The surge of artificial intelligence (AI) has not only injected fresh momentum into the technology sector but also created pockets of exuberance that fund managers need to navigate carefully.

Michael Seidenberg, manager of the £1.9bn Allianz Technology Trust, said he does not look for “story stocks” in the AI race but for the companies making themselves invaluable in the build-out of the technology.

The trust has consistently been in the second quartile for returns in the IT Technology & Technology Innovation sector over one, three and five years, gaining 72.8% over five years – more than double the sector average of 35.9%.

Over a decade, the trust has delivered a first quartile return of 833.6%.

Performance of the trust vs sector over 5yrs

Source: FE Analytics

Although five of the Magnificent Seven currently sit in the trust’s top 10 holdings, Seidenberg argues strongly that returns will increasingly come from a broader opportunity set.

“The Magnificent Seven are amazing companies and they did well last year – they have had an incredible run,” he said.

“But we also want to see breadth in the market. We need to see other companies contribute to the evolution of technology because you don’t want to be dependent on a handful of names.”

As markets continue to broaden out, Seidenberg said he would expect to find “better ideas elsewhere”.

Below, he explains how he identifies genuine AI beneficiaries.

Please explain your process.

I have been working on the trust since 2009 and running it since 2022. I used to work at Oracle and worked in biotech before business school. I have always loved technology and loved learning about what makes businesses in the sector tick.

Our core philosophy is predicated around building a technology-focused mosaic by looking at a variety of inputs.

Not only are we looking at results, which gives us a snapshot of a business, but we also tend to go and meet these companies as I believe it is important as a technology investor to understand the products and services that you are investing in.

Ultimately, we get to a portfolio that sits somewhere between 40 and 75 stocks, depending on the environment. Over the past few years, we have run it tighter with fewer names and I think that has been good for our investors as, on average, the trust has been less volatile.

Do you think there is an AI bubble and how do you identify the winners?

I’m not worried about AI being a bubble long term. The reality is that it has huge potential to disrupt and influence many industries, which means there is and will continue to be a lot of opportunity.

Of course, not every company that says it is an AI winner is going to be a winner but it is still true that the value AI is driving is really impressive. 

I am not going to invest in a business just because it claims to use AI. How is that AI manifesting itself? What does that mean for company’s competitive positioning? What does this mean for its customer base?

We also tend to be more focused on mid- and large-cap companies. Recently, we have been very overweight semiconductors – not necessarily the obvious picks like Nvidia.

What were the biggest winners for the trust over the past 12 months?

Our best contribution last year was Micron, which we have held since around 2016 and made up 4.6% of the portfolio as at the end of December. Micron has been a stalwart for us. It is one of those names that is cyclical, so we tend to vary our position in it.

Our holding in Micron is currently a 3.6% overweight to the index.

[The share price is up over 220% over one year and 313% over five years.]

Another winner is Celestica, which is a manufacturer of white boxes – some of the products that go inside a data centre that are built from a proprietary standpoint.

Celestica was initiated [into the portfolio in] November 2024. Again, the position size has varied, including a short period of not owning it in the second quarter of last year. It is still held now at a 1.15% overweight to the index as of end of December 2025. 

[Celestica’s share price is up 188% over one year and 3,561% over five years.]

And the losers?

Our biggest negative attribution last year was software company Atlassian. Software has been a really tough space for the past couple of years. Traditionally, it has been a rich area for us.

The company has been in and out of the portfolio. We held it from mid-2021 to mid-2022, from the third the fourth quarter of 2022 and then not until November 2024.

The position size was built up a little in January 2025, roughly halved in June 2025 and sold fully in October 2025.

[The company’s share price is down 47% over one year and down 41% over five years.]

But if I take a ratio of our portfolio’s biggest winner to our bigger loser, it’s roughly three to one – I’ll take that all day long.

The trust’s discount to NAV currently stands at around 7%. Do you place much emphasis on closing the discount?

My job is to create the best portfolio for our investors – I don’t have a lot of control over the discount. If we continue to deliver good returns for our investors, over time, the discount will take care of itself. I don’t spend a whole lot of time fretting about it.

What do you like to do outside of fund management?

I love to read and to cook – ultimately, I am really interested in learning.

The past few years have been an abject disaster for the active fund management industry, with investors turning their back on the professionals in favour of simply tracking the entire market.

Active managers have been left out in the cold by investors, in particular, over the past three years. Data from Calastone shows that, from the start of 2022 to the end of 2025, some £56.4bn was added to passive funds, while £26.6bn was removed from active strategies.

It means that over the past decade, £7.4bn has been added to active managers, while £89bn has been put into tracker funds. There have been years when investors have backed active funds (in 2015, 2017 and 2021) but they have been few and far between.

The data backs up that it has been a poor time to invest actively. Last year, active funds outperformed their passive counterparts in 22 sectors, while passives were the better choice in 27 peer groups, including popular sectors such as IA Global, IA UK All Companies, IA UK Equity Income and IA North America.

