted decisively to Europe and the UK, with banks in these regions delivering the strongest first-half returns since 1997.

To date, they are topping global sector performance rankings over 1-, 3-, and 5-year periods. Japan also stood out, benefiting from ongoing corporate governance reforms and a surge in share buybacks,  driving higher returns on equity and renewed investor interest.

China, a key driver in emerging markets, appears to be turning a corner after a period of subdued consumer confidence and regulatory change. The emergence of AI leader DeepSeek reminded investors that the US is not alone in harnessing AI’s growth potential, sparking a recovery in Chinese growth stocks and lifting sentiment.

While risks remain, the country seems to have turned something of a corner; China’s entrepreneurial spirit and resilient trade flows suggest renewed opportunities for global investors.

For investors, 2025 was a vivid reminder that market leadership rotates, expectations can shift rapidly and global diversification is essential for capturing returns and managing risk. We think this is likely to continue into 2026.

Europe’s fiscal transformation

One of 2025’s most significant shifts was Europe’s dramatic fiscal transformation. After years of austerity, European policymakers pivoted toward robust fiscal expansion, marking a generational change in the region’s economic landscape. This approach is not just a response to immediate pressures but a strategic commitment to long-term growth.

This shift is evident in sweeping stimulus packages, such as Germany’s €500bn plan spanning infrastructure, tax cuts, and corporate investment. The European Commission’s €800bn ‘ReArm Europe’ proposal and the ongoing disbursement of the EU’s pandemic recovery fund further underscore the scale of this fiscal renaissance.

The market impact has been profound. Fiscal support has driven European equities, particularly banks and industrials, higher, with banks now more profitable than their US counterparts.

Strong loan growth and improved asset quality are creating durable tailwinds for corporates and investors. With more supportive monetary policy, Europe’s fiscal activism is reshaping the investment landscape, attracting decade-high inflows and broadening market leadership to domestically focused stocks.

AI: Promise meets reality

Artificial intelligence has dominated investment narratives, promising to revolutionise industries and drive growth. Yet, 2025 has underscored a critical lesson: not every company riding the AI wave is a sound investment.

Early exuberance often blurred the line between ‘good company’ and ‘good investment’, with capital flowing into headline-grabbing AI stories regardless of fundamentals.

Investors are rediscovering the importance of capex discipline and valuation. The surge in AI-driven spending has not always translated into sustainable returns, and richly valued stocks face sharper scrutiny as rates and risk premiums normalise. The market’s focus is shifting from broad thematic enthusiasm to a sharper focus on which companies can truly monetise AI innovation.

This year shows that, despite AI’s transformative potential, successful investing still relies on bottom-up fundamentals like cashflow, capital allocation and realistic growth prospects. The winners will be those with robust business models that turn promise into long-term value.

Quality under pressure

2025 has been challenging for investors focused on quality stocks. Unlike more defined styles such as value or momentum, quality remains a debated concept, but most agree it centres on companies with strong balance sheets, stable earnings, and prudent management. As an investment style, quality has notably underperformed this year.

Our data shows this is the sixth-largest drawdown for quality in more than three decades – a pattern often seen during periods of market exuberance or sharp recoveries, when investors pursue higher-risk opportunities.

While quality is currently out of favour, history suggests such drawdowns are often followed by strong recoveries, rewarding disciplined, patient investors.

As we close the chapter on 2025, four lessons stand out for 2026: embrace global diversification, recognise the power of Europe’s fiscal transformation, approach AI investments with discipline, and remain patient with quality as a style.

Keeping these principles in focus will be essential for navigating future uncertainties and capturing new opportunities in the year ahead.

Malcolm Smith is head of international equity group at JP Morgan Asset Management. The views expressed above should not be taken as investment advice.

The lack of market reaction to the US intervention in Venezuela reflects the country’s diminished economic relevance but the broader implications for US deterrence, regional stability and international order warrant closer attention, investment managers have warned.

On 3 January 2026, the US launched Operation Absolute Resolve, a large-scale military intervention that resulted in the capture of Venezuelan president Nicolás Maduro. US president Donald Trump subsequently declared that the US would temporarily administer the country, citing American national security interests and the need to restore Venezuela’s oil industry.

However, the market reacted with relative calm to the event. Major stock indices rose, with investors buying energy stocks. The oil price also gained.

Katy Stoves, investment manager at Mattioli Woods, suggested markets failed to respond as expected because Venezuela’s global economic footprint has shrunk dramatically. The country’s share of world GDP has collapsed from 1% to 0.1% over the past 50 years, leaving it excluded even from frontier market indices.

“Following the US’s new take on foreign policy, this event seemed less of a ‘black swan’ than it might have done a year ago,” Stoves said, noting that the intervention appeared consistent with the Trump administration’s willingness to pursue unconventional approaches.

Precious metals and energy commodities showed limited movement. While gold prices edged higher, the gain barely registered against the metal’s 12-month rally.

Brent crude experienced the largest initial shift, yet prices stayed well within their established recent range. Stoves said Venezuela’s prolonged isolation under sanctions has eliminated its role in global supply networks.

“Oil is already in oversupply worldwide, prices are fairly subdued and Venezuelan crude is notoriously heavy and sulphur-rich, requiring significant investment before any production surge materialises,” she added.