The rise of passive investing has been a huge part of the market upswing. Furore around artificial intelligence (AI) has pushed the largest US stocks higher. The ‘Magnificent Seven’ of Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla have risen to astronomical sizes, both in terms of market capitalisation and their weighting in premier US and global indices.

As more people pile into global or US equity market trackers, more money flows disproportionately to these companies, which has made it very difficult for active managers to overweight them and outperform.

Last year, investors began to look elsewhere, concerned that the AI hype may have caused too much froth. Yet investors have been so ingrained into investing passively that much of the money moving out of the US was redistributed into different markets around the world through other passive vehicles.

This is underscored by the performance of markets in the UK. The FTSE 100 index of large-caps rocketed higher as investors put their cash in funds that track either the large-cap index or the FTSE All-Share – an all-market benchmark that is heavily weighted to the largest stocks.

Active managers tend to hunt in the FTSE 250 mid-cap space, which severely lagged; in 2025 the FTSE 100 made 25.8% while the FTSE 250 rose just 13%.

Performance of indices in 2025

Source: FE Analytics

This is not a new phenomenon. Only once in the past five years (2023) have UK mid-caps topped their large-cap cousins.

There are risks that come from a world where passive investing dominates. Perhaps most importantly, when markets fall, tracker funds will feel the full brunt of any losses.

But there are no guarantees with active managers either. Some may protect on the downside, while others may win big on the upside. A very select few may do both. Yet there are a whole host of portfolios in the middle that will fail to do either in this new world.

The ‘safer’ pick may be to follow the herd, investing in passives to ensure you get 100% of the upside (assuming active managers will struggle to beat this), while taking your lumps when markets fall.

But the future is unlikely to look like the past and, with geopolitical uncertainty rife (stemming in particular from the US), markets could be choppier than in the past, with market falls possibly becoming more frequent.

Time will tell if active managers can weather this better and come out on top but for now, the recent past shows that there has only truly been one reliable winner – the funds that have followed the market.

While past performance is a poor guide for what the future may bring, backing against passive investing is a brave move. Now may be the time, but it will take nerves of steel to do so. And the results will only be evident much further down the line.

There were 16 funds in the IA Global sector that have let investors sleep well in the past five years, protecting money on the downside but also using risk effectively.

The study below ranks funds by five-year downside capture ratio, placing those in the best decile at the centre of the analysis. Downside capture shows how much a fund has moved when the market (represented by the MSCI World index, which served as benchmark) has declined: a figure below 100 means it has fallen less than the market, while a negative number means it has, on average, risen in down periods.

We then screened for performance, removing funds with a below-sector-average return. Lastly, we combined both elements, looking at funds with a top-decile Sortino ratio. This measures a fund’s risk-adjusted returns using volatility caused by downward movements (rather than overall volatility, which includes when a fund rises).

The result is a group of 16 funds that have combined market resilience with active risk management. They range from deep-value stock pickers to systematic smart-beta trackers, illustrating that low downside capture can be achieved in different ways.

Active value funds

The list is heavily populated by active value and contrarian strategies. These are the funds that, at least over five years, have tended to look very different from the market – and have been rewarded for it when conditions turned difficult.

Ranmore Global Equity sits at the defensive extreme of the universe. Its five-year downside capture of -0.64% is the lowest in the group, meaning it has historically made a small gain when the market has fallen. That has not come at the expense of risk-adjusted performance: its Sortino ratio of 1.2 also sits in the first decile.

At £1.7bn, it has been a consistent top-quartile performer for returns in four of the past five calendar years, with the only exception being 2023, when it ranked in the third quartile of its peers as growth (led by technology stocks) boomed. It is managed by Sean Peche, who recently reminded investors that “the future is unforecastable, so don't pay too much for it”.

A very different kind of contrarianism appears in Heptagon Kopernik Global All Cap Equity, which had the second-lowest downside capture (6%) paired with a Sortino of 1.01. At just under £2bn, it is one of the larger funds in this part of the list.

Schroder Global Recovery shows how recovery-style investing has translated into downside protection. The team, headed up by managers Simon Adler and Liam Nunn, was praised by FE Investments analysts for its “huge resources”.

“We like the concentration of the strategy and, as only 30% is represented in the top 10, no one stock should have a significant impact,” they said. “Despite holding some considerable sector bets, the team insists this is a result of its strict valuation criteria, deeming some sectors too expensive to invest in.”

Artemis’ popular SmartGARP approach also made the list with its £878m Global Equity fund offering good downside protection. It has been a first-quartile performer in four of the past five years and is led by FE fundinfo Alpha manager Raheel Altaf.

Another Alpha manager, Daniel O'Keefe, runs the Artisan Global Value fund, the biggest pure active value fund in the group at £4.4bn. Despite the scale, it maintained a strong defensive profile, as its downside protection and Sortino ratio testify, as per the table below.

Source: FinXL. Measured over five years to the end of 2025, relative to the MSCI World index.