However, Stoves questioned whether oil truly motivated the intervention and pointed to Trump’s renewed threats to annex Greenland. “This move may have less to do with oil and more to do with geopolitics,” she said.

Geopolitical implications

Anna Rosenberg, head of geopolitics at Amundi Investment Institute, noted that Trump is increasingly using US military might to achieve geopolitical goals. This now includes regime change, something he condemned in the past.

“The appetite of the US president to engage in unorthodox military undertakings will increase US deterrence,” Rosenberg said. “The operation will likely make Russia and China more concerned over US willingness to intervene militarily.”

But, as the events of recent days show, European governments face growing anxiety over Trump’s Greenland ambitions, while Latin American leaders have confronted heightened vulnerability. Cuba represents the most probable next target, with an oil embargo among potential measures, Rosenberg said.

Political analysts expect Washington to cooperate with Venezuelan vice president Delcy Rodriguez, whom the country’s Supreme Court swiftly installed as interim president. The rapid succession, combined with US secretary of state Marco Rubio’s remarks about the time it takes to organise elections, suggests no immediate vote.

Rodriguez and her brother built reputations as the regime’s pragmatists, previously leading negotiations with Washington.

“Her and her family’s experience in the power structures of Venezuela means she will likely be able to navigate the government in the short term,” Rosenberg said.

“However, there will likely be challenges. In times of transitions of power, political elites will compete, and there are also questions over the military. Also, US claims to Venezuelan oil will likely fuel anti-US sentiment.”

International responses highlight fracturing consensus on sovereign intervention. Russia and Brazil condemned the strikes forcefully, China maintained near silence and European capitals issued fragmented criticism of international law violations without directly confronting Washington.

Rosenberg argued that the operation could accelerate the degradation of established international norms with cascading risks. Latin America faces increased instability if governments diverge from Washington’s preferences, with Mexico and Colombia already receiving warnings. Taiwan faces heightened exposure to potential Chinese assertiveness, emboldened by weakened precedents, and Europe bears renewed pressure regarding both Greenland and security arrangements.

Market implications

When it comes to oil, meaningful production increases face extended timelines despite Trump’s ambitions. The country currently produces around 1 million barrels of oil per day and could increase by 300,000 barrels per day on average per year in an optimistic scenario, Rosenberg said.

“Venezuela's history of seizing company assets means Western firms not already present will be reluctant to invest until the new power structures and security situation become clearer,” she added.

Venezuelan sovereign bonds require fresh valuations given potential revenue streams from restored oil production. Current output sits below 1 million barrels daily (output is at a fraction of capacity after decades of under-investment, mismanagement and sanctions), with optimistic forecasts reaching 2.5 to 3 million barrels within five years.

“For bondholders, the regime change that matters is the one that unlocks those billions in capex and cashflows, but any restructuring will be complicated by large bilateral exposures to China/Russia," Rosenberg said.

The dollar faces both positive and negative implications. “On one side, a stronger grip on Venezuelan oil (which Trump now openly refers to as ‘US oil’) reinforces the dollar’s role,” she explained.

“On the other side, US credibility as a predictable partner is being eroded, which can fuel disaffection with the dollar in parts of the investment community, especially if ‘running’ a foreign country proves more chaotic than expected.”

Investment opportunities?

Despite muted broader market moves and complex geopolitical terrain, Syz Group chief investment officer Charles-Henry Monchau thinks specific investment opportunities have emerged because of the intervention.

Venezuelan distressed debt trades between 25 and 35 cents, depending on sanctions status, with Citi and Allianz analysts projecting recoveries of 30 to 55 cents under regime change. Ashmore holds the largest institutional debt position, whilst Houlihan Lokey advises the creditor committee.

“In sovereign restructurings, the advisors are paid ‘success fees’ and are the ‘picks and shovels’ play for restructuring,” Monchau said. Lazard's experience with Greek and Ukrainian restructurings positions the firm well, as Venezuela’s debt stack is arguably the most complex in history.

Infrastructure specialists could be another opportunity if the oil industry is to be overhauled. Technip, which designed Venezuela’s critical facilities, will likely secure rapid contract awards since alternative firms would require years to understand existing systems.

Graham Corp produces vacuum ejector equipment essential for heavy crude processing while Halliburton and Schlumberger could capture drilling and maintenance contracts across ageing infrastructure.

Meanwhile, Targa Resources controls the Galena Park Marine Terminal. “Reverting to US supplies means Targa’s Galena Park Marine Terminal (a major [liquefied petroleum gas]/naphtha export hub in Houston) would see an immediate massive spike in volume to displace the Iranian supply,” Monchau said.

Of the oil majors, Chevron seems best-placed as it maintained a presence in Venezuela when others left. This means it has the staff, the licences and the fields ready to ramp up production immediately, Monchau said.

Exxon Mobil could reclaim previously disputed assets, whilst ConocoPhillips holds billion-dollar arbitration awards potentially convertible to renewed access.

Syz Group also said Gulf Coast refiners face substantial margin opportunities from cheaper feedstock. Valero Energy, Phillips 66 and Marathon Petroleum operate facilities designed specifically for Venezuelan heavy crude.

They have been buying more expensive heavy crude from elsewhere while Venezuela was under sanctions but a flood of oil would lower their feedstock costs and widen their profit margins.

However, Monchau warned that there are several barriers to all of the above, not least the fact that it could take many years for any benefits to be seen.

“President Trump stated that US companies will invest billions to rebuild the sector, though details on the interim ‘group’ management remain unclear,” he finished.

“Analysts warn that companies (like Exxon Mobil) will be cautious. They cite the ‘hard lessons’ of Iraq and Afghanistan and the memory of their assets being seized by Venezuela in the early 2000s. Reclaiming Venezuela’s former glory as an oil powerhouse would require decades of investment and billions of dollars.”

Equity funds recorded their worst year on record in 2025 for fund flows, with investors withdrawing £6.7bn over the year as concerns over valuations, policy risk and market concentration drove a sustained move away from risk assets, data from the Calastone Fund Flow Index shows.

While December marked a seventh consecutive month of net selling, it also brought a sharp slowdown in outflows, suggesting that clarity following the autumn Budget helped stabilise sentiment among UK investors.

The report found that equity fund outflows peaked during the summer and autumn, before easing materially at the end of the year. Investors withdrew a net £188m from equity funds in December, the smallest monthly outflow since June and a significant improvement on the July-November period, when monthly redemptions regularly exceeded £3bn. Despite this late-year moderation, the scale and duration of selling in 2025 was unprecedented in Calastone’s 11-year dataset.

The overall annual figure was more than double the previous record of £3.3bn set in 2016 following the Brexit referendum. Net selling between June and December alone totalled £10.6bn, making it the longest and largest continuous period of equity fund withdrawals on record.

Equity funds’ net flows by year

Source: Calastone

The pressure was not evenly distributed across the market. Actively managed equity funds bore the brunt of the exodus, losing £18.9bn over the year. In contrast, passively managed equity strategies attracted £12.2bn of net inflows.

This shift reflects both cost sensitivity and growing scepticism about the ability of active managers to add value during a year dominated by sharp market moves and elevated volatility.

The preference for passive exposure was particularly pronounced within global equity allocations, where investors appeared more comfortable maintaining broad market exposure rather than making active regional or style calls.

December’s improvement in flows was evident across all equity sectors, although most remained in net outflow. North American equity funds saw the most dramatic turnaround, moving from an £812m outflow in November to a £107m inflow in December. Global equity funds followed a similar pattern, reversing a £747m outflow in November to record £174m of net inflows in the final month of 2025.

UK-focused equity funds, which have struggled for much of the past decade, remained out of favour. Net selling eased from £847m in November to £541m in December, but full-year withdrawals still reached £9.5bn.

This was broadly in line with 2024’s £9.6bn and marked the tenth consecutive year of net outflows, despite UK share prices reaching all-time highs during 2025.

The persistence of withdrawals from domestic equity funds highlights the disconnect between headline index performance and investor confidence. While valuations improved and dividends remained resilient, concerns around economic growth, political risk and the UK’s long-term market appeal continued to weigh on allocations.

Edward Glyn, head of global markets at Calastone, attributed the late-year slowdown in equity selling partly to reduced policy uncertainty following the Budget. He said: “The sudden, dramatic slowdown in outflows between November and December is a clear indicator that months of pre-Budget speculation contributed to the record outflows from equity funds between June and Budget Day.”

However, Glyn cautioned that easing outflows should not be interpreted as a decisive return to risk. Outside equities, lower-risk asset classes benefited from a clear flight to safety, with diversified mixed-asset funds attracting £11.7bn over the year. Although this was lower than in 2024, it was broadly in line with the sector’s 10-year average, indicating continued demand for balanced portfolios during periods of uncertainty.

Money market funds recorded a particularly strong year, absorbing £5.8bn of net inflows – a record annual figure. Fixed-income funds also saw renewed interest, with inflows rising by half to £1.5bn, although this remained less than half the decade average, reflecting ongoing volatility in bond markets.

All three asset classes recorded net inflows in December, reinforcing the view that investors were repositioning rather than exiting markets entirely.

Selected asset classes’ net flows by year

Source: Calastone, in £m

“Record money market inflows point to investors favouring the safety of cash, suggesting they perceive equity valuations to be teetering after a dramatic 2025 bull run,” Glyn said.

“Solid inflows to mixed asset funds and fixed income support the notion that risk-off is the name of the game at present.”

Royal London Asset Management has launched a global equity tilt fund as part of its £42.5bn Equity Tilt range.

Tilt strategies combine active stewardship with a systematic investment process at the cost, return and risk profile of a passive product.

The UK-domiciled fund tracks the MSCI World index, applying small adjustments (or ‘tilts’) favouring companies with stronger environmental, social and governance (ESG) characteristics. This means it combines passive and active management elements, maintaining low tracking error.

It seeks to achieve benchmark returns while targeting a carbon footprint at least 10% below the benchmark, a 50% emissions reduction by 2030 and net zero by 2050.

Royal London Asset Management launched the fund in response to client demand for climate and ESG integration within core equity allocations. It said the fund addresses high costs, liquidity constraints and high tracking error risk associated with traditional active or passive ESG strategies.

Ed Venner, chief client officer at Royal London Asset Management, said clients are looking for “interesting evolutions from core passive allocations” that align with climate goals without adding complexity, cost or risk.

Matt Burgess, head of passive and quantitative equities at Royal London Asset Management, added: “Investors shouldn't have to choose between responsible investment and broad market exposure.

“Our global equity tilt Fund is designed to deliver the diversification, liquidity and cost efficiency investors expect from a core equity holding, while systematically improving climate and ESG outcomes through many small, disciplined investment decisions.”