Active, style-agnostic approaches

Beyond traditional value managers, three more flexible global stock pickers also made the list. Thornbridge Global Opportunities takes a more flexible, go-anywhere approach. Its downside capture is the third-best in the market, while its Sortino ratio of 1.45 is the highest in the entire group.

With assets under management of £442.9m, it has been a first-quartile performer in three of the past five years, falling to the second quartile in 2023 and 2024. Managed by Robert Oellermann, the portfolio achieved the maximum FE fundinfo Crown rating of five.

Waystone Latitude Global, run by Alpha manager Freddie Lait, sits towards the higher end of the downside capture range at 58.1%, while maintaining a first-decile Sortino ratio of 0.90.

Its process is based around trading infrequently and investing for the long-term in a diversified portfolio of high-quality companies such as US discounter Dollar Tree (5.9%), UK supermarket chain Tesco (5.6%) and European civil engineering company Eiffage (5.5%). VT Cantab Global Equity also made the list.

Smart beta index trackers

Investing passively doesn’t necessarily mean betting on riskier, high-growth and momentum names. The trackers below take a different approach and only fell half as much as the index (the average downside capture is about 50%) while generating a good level of profit relative to the amount of downward risk taken (with a Sortino score higher than 1).

The iShares Edge MSCI World Value Factor UCITS ETF, Xtrackers MSCI World Value UCITS ETF and SPDR MSCI World Value UCITS ETF all track the performance of value-oriented companies within the MSCI World index, investing based on market capitalisation and value metrics such as price-to-earnings ratio.

The UBS FTSE RAFI Developed 1000 Index tracker, which also made the list, takes a different route to value exposure, weighting companies based on fundamental measures of size, such as total dividends, free cashflow, total sales and book value.

Finally, BlackRock ACS 60:40 Global Equity Tracker also achieved the feat. It tracks a custom benchmark, which is 60% weighted to the FTSE All Share. The remaining 40% is a combination of an index tracking European equities excluding the UK (13.3%), a US index (13.3%), a Japan benchmark (6.7%) and an Asia Pacific excluding Japan index (6.7%).

India has been the darling of the emerging markets in recent years, but poor performance in 2025 has continued into 2026, leaving many questions for investors to answer before backing the Asian powerhouse.

One investor who has retreated from the country somewhat for now is Carmignac’s Naomi Waistell, who said her decade-long positive stance on Indian equities started to wane in 2025.

The co-manager of the FP Carmignac Emerging Markets fund said there are still “a lot of fundamental things to like about India”, but warned there are “two things that they don't have in their favour”.

Firstly, she is concerned by the “demographic dividend”, an economic term that describes when there is a vast number of working-age people compared with those of non-working age (children and the elderly). It implies that economic growth should build as there are more workers adding to productivity.

However, Waistell noted that the country must take advantage of this phenomenon while it lasts, with questions over whether there are enough jobs for the number of potential workers.

“How are they going to utilise those people? How are they going to make them productive and create enough wealth for that large society they have? So that’s one question mark – and the jury’s out on that,” she said.

The other factor that has given her pause is the manufacturing base in India moving up the value chain.

“Despite having a big policy push a few years ago on ‘Make in India’, it hasn’t really seen its share of global manufacturing move up,” she said.

This is in spite of the ‘China-plus-one’ narrative, where countries have looked to de-risk supply chains in the aftermath of the Covid pandemic by broadening out their manufacturing hubs to different countries.

“That has gone to ASEAN, it's gone to Mexico – and India hasn't really been able to move up the value chain. That's down to the fact that India spends a very, very small proportion of its GDP on R&D [research and development],” she said.

This has led to a slightly underweight position to India in the FP Carmignac Emerging Markets fund, although she said it may not be a position the fund holds for long.

“Coming into the second half of the year, there might be a moment where that changes and we want to reposition the fund if things progress well in India, but we'll have to see how that goes,” she said.

There is much that needs to go right first, however. Firstly, share prices would need to fall further. The market has been one of the standout performers over the past few years, with Indian equities making double-digit gains in four of the five years between 2020 and 2024, with 2022 the only exception.

Performance of index over 5yrs

Source: FE Analytics

What was once the “darling” of the emerging markets took a hard about-turn last year, with Indian equities losing 4.5%. And things have got even worse in 2026, with the MSCI India index down a further 7% already.

There are myriad reasons behind the market’s sudden fall from grace. The lack of a trade deal with the US has “weighed on India” and continues to have a negative effect, with the uncertainty putting off investors.

Indeed, foreign money came out of the country in its droves last year, although she noted that domestic institutions and retail investors have continued to put money in, which is a net long-term benefit.

On the economic front, low inflation meant nominal growth was less than double‑digits for the first time “in quite a little while”, while companies’ earnings growth was lower than it has been historically.