Royal London Asset Management also plans to offer Equity Tilt strategies as ETFs in late 2026.

Giant active funds garner investor interest by producing strong returns that can’t easily be replicated, but they will not work out every year.

On balance, 2025 was a middling year for following the herd, data from FE Analytics shows. Of 29 actively managed equity funds with more than £5bn in assets under management, most (20) sat in the second or third quartile of their respective sectors. Just five managed a top-quartile return, while only four resided in the bottom 25% of their peer group.

The best performer was the £7.9bn Polar Capital Global Technology, which made the highest return in the IA Technology & Technology Innovation sector.

Performance of funds vs sector in 2025

Source: FE Analytics

Managed by Ben Rogoff, Nick Evans, Fatima Iu and Xuesong Zhao, the fund is managed by “experienced investors”, analysts at Titan Square Mile, “who are skilled in identifying changing industry trends and the companies that are poised to benefit as a result.

“Technology is constantly evolving and continued vigilance is required by the managers to keep informed of developments.”

It made second-quartile returns in 2024 and 2023 but shot to the top of the tables last year, making 43%. The only other technology fund on the list, Fidelity Global Technology, also rewarded investors, up 17.1%, a second-quartile effort.

Global giants

In the IA Global sector, 17 active funds hold more than £5bn in assets under management (AUM). It was a mixed bag for investors in this area, with two funds at the top of the rankings, while three sat in the fourth quartile.

Robeco BP Global Premium Equities topped the table below with a 25.3% return in 2025. It was helped by the resurgence of markets outside the US, as its 35.8% weighting is far below the benchmark.

The £5.5bn fund does not include any of the ‘Magnificent Seven’ stocks in its top 10 holdings, which may have helped its performance in the first half of 2025 as these stocks proved volatile.

Vanguard LifeStrategy 100% Equity came in second place, although there is debate as to whether the fund is active. It invests in a range of passive funds, but its asset allocation is materially different to the benchmark, with 25% invested in the UK.

Six funds sat in the second quartile of the sector last year, including the £14bn Purisima Global Total Return and £15bn Capital Group New Perspective funds, with the same number occupying the third quartile.

Source: FE Analytics

At the bottom of the rankings, the £15.9bn Fundsmith Equity struggled, up 0.8% over the course of 2025. Veteran manager Terry Smith invests in quality-growth stocks with a large weighting to US names, which will have hindered performance as American stocks lagged the rest of the world last year.

Almost a third of the portfolio is invested in healthcare stocks, which had an up-and-down year. In the first half of 2025 investors worried about a concerning mix of regulatory uncertainty, pricing pressures and persistent investor rotation, although it recovered somewhat in the final few months.

Last year marked the first in the fund’s history that it made a bottom-quartile return over a calendar year, although it has failed to beat the average peer since 2022.

It was not the worst performer among the giant fund above, however, as Morgan Stanley Global Brands was at the bottom of the rankings, down 6.7%. Another with a high weighting to the US (76.5%) and a focus on quality stocks, the portfolio was one of the 10 worst IA Global funds investors could have owned last year.

Domestic titans

Closer to home, there are very few funds that can boast an AUM of more than £5bn, but the two that investors have chosen to back significantly with their cash performed well last year.

The £5.2bn Artemis UK Select stood out, making 28.3%, good enough for a first-quartile return in the IA UK All Companies sector.

Headed by FE fundinfo Alpha Manager Ed Legget and Ambrose Faulks, the fund is predominantly invested in large-cap financials. Four of its top five holdings are banks (Standard Chartered, Barclays, Natwest and Lloyds) which all performed well in 2025, as did engine maker Rolls-Royce, its fifth largest position.

Performance of funds vs sector in 2025

Source: FE Analytics

From the same fund group, Artemis Income made a second-quartile return in the IA UK Equity Income sector. With £5.3bn in AUM, managers Adrian Frost, Nick Shenton, Andy Marsh and Jamie Lindsay are popular with investors looking for income.

Analysts at Barclays Smart Investor included the fund in their best-buy list, calling it “one of the stalwarts of the UK Equity Income market”.

“An experienced team adhering to a simple, but successful, investment philosophy, has delivered strong long-term returns and a sustainable income stream,” they said.

US behemoths

In the US, there were no big winners among the five giant funds, although there were no catastrophes either. AB Select US Equity Portfolio topped the charts with a 10.2% return, although it was the only fund with £5bn or more in AUM to make a double-digit return.

JPM US Research Enhanced Index Equity Active UCITS ETF (an active exchange-traded fund) also sat in the second quartile, while JPM US Select Equity Plus, AB American Growth Portfolio and JPM America Equity all were slightly below the average, as the table shows.

Source: FE Analytics

Other enormous funds

The IA Europe Including UK sector houses two active funds with assets under management of more than £5bn. GS Goldman Sachs Europe CORE Equity Portfolio got the better of Fidelity European Growth in 2025, with the former up 32% (a top-quartile effort), while the latter made 17.5% (third quartile).

Meanwhile, in the IA Global Equity Income peer group, Guinness Global Equity Income is the lone giant fund. It suffered last year with a return of 3.7%, placing it in the bottom 25% of the peer group.

FE Investment analysts said managers Matthew Page and Ian Mortimer have delivered “consistent, best-in-class performance over a long period”, although 2025 was a rare relative failure. Indeed, the fund has never been in the bottom quartile of the peer group in an individual calendar year prior to last year.

Funds with an environmental, social and governance (ESG) investment approach lagged their conventional peers in 2025 although some managed to generate decent returns, FE fundinfo data shows.

Having previously been one of the hottest areas of the investment industry, ESG funds have fallen out of favour in recent years as higher interest rates and political headwinds hampered returns and put off investors.

This continued in 2025, with figures from global funds network Calastone showing ESG funds benefited from a small net inflow in 2025’s opening quarter but were hit with redemptions over the rest of the year.

After taking in £31m in the first quarter, these strategies shed a £755m in the second quarter, another £1.7bn in the third quarter and £1.4bn in October and November. December’s flow figures are yet to be published.

FinXL shows there are 1,120 funds in the Investment Association that describe their investment focus as ‘ethical/sustainable’, which is 20.4% of the 5,483 funds in the whole IA universe.

The average return in 2025 among these ethical/sustainable strategies was 10.3%, compared with 12.2% from their average conventional peer – an underperformance of 1.9 percentage points.

Indeed, the average ethical/sustainable fund outperformed the conventional strategy in just 16 peer groups. As can be seen below, these sectors included IA Infrastructure, IA Technology & Technology Innovation, IA North America and IA Healthcare.

Relative performance of ethical/sustainable funds vs conventional funds in 2025

Source: FinXL. Difference between 2025 total return, in sterling, of average ethical/sustainable and conventional funds between 1 Jan and 31 Dec 2025.

There are several reasons behind this. ESG funds typically overweight technology, healthcare and consumer-facing growth companies while underweighting or excluding traditional energy, defence, materials and commodities sectors.

While this helped ethical/sustainable strategies to outperform in areas such as the tech and healthcare sectors, it acted as a headwind in broader categories when industries such as defence and commodities made some of the year’s highest returns as these funds were unable to take exposure to them.

There were also some political headwinds for ESG investing, largely due to Donald Trump returning to the White House at the start of the year. The Trump administration withdrew the US from the Paris Agreement for the second time, eliminated diversity, equity and inclusion (DEI) programmes through executive order and created new legal risks for asset managers promoting ESG credentials, all of which caused some companies to retreat from previously stated ESG commitments.

Ida Kassa Johannesen, head of commercial ESG and education at Saxo Bank, said at the time: “Policies that undermine ESG principles can affect investor confidence in companies that prioritise sustainability. These companies might find themselves at a competitive disadvantage compared to those benefiting from deregulation and lower compliance costs.

“Consequently, they might experience poor performances, which could in turn reduce the performance of ESG-focused funds and decrease the demand for these funds and the companies they invest in, ultimately slowing the growth of ESG investments.”

When it comes to the performance of individual ethical/sustainable funds, the best performance of 2025 came from WisdomTree Renewable Energy UCITS ETF with a total return of 57.7%. This made it the 32nd best performer in the whole Investment Association universe.

As its name suggests, the fund invests in companies in the renewable energy value chain, including wind, solar and hydrogen. The rise of artificial intelligence (AI) has increased energy demand, boosting investor sentiment on the sector in general, while industrial hydrogen applications have started to mature after years of hype, benefiting that specific area.

Source: FinXL. Total return in sterling between 1 Jan and 31 Dec 2025.

The table above shows the top 25 funds that are flagged as having an ethical/sustainable investment focus. Only a handful – such as WisdomTree Renewable Energy UCITS ETF, PUTM ACS Sustainable Index Asia Pacific ex Japan Equity, iShares Global Clean Energy Transition UCITS ETF, BNY Mellon UK Opportunities (Responsible) or BlackRock's ACS Europe ex UK ESG Insights Equity fund – have names that make clear that ESG is part of their approach.

But most of the funds on the list have a non-ethical/sustainable focus – such as emerging markets, semiconductors or value investing – then include ESG principles as a part of their process.

That means it is fairly mixed bag of funds on the table, although a few trends can be seen.

We’ve mentioned energy already. Joining from WisdomTree Renewable Energy UCITS ETF in this theme are the likes of iShares Global Clean Energy Transition UCITS ETF (up 36%) and Polar Capital Smart Energy (35.1%). LO Transition Materials also has some exposure to this theme.

Several funds focus on Europe (EdenTree European Equity, UBS Euro Stoxx 50 ESG UCITS ETF, BlackRock GF European Value). Unlike the US, Europe has remained committed to ESG through regulatory frameworks like the Corporate Sustainability Reporting Directive and the EU Circular Economy Action Plan, which continued to drive capital toward green infrastructure and circular economy innovations.

Emerging markets are another common theme, either through a global emerging market approach (Principal GIF Origin Global Emerging Markets, Artisan Emerging Markets, Redwheel Next Generation Emerging Markets Equity) or more focused portfolio (Schroder ISF Latin American, Allianz China A-Shares Equity, Royal London Asia Pacific ex Japan Equity Tilt).

A number of factors contributed to this, including the general outperformance of emerging markets over developed markets in 2025, the US’ aggressive tariff policies (up to 3,500% on some solar imports) forcing a supply chain shift towards China, India, Vietnam, and Mexico, and China continuing to pursue its decarbonisation goals.