“That's really what has always been at the forefront of the argument: that India's premium is due to higher earnings growth, higher real growth, huge population, the demographic [dividend] and productivity. I don't think any of those fundamentals have gone away, but it has had a slower year.”

This combination has left India with a “valuation problem”, as its high premiums were not backed up by the economic data last year. A reversal of this in 2026 (either through lower starting prices or better growth figures) could play a part in the FP Carmignac Emerging Markets fund moving from its current underweight position.

Another aspect that needs addressing is the country’s perception when it comes to artificial intelligence (AI). While some view it as the premier anti-AI market, Waistell pushed back on this narrative, which she blamed for some of the recent performance.

However, multinational companies are implementing AI and, rather than AI taking jobs, people who do not use the new technology are being replaced by those who can use it.

“India has the second-highest AI penetration rate after the US. And if you weight the female users as well as male users, India comes out on top. This is misunderstood, but it's not really necessarily right now the most obvious thing to invest in, because it's not like a company is innovating,” she said.

“It's not the one who is leading the technology or doing heavy R&D but it's right at the forefront of creating productivity gains and using it in a real way for commercialisation.”

Market perception on the country is “fickle” but, if investors begin to appreciate the country’s use of AI, it could shift the narrative and draw investors’ eyes.

A potential third prong to give Indian equities a leg up would be structural reform. The country undertook a huge policy shift in 2017 with the goods & services tax (GST), which was implemented to replace a raft of other taxes, such as VAT, and bring more money into circulation from the black market.

“We've actually had a bit of a lull in structural reforms coming out of India. When [prime minister Narendra] Modi came to power in 2014, there was a huge wave of structural reforms,” she said.

“That has been digested. To get the performance of the Indian market going again, I think we need to see this next round of structural reform.”

After several years of continued US dollar strength, the currency has begun to soften. The shift may appear incremental, but beneath the surface it is reshaping the investment landscape, particularly for emerging markets (EM).

With improving fundamentals, attractive valuation and policy anchors that have strengthened across much of the developing world, the stage may be set for a constructive new phase of emerging markets performance.

Yet global investors remain structurally underweight. A closer look at what is driving this turn in the dollar and how emerging markets are responding, suggests that this may be a moment worth seizing.

Why dollar weakness may have more room to run

A key reason dollar weakness may have room to run is that currency cycles are typically long, tending to last years not months. Since 1983, periods of dollar appreciation and depreciation alike have lasted about 10 years. In this context, the dollar is still relatively strong versus its long-term history. 

That starting point alone suggests that the current down cycle may still be in its early innings. At the same time, structural forces beneath the dollar are shifting.

Central banks have been gradually diversifying their reserves away from the US dollar toward gold and other currencies; in fact, major reserve holders such as China and Russia have reduced their dollar exposure meaningfully in recent years. These moves are slow but persistent and they ease one of the historical pillars of dollar demand.

Fiscal dynamics also play a role. The US continues to run deficits near historical peacetime highs and with foreign ownership of dollar denominated assets close to record levels, even moderate dollar weakness can prompt rebalancing away from US assets toward regions offering stronger growth or better valuations.

Against this backdrop, investors increasingly weigh the predictability of US economic policy, a factor that reserve managers in particular scrutinise when deciding long-term currency allocations. Together, these structural considerations support the view that dollar softness may persist.

How a softer dollar supports emerging market performance

A softer dollar tends to act as a powerful tailwind for emerging markets performance and 2025 already provided a strong example. As the dollar weakened, EM assets surged: the MSCI Emerging Markets Index rose 33.5% in 2025 , nearly double the S&P 500’s return.

These moves illustrate how currency relief can amplify improving fundamentals. For equities, a weaker dollar often translates into stronger dollar-denominated returns, improves the competitiveness of emerging market exports and supports global risk appetite, which in turn draws capital back into EM markets

Credit markets also benefit. When emerging market currencies appreciate, servicing dollar-denominated debt becomes less burdensome, strengthening balance sheets at both the sovereign and corporate levels. This often results in spread compression and improved creditworthiness.

Historically, softer dollar environments have corresponded to lower default risk across emerging market economies and greater fiscal space, giving policymakers more flexibility to support growth.

For commodity exporting countries, the benefit compounds: weaker dollars tend to support higher commodity prices in local currency terms, lifting export revenues and stabilising external accounts.

A stronger macro backdrop gives emerging markets additional support

The broader macro backdrop in emerging markets has evolved in ways that position these markets to capitalise on the currency shift. Many EM central banks began tightening monetary policy well before their developed market peers, leaving them with higher real rates and credible inflation fighting credentials.

With imported inflation easing as currencies strengthen, several emerging market countries have been well positioned to gradually cut rates from a place of policy strength, supporting domestic demand without re igniting inflation.

This combination of currency support, policy credibility and room for calibrated easing forms a compelling macro foundation.

Navigating emerging market volatility with discipline

At the portfolio level, navigating emerging markets successfully still requires a steady, disciplined approach. The volatility inherent in emerging markets remains an inescapable feature; currency swings, shifting political landscapes and global trade disruptions all have the potential to spark short-term turbulence.