Can the amazing rally in gold and silver continue next year? The former has grabbed significant traction as a safe haven in 2025, reaching record highs. Geopolitical instability, central bank purchases, a falling US dollar and growing fiscal uncertainty have seen the yellow metal reach $4,300 per ounce, a rise of 68% in the past 12 months alone.

The outlook remains bullish, with the likes of JP Morgan estimating that physical gold could reach $5,000 per ounce by this time next year. However, it is the white metal that has been catching my eye. Silver returns have comfortably outstripped gold in 2025, returning 125% to investors.

Often referred to as “gold on steroids” because of its volatility, silver has hit a couple of major milestones in the past few weeks. In October 2025, the silver price reached an all-time high of $54.48 per ounce, breaking a 45-year high of $49.45. It now stands at $66 per ounce and shows no signs of slowing down any time soon. The gold/silver ratio now stands at 70, a year-to-date low, from a peak of 105 around Liberation Day, suggesting increasing institutional investor confidence in silver.

The rise is due to a number of factors, such as supply and industrial deficits. The World Silver Survey shows the global silver market running consecutive deficits in the past five years as demand has outpaced mine production and recycling, both of which tend to be quite inelastic. A new report released recently by the Silver Institute argues that the industrial demand growth - photovoltaic, electronics, electic vehicless and artificial intelligence/data centres - is structural in nature and that it now accounts for 65% of annual demand and rising. There is a structural shortage, with demand rising 4% in 2024 to 680.5 million ounces, reaching a record high for the fourth consecutive year.

There seems to be strong momentum in the price of both metals from here, especially in an environment where the US Fed is cutting rates, which is also encouraging more speculative behaviour, as evidenced by inflows to exchange-traded funds (ETFs). Figures from early December show more money flowing into silver-backed ETFs than in any single week since July. In short, there are strong fundamentals to support silver at $66 per ounce. All this is prior to the retail market getting involved to any significant degree, while the likes of India and China are only going to increase their demand from here.

Then there are the silver miners; profitability has been rising as metal prices rise, but they are still at attractive valuations. WS Amati Strategic Metals co-manager Georges Lequime currently has 18% of his fund in silver. He says, unlike previous cycles, where silver equities typically traded at premiums of more than 100% at cyclical highs in the market, most of the silver equities are currently trading at a 50-70% discount to net asset value.

Lequime says the market does not believe in the sustainability of the recent rally and has priced both metals’ equities accordingly, something, he says, could be incorrect.

He says: “To date in Q4, the silver price has averaged 29% higher than the silver price received for producers in Q3, while the gold price is 17% higher. Spot silver and gold prices are currently 50% and 20% respectively, higher than the Q3 average. This suggests that the silver producers will report extremely strong financial results for Q4 when they report in late January and February, which should drive share prices higher.”

Jupiter Gold and Silver manager Ned Naylor-Leyland says mainstream investors have yet to participate in this recent rally to the degree they have done previously. Bullion exchange-traded fund holdings are below the peak levels reached in 2020 (gold) and 2021 (silver). He believes this is an oversight, particularly in the case of silver.

Some would argue that both metals are in bubble territory. I recently spoke with Credo Dynamic co-manager Benjamin Newton, who argues that the long-term risk does not support the buyer of silver in this territory. He says: “Our general view is that when everything becomes mainstream, it might be time to look elsewhere, rather than chase at this point. The argument is fair that silver is used in the likes of industrials and chip makers, but they are largely cyclical in nature. Ultimately, if something moves that quickly, there is an element of speculation behind it, as people jump onto the bandwagon.”

To back silver from here, you have to accept that we may be in a new paradigm when it comes to evaluating the value of precious metals. The price tells you it is historically expensive, but demand outweighs supply (something which is unlikely to change given the need for silver as an industrial metal), while falling rates and deglobalisation also support price fundamentals from here.

I do believe we will see a slowdown in these prices at some point – but that should not deter long-term investors given those fundamentals. Silver will still be volatile, but it may be a little bit more trustworthy in the future.

Despite choppy markets last year, 140 funds have maintained top-quartile results in three back-to-back calendar years, Trustnet research found, more than double the 69 funds that achieved the feat a year ago.

But that does not mean that 2025 was a re-run of the previous two years. While equity markets ended the year in the black, US equities were at the bottom of the pile, with the S&P 500 up just 8.4%. Meanwhile, the MSCI Europe rocketed up 26.1% and the FTSE All Share rose by 24%, according to data from FE Analytics.

This marks a sharp contrast to 2023 and 2024, when US equities topped the charts. During these years, markets were largely driven by the rise of artificial intelligence (AI) and the dominance of mega-cap US growth stocks such as the Magnificent Seven.

This turnaround is the result of a tumultuous first half of 2025, with US president Donald Trump’s aggressive trade policy and tariffs causing the S&P 500 to slide 18.5% by early April. Additionally, the AI giants stumbled at the start of the year as the Chinese chatbot DeepSeek shook the tech narrative.

That said, while the US stumbled in 2025, this was not enough to dethrone it as the top-performing equity market over the full three years.

Performance of equity markets over the past three years

Source: FE Analytics. Data to 31 December

For fund managers, outperforming across these very different investment environments was challenging, but not impossible.

The table below shows the 20 funds that have more than doubled investors’ money since 2022, while achieving a top-quartile return in all three calendar years. In 2025’s study, no funds achieved this feat, due to the poor performance of many strategies in 2022 when rising interest rates were a major headwind.