But disciplined stock selection and risk controlled allocation can turn volatility into opportunity rather than vulnerability. A consistent focus on companies with durable earnings, strong balance sheets, and governance standards that support long-term value creation helps ensure that the portfolio participates in upside markets while remaining resilient in stress periods.

This steady, time tested approach is essential in environments where macro narratives, such as the dollar’s trajectory, can shift rapidly.

Diversification also plays a critical role in navigating volatility. Allocating across regions, sectors, and currency exposures helps smooth idiosyncratic shocks and allows investors to harness multiple sources of return.

For instance, stronger local currencies tend to support consumption-led businesses, financial institutions benefit from easing inflation and more predictable monetary cycles, and export-oriented companies with natural dollar hedges can thrive even when global conditions are uncertain. Blending these exposures creates a portfolio that is not reliant on any single macro scenario.

For investors who have remained underweight emerging markets, the combination of improving fundamentals and a softer dollar presents a strategic opening.

Valuations across emerging market equities remain at extended discounts to developed markets. With capital flows still light and sentiment cautious, any sustained re allocation into EM could have a meaningful impact on returns. The currency environment need not be perfect; it need only avoid being a headwind.

The dollar’s recent weakness is not the sole driver of the opportunity, but it is a significant one. When combined with healthier macro foundations, stronger balance sheets, and the disciplined navigation of volatility, it creates a setup that investors may want to revisit with fresh eyes.

If the dollar continues to drift lower, or even remain range bound, the next leg of emerging market performance may already be quietly underway.

Sammy Suzuki is head of emerging markets equities at AllianceBernstein. The views expressed above should not be taken as investment advice.

The Bank of England has held the base rate at 3.75% after a narrow five-to-four vote by the Monetary Policy Committee (MPC), reflecting continued caution amid persistent inflationary pressures.

Inflation remains above the 2% target at 3.4%, reinforcing the case for maintaining policy stability while officials assess whether price growth will ease in the months ahead. The Bank signalled it is seeking clearer evidence that easing labour market conditions will further reduce price pressures.

Todd Cutting, head of enhanced liquidity at Aviva Investors, said: “Markets may have hoped for clearer dovish breadcrumbs but today’s announcement instead delivers a firmer restatement of existing guidance. The signal is steady, not soothing, and that’s likely to keep the front end responsive to every incoming data print.”

However, the narrow vote – with governor Andrew Bailey being the decider – suggests that cuts are not a matter of if but when.

Ed Monk, pensions and investment specialist at Fidelity International, said: “The Bank will be aware of the one-off effects from April 2025 utility bill increases and tax rises fall out on year-on-year comparisons for inflation over the coming months.

“Meanwhile, wage rises – which the Bank watches closely for signals of consumer spending power – have been weakening, further reducing the need for higher rates.

Other signals from the labour market have also shown weakness, with fewer people on the payroll, more unemployed and more claiming out-of-work benefits, Monk warned.

“We have seen evidence that investors are now rotating away from cash and cash-like investments as the rates edge lower,” he said.

“Cash funds were prominent in our best-seller lists throughout 2025, but the picture has shifted as we move through 2026, with investors moving money off the sidelines and into the stock market.” 

According to Patrick Farrell, group chief investment officer at Charles Stanley, this caution from policymakers and ongoing uncertainty is likely to frame the year ahead for investors.

“At times, it feels like waiting for a bus that may or may not be running – there’s no set timetable and each move now depends on whether upcoming data gives the Bank enough confidence to act,” he said.

“Growth isn’t strong enough to remove doubts, nor weak enough to force decisive action, leaving the path for rates open ended. Instead of the smoother, more predictable cutting cycles of the past, we may see a more uneven journey. In this setting, staying adaptable, diversifying effectively, and being prepared for a range of outcomes will be essential for investors as global policy shifts unfold.”

Luke Bartholomew, deputy chief economist at Aberdeen, is more optimistic. So long as inflation moderates over the coming months, he expects Bailey to swing in favour of further cuts in the “not too distant future”, noting “we think there is a strong case for rates to eventually fall to 3% later this year”.

But the Bank has been cautioned not to wait for too long.

George Brown, senior economist at Schroders, said: “The temporary disinflationary window ahead should offer enough cover to justify one or two more cuts.

“However, the Bank will have to act soon if it intends to cut, before that window closes and the opportunity for further easing slams shut in the second half of the year.”

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

The CT Universal MAP funds remain “cautiously constructive” heading into 2026 but have tempered their enthusiasm for US equities due to valuation concerns, according to co-manager Keith Balmer.

The fundamental backdrop supports risk assets, with inflation contained, employment robust and corporate earnings solid. Monetary and fiscal tailwinds provide additional support as the Federal Reserve continues cutting rates and the Trump administration continues to increase government spending

“We’re still cautiously constructive on the outlook. We look at the fundamental backdrop that we see globally, but predominantly in the US. The fundamental backdrop is actually pretty decent,” Balmer explained.

“Inflation is under control, a little bit toppy but not enough to be concerned about. Unemployment is still very strong, so everyone's got a job who wants a job and you've got good corporate earnings growth, good profitability, good margins.”

The combination of policy support and solid fundamentals points towards positive equity returns. “If you've got monetary and fiscal stimulus coming into a pretty decent fundamental backdrop, it generally means to say that equities are going to do okay,” Balmer added.

Despite the supportive backdrop, elevated valuations – mega-cap tech stocks linked to the artificial intelligence (AI) revolution have surged in recent years – led the CT Universal MAP funds to reduce their US overweight position in the past few months. “Because of valuation levels and amount the US has rallied post Liberation day we have now removed our long US position and have looked to move away from mega caps by increasing exposure to small caps,” the manager explained.

The initial reduction in US equities coincided with an increase in emerging market exposure, which has become the funds' favoured equity region. The positioning reflects a view that the artificial AI cycle has further to run before disappointment sets in but can be accessed at more attractive valuations in countries such as China.

“I do think there will be a disappointment at some stage in terms of the return on investment that the hyper scalers are going to get from all of this capex spend,” Balmer said.

“But we're not at the disappointing point yet. We’re at the optimistic part of the investment cycle where the world is still excited about  of these AI driven tools which are going to improve productivity and profitability.”

Emerging markets offer exposure to the AI theme at lower valuations than US technology stocks. The manager pointed out that some emerging markets have a high allocation to technology, trading on much lower multiples that US-based tech companies.

Furthermore, a weaker dollar typically benefits emerging economies, while tariff concerns have dissipated as China's total trade volumes exceed pre-tariff levels. Chinese exporters have adapted by routing goods through third countries or shipping partially completed products for final assembly elsewhere.

The funds implement the view through broad MSCI Emerging Markets exposure while favouring Asian markets.

In terms of other regions, the CT Universal MAP managers think European stocks “could be interesting” in 2026, although the portfolios have yet to start buying into them in any size.

Balmer noted that Europe is likely to benefit from higher fiscal spending, especially as Germany has released its debt brake, and increased investment in defence. One important catalyst would be a peace deal between Ukraine and Russia.

“If there is a good outcome in terms of Ukraine-Russia, I think Europe will probably benefit the most from an equity market perspective,” he said. “If Russia is allowed back into international markets, it means you're going to get a wave of cheap gas being available across Europe.”

UK equities continue to trade at attractive valuations but the managers struggle to identify what could help them outperform. “UK is cheap but it's always been cheap,” Balmer said. “We just struggle to see the catalyst that's going to realise that cheapness in the UK market.”

He added that the UK market is overweight defensive value-based sectors, such as energy, commodities, utilities and banks: “It’s just not the sector mix that you want in a pretty decent growth environment.”

Japan was the CT Universal MAP funds’ favourite market in 2024 but, although the managers still like the country’s corporate governance story, they took the position off over concerns around dollar weakness and yen strength. However, this did not play out, with further weakness from the Yen. With the new political leadership under Takaichi, we would expect more stimulus to follow and think this could work out well for Japanese equities and have increased exposure accordingly.

Within fixed income, the CT Universal MAP range favours government bonds over credit markets where spreads have compressed to multi-decade tights. This means “there’s not a huge amount of excess return going to come from spread compression”.

Government bonds offer more attractive risk-reward characteristics, with gilts particularly favoured over US Treasuries as the UK's fiscal conservatism under the Labour government creates a supportive environment. There’s also some regional plays in sovereign debt, such as a preference for markets such as Spain and the Netherlands over Germany.

That said, the team think Treasuries have a place in the portfolios, especially as the US continues with its interest rate cutting cycle and the need for protection given elevated equity valuations.

“If you think about where valuations are in the States, it won't take much bad news to lead to a decent pullback in the equity market,” Balmer said.

“It’s not our base case but if we do have a bit of a growth shock then you're going to want to have some duration in the portfolio to protect from the equity beta. You’re currently getting paid in real terms to hold that protection therefore we think it’s a pretty decent trade.”

The overarching message from the CT Universal MAP remains one of pragmatic vigilance despite the team’s cautiously optimistic mindset and constructive positioning.

“The data's telling us that the world's absolutely fine but clearly events of the past few years show you that actually the world can change very very quickly. And in which case our optimistic outlook could also quickly sour,” Balmer said.

“Look out for inflation going higher than expected. Look out for unemployment data getting worse than it already is. Those scenarios playing out could mean our base case  changes quite radically, quite quickly. We’ll be very alert to changes and react accordingly: what active management is all about.”

More information on the CT Universal MAP ranges can be found here.

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The Japanese market enjoyed a renaissance in 2025, sitting behind only the emerging markets as the top-performing major equity region last year.

But not all funds were able to benefit from its resurgence. Indeed, FE fundinfo Alpha Manager Carl Vine’s M&G Japan Smaller Companies delivered a fourth-quartile 13.6% return over one year, lagging both its benchmark and the broader sector, with the former gaining 19.8%.

This short-term slip contrasts sharply with the strategy’s long-term credentials. Over 10 years, the fund has returned 190.6%, placing it among the sector’s first quartile winners over a period where Japanese equities performed poorly relative to other markets.

The strategy aims to beat the Russell/Nomura Mid‑Small Cap index over rolling five-year periods by running a high‑conviction, bottom-up portfolio of typically fewer than 60 holdings – picked from a core universe of over 250 Japanese companies.

The portfolio leans towards industrial goods and services and technology, with top holdings including Ichigo, Sparx Group and Infroneer Holdings.

Despite its short-term performance, FundCalibre analysts said the fund’s longer-term track record has been bolstered by the deep regional experience of the management team, reinforced by M&G’s Asia Pacific team.

They said: “Vine and his team have delivered excellent long-term performance in a very tricky and high-risk market. This is thanks to the team’s vast experience and deep knowledge of the companies they invest in and what their drivers are.

“Their strong engagement strategy with companies helps them uncover unique investment opportunities. The fund should be a strong consideration for anyone looking for Japanese smaller companies exposure.”

Performance of the fund vs sector and benchmark in 2025

Source: FE Analytics

Conversely, where the M&G fund faltered, a cluster of long-term laggards enjoyed a renaissance in 2025 as the market rebounded.

The Nikkei 225 gained 26.6% over the 12 months as a combination of global and domestic forces propelled the market higher.

While anticipation of US Federal Reserve rate cuts and an artificial intelligence (AI) build-out surge on the world stage were boons for the market, at home, Japan also benefited from rising wages, ongoing corporate governance reforms and strengthening retail participation.

Performance of the Nikkei 225 vs FTSE 100, Euro Stoxx and S&P 500 in 2025 (in sterling terms)

Source: FE Analytics

Against this backdrop, funds in the Investment Association (IA) Japan sector made an average 17.4% in 2025, making it one of the top 10 best-performing sectors for the year.

Benefitting from this shift in particular were a trio of strategies from Aberdeen Investments and FTF Templeton Japan Equity.

Source: FE Analytics

Abrdn Japanese Equity gained 25% over the year, making up a quarter of its total return over 10 years (103.2%). Led by managers Chern‑Yeh Kwok, Yuki Meyer and Zui Shiramoto, the strategy aims to outperform the MSCI Japan index via a 61-stock portfolio anchored by household names including Mitsubishi, Sony and Toyota.

Its small-cap sister strategy, Abrdn SICAV I Japanese Smaller Companies Sustainable Equity, managed an almost identical one-year return of 25.3% but has a weaker 10-year track record of 85.1%.

The fund’s sustainable investing framework – overseen by Kwok, Hisashi Arakawa and Jun Oishi – targets smaller companies considered environmental, social and governance (ESG) leaders or those showing clear potential to improve, with subsequent engagements and exclusions based on the asset manager’s ESG House Score system.

The one-year rebound also extended to Abrdn SICAV I Japanese Sustainable Equity, which matched Abrdn SICAV I Japanese Smaller Companies Sustainable Equity’s 25.3% return over one-year. It is also the best-performing fund of the three of 10 years, gaining 100.6%.

Performance of the funds vs sector in 2025

Source: FE Analytics

Rounding out the list of short-term standouts was FTF Templeton Japan Equity, which delivered the strongest one-year gain of the group, up 28%. It has a more modest 10-year return of 73.8%.

Managed by Chen Hsung Khoo and Ferdinand Cheuk, the £138.4m strategy aims to increase value through investment growth over periods of five years or more.

The portfolio carries a distinct tilt toward industrials and financials, with allocations of 31.1% and 24.5% respectively – higher than the benchmark weightings of 26.5% and 16%.

Performance of the fund vs sector and benchmark in 2025

Source: FE Analytics

Investors pulled almost £700m from equity funds in January, with UK and European portfolios bearing the brunt, data from Calastone’s Fund Flows Index has shown.

In total, a net £697m was removed, marking an unprecedented eighth consecutive month in which investors withdrew their cash.

The firm credited investor concern with US president Donald Trump’s threats to hike tariffs on Europe and other NATO countries as part of his bid to take over Greenland.

Indeed, the first half of the month was relatively muted, with net sales and buys cancelling each other out. But outflows accelerated on 19 January and continued for the rest of the month, as the prospect of US tariffs and the president sending military planners to the island sent markets tumbling.

Fund flows of European and UK equity funds in January

Source: Calastone

Additionally, most of the net sales came from the two places Trump targeted: the UK and Europe. European equity funds suffered their worst month since January 2025, as investors pulled £237m from the sector, while investors withdrew £694m from UK funds over the month, mostly in the final two weeks.