We have excluded funds from the IA Unclassified, IA Specialist, IA Volatility Managed, IA Targeted Absolute Return and IA Property Other sectors that do not have quartile rankings.

Source: FE Analytics. Three-year returns to 31 December

Topping the table is the Amundi MSCI Semiconductors UCITS ETF, with its three-year total return of 272.8%.

The strategy has benefited from the rise of technology stocks since 2023. For example, it holds a 31% allocation to Nvidia, which made 1,040% in sterling terms over the past three years, according to FE Analytics data.

While it posted a lower return in 2025 than in 2023 and 2024, it was still the second-best performing fund in the IA Technology and Technology Innovation sector.

However, the UBS Solactive Global Pure Gold Miners UCITS ETF took the crown for the highest single-year performance during this period. In 2025, the fund returned 152.6%, a significantly stronger performance than its results in 2023 (up 3.9%) and 2024 (up 29%).

It was one of the best funds of 2025 as investors concerned about the weakening dollar fled towards gold, causing the price of the yellow metal to rise by $1,700 per ounce.

However, the most common sector to appear in the top 25 was IA North America, with 11 funds making the table.

Heading up the list of US funds over three years is the Alger Focus Equity fund (up 173.1%), led by FE fundinfo Alpha Managers Patrick Kelly and Ankur Crawford.

The managers target companies experiencing positive dynamic change – businesses taking market share in high-growth areas or innovating their products. This emphasis on innovative companies has led it to favour members of the Magnificent Seven, as well as stocks in areas such as utilities.

It is the top fund in the North American peer group in both 2024 and 2025, demonstrating its ability to outperform in different market conditions. Its sibling strategy, the Alger American Asset Growth fund, also appeared in the table with a 153.1% total return over the past three years.

Performance of funds vs sector and S&P 500 over the past 3yrs

Source: FE Analytics. Performance to 31 December.

In the IA Global sector, five funds made the shortlist, led by the Invesco CoinShares Global Blockchain UCITS ETF, which made 150.7% over the past three years.

The top active global fund was the WS Blue Whale Growth fund, which delivered a 115.2% return over the past three years. Managed by Alpha Manager Stephen Yiu, the fund focuses on the strongest companies that exhibit quality characteristics and an economic moat, according to analysts at Rayner Spencer Mills Research.

While the fund has historically favoured US companies, Yiu has taken steps to make the portfolio more diversified recently, analysts said.

Performance of fund vs sector over the past 3yrs

Source: FE Analytics. Performance to 31 December.

In the IA Japan sector, Yoshihiro Miyazaki’s Nomura Japan Strategic Value also demonstrated consistency. The fund combines qualitative analysis with a quantitative screen based on three key metrics: price-to-book ratio, earnings yield and M&A activity.

Another Japanese fund which doubled investors' money was the JK Japan fund, led by Alpha Manager Simon Jones.

The manager targets companies that are undervalued based on their long-term growth and business prospects. The portfolio is currently overweight in areas such as financials and materials, while being underweight in information technology and healthcare.

UK stocks, precious metals and money market funds were the most bought investments on the interactive investor (ii) platform in December, the firm revealed today, as retail investors ended the year favouring more defensive assets.

The data showed Diageo topped the list of most-bought shares, iShares Physical Silver ETC led passive fund purchases and Royal London Short Term Money Market retained its position as the most popular active fund.

The patterns point to a mix of repositioning within equities, continued caution on interest rates and strong demand for alternatives after a volatile but broadly positive year for markets.

UK equities regain prominence

The most notable shift in December was the renewed popularity of UK-listed shares. Diageo entered the most-bought equities list for the first time and moved straight to the top spot, while BP re-entered in second place.

Other FTSE 100 names such as Rolls-Royce, Legal & General and Lloyds Banking also featured, alongside housebuilder Taylor Wimpey and retailer Marks & Spencer.

Stocks and trusts most bought on ii in December 2025

Source: interactive investor

Victoria Scholar, head of investment at interactive investor, said income-focused UK stocks continued to attract buyers, noting that “UK dividend payers like Legal & General and Taylor Wimpey continued to be popular stocks” while there was some interest in the big winners of 2025, such as Rolls Royce and Lloyds, which “both enjoyed very strong share price gains last year”.

Diageo’s prominence followed the appointment of Sir Dave Lewis as chief executive, while Marks & Spencer returned to the list after several months’ absence. Scholar said the drinks group’s leadership change and M&S’s recent share price weakness had drawn interest from investors looking for recovery potential following a difficult period for both companies.

At the same time, demand for US technology shares moderated. Nvidia remained in the top 10 but slipped from first place in November to seventh in December, while Meta and Tesla dropped off the list altogether. Scholar said investors were becoming “more discerning” about US tech exposure, citing concerns around valuations and concentration risks.

Precious metals dominate passive fund buying

Among passive strategies, precious metals were the clear standout. The iShares Physical Silver ETC rose from seventh place in November to become the most-bought index-linked product in December, while iShares Physical Gold ETC ranked second. Interest also extended to mining equities, with GlobalX Silver Miners UCITS ETF entering the top 10 for the first time.

Most bought funds on ii in December 2025

Source: interactive investor

Alex Watts, senior investment analyst at interactive investor, said the demand reflected strong performance across the sector during 2025. He noted that “the upward pressure on precious metal prices did not abate in December, but continued as gold and silver (and other precious metals) hit new all-time highs”.