Edward Glyn, head of global markets at Calastone said: “The pace of outflows in January was far slower than in the run-up to the Budget, where a record flood of selling was prompted by concerns of possible higher pension and investor taxes.

“This indicates that the risk of conflict over Greenland was more of a tail risk in investors’ minds rather than a clear and present danger. It shows, however, that it doesn’t take much to fracture fragile sentiment, especially when stock prices are riding this high.”

Elsewhere, outflows from Asia funds continued, although they remained in line with the monthly average, while investors withdrew less from Japanese equity funds in January than they had done in previous months.

Emerging markets, global and North American funds all enjoyed net inflows during the month.

“Investors now have to be more alive to geopolitical factors than in the past and they are titrating their geographical allocations accordingly,” Glyn noted.

Passives remained popular, with net inflows of £1.4bn, while active funds suffered, with £2.1bn removed last month.

Turning to other asset classes, investors flocked to bond funds, which took in £459m in new money last month. Here, corporate bond funds were more popular, while government bond portfolios were sold down. Multi-asset funds also proved popular to start 2026, with more than £1bn added in the month, right around the 10-year monthly average.

Lastly, money market funds suffered outflows for the first time since April 2024, while investors took a net £51m out of property funds.

The way people invest in the US is changing. Allocating to the region is no longer automatic but requires more careful thought than before due to political uncertainty, extreme concentration in a handful of mega-cap stocks and the dominance of the artificial intelligence theme.

Investors have been cutting their winners, introducing currency hedging or moving some exposure from pure growth strategies towards value, as discussed on Trustnet earlier this week. Below, three fund pickers reveal their new approach for the US, which focuses on small-caps, insurance and healthcare – or anything but tech.

Darius McDermott, managing director at Chelsea Financial Services, said one of the key lessons from 2025 was to be wary of cutting US exposure altogether, citing the rebound after the 'Liberation Day' sell-off.

“The US still represents the highest-quality equity market in the world and having no exposure at all would be a mistake for long-term investors,” he said.

However, while VT Chelsea’s managed funds have not been actively selling US holdings, they also “haven’t been directing new money into the market”. Instead, fresh capital has gone into emerging and frontier markets, such as India.

If allocating to the US today, McDermott said he would be more inclined to do so away from AI-driven hyperscalers and towards US small- and mid-caps, which he reckons are more attractively valued and more closely linked to domestic growth and company fundamentals. He highlighted T. Rowe Price US Smaller Companies and Artemis US Smaller Companies as options.

Both have limited weightings to the telecoms, media and technology sectors (11.6% and 3.6%, respectively) and focus more on basic materials (15.2% and 11.8%), financials (14.3% and 7%) and healthcare (both 16%). The Artemis fund has been in the top quartile of its peer group over the past one, three, five and 10 years.

Performance of funds against index and sector over 1yr

Source: FE Analytics

Alongside smaller companies, McDermott said he likes US equity income strategies with a value tilt, singling out JPM US Equity Income and M&G North American Dividend, which he said can provide a more balanced return profile by combining dividends with participation in long-term growth.

Performance of funds against index and sector over 1yr

Source: FE Analytics

JPM US Equity Income is income-orientated but analysts have noted how income is a residual the investment philosophy of of managers’ Andrew Brandon and David Silberman, with capital growth the primary focus. The strategy aims to soften some of the sharper moves in the wider market and produce a yield in excess of the index by favouring sensible blue-chip stocks.

M&G North American Dividend follows a dividend-growth approach, based on the belief that companies that grow dividends can add value and beat the market over the long run.

To mitigate a purely defensive bias, the portfolio is divided into three buckets: quality companies with reliable growth, asset-backed cyclical businesses and 'rapid growth' companies driven by structural themes. If a company cuts its dividend, the team treats this as a failure of capital discipline and will look to sell the holding over time.

Ben Yearsley, director at Fairview Investing, framed his approach to the US market explicitly around diversification away from mega-cap technology, saying that “it’s never wrong to take a profit”.

Many investors switched some of their market-cap trackers last year to equal-weight trackers, which he said was “a perfectly acceptable approach even though it didn’t work out last year”. Rather than relying solely on indices, Yearsley tends to use smaller or mid-cap companies or more of a value style.

His picks in the space were Barrow Hanley Mid Cap Value and BNY US Equity Income, but he also pointed to more specialist sector funds that “have had a rougher time”, such as Polar Capital Global Insurance, which he said is about 70% US invested.

Performance of funds against index and sector over 1yr

Source: FE Analytics

The fund focuses on non-life insurance businesses around the world with a preference for medium-sized companies. The strategy many struggle during sustained falling markets when stocks are sold off indiscriminately, but the team has delivered returns in line with its stated objectives on an annualised basis.

Performance of funds against index and sector over 1yr
Source: FE Analytics

Andrius Makin, associate portfolio director at Killik, focused on more specialist ways of accessing the US rather than revisiting broad market positioning.

His firm predominantly uses index funds