He added that silver prices accelerated sharply in the final quarter of the year, prompting investor demand for both direct metal exposure and funds investing in mining companies.

Alongside silver-focused products, BlackRock World Mining and Jupiter Gold & Silver also appeared among the most-bought active and closed-ended funds.

Money market funds remain a core holding

Despite falling yields, sterling money market funds continued to dominate the active fund rankings. Four such funds featured in December’s top 10, down slightly from five in November, with Royal London Short Term Money Market retaining first place in both its accumulation and distribution share classes. Fidelity Cash, Vanguard Sterling Short Term Money Market and L&G Cash Trust also attracted significant inflows.

Watts said their ongoing popularity is in spite of the Bank of England cutting rates for a fourth time in 2025, reducing the base rate from 4% to 3.75%.

“Short-term yields in the UK continued to decline,” he said, but investor demand for money market funds remained resilient, reflecting their role as a low-volatility option amid uncertainty over inflation and fiscal policy.

Investment trusts: Global growth and resources

In the investment trust universe, Scottish Mortgage returned to the top spot of the most-bought list in December, displacing 3i Group, which fell to fourth place. Greencoat UK Wind and City of London retained places near the top, while new entrants included Seraphim Space – the best trust this December – and BlackRock World Mining.

The mix of trusts bought by investors echoed themes seen elsewhere in the data, combining global growth exposure with income and alternatives. Watts said interest in global equity strategies had widened beyond the US as relative performance shifted during the year, prompting investors to reassess regional and style exposure.

“Given a shift in performance dynamic amid global regions, it’s no surprise in December to see continued interest in active funds investing in UK and Europe, and global equity funds where the US holds lesser prominence in portfolios,” he said.

“Furthermore, as the gap between returns of global growth and value narrowed in 2025, and concerns spread regarding concentration in global indices across a handful of growth stocks, we see continued interest in value-biased approaches to global equities.”

These included Artemis Global Income and Ranmore Global Equity.

National Savings & Investments (NS&I) has dropped the interest rate paid on its fixed-term British Savings Bonds after the latest Bank of England base rate cut, having previously increased rates in November.

The new annual equivalent rate from both the one-year growth and income options now stands at 4.07%, down from the 4.2% on bonds issued in November.

Two-year bonds have dropped from 4.1% to 3.98%, while the biggest change comes for those looking to lock their money away for three years. The rate here has dropped from 4.16% to 4.02%.

Those looking to put cash away for even longer can get 3.98% on a five-year bond, down from 4.08% in November.

“Today’s changes reflect changes in the wider market and will help NS&I to meet its net-financing target while continuing to balance the interests of savers, taxpayers and the broader financial services sector,” the firm said.

British Savings Bonds come in two forms: Guaranteed Growth and Guaranteed Income. The former is a lump sum investment that earns a fixed rate of interest over a set period of time, while the latter pays out monthly income at a fixed rate.

Funds cannot be withdrawn early with fixed-term accounts, and savers need a minimum investment of £500. They can invest a maximum of £1m per person in each Issue. After the fixed-term period, savers will have the choice to withdraw their cash or reinvest it into a new term.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "If you blinked, you’ll have missed higher NS&I bond rates, because just two months after they were boosted, they’ve been trimmed back again. This isn’t a surprise. The autumn and winter tend to see more fixed-rate accounts mature, so there’s always a risk that savers will take their money and leave. That was definitely a theme in September, when money was flowing out of NS&I.

"There’s every chance that this temporary boost was designed to stem the flow. There was actually a significant rise in savings in November, when £2.45bn was paid into NS&I, so now those higher fixed rates have done the job, cuts were in order."

The bonds are still offering more than they did before the November bump, she noted, but fall short of the most competitive deals on the market, which has "held up impressively in the face of the Bank of England rate cuts".

 "You can get a better deal from some of the online banks and savings platforms, so it’s important to check what’s on offer before you tie your money up," she noted.

Millions of Britons are entering into the new year still digesting the implications of the 2025 autumn Budget, yet new research highlights a stark gap between financial ambition and the planning needed to turn financial resolutions into lasting progress.

St. James’s Place ‘Real Life Advice’ report found that the most common financial resolutions for 2026 include building or growing an emergency savings fund (11%), spending less on non-essentials (10%), sticking to a monthly budget (9%), paying off credit cards (9%) and saving a fixed percentage of income (9%).

Despite these motivations, 32% of Britons said they have no plan at all for achieving their financial goals. For around 37%, barriers to financial planning are psychological, with 15% noting planning feels too complicated, 12% saying it would cause stress and 10% avoiding thinking about money entirely.

The report said that those with structured plans – including defined goals and timelines – are almost twice as likely to be on track to achieving their goals compared to those without one.

Claire Trott, head of advice at St. James’s Place, said: “January is when many people feel motivated to take control of their finances but good intentions alone rarely deliver long-term change. Our research clearly shows that having a structured financial plan makes the biggest difference, providing clarity, discipline and a framework that keeps people on track even when life gets busy.”

She added that financial advice also steers Britons towards making financial plans by providing reassurance and helping people remain focused on long-term priorities. Of those receiving ongoing financial advice, the report found that 95% said it helps them reach and stay on track with their goals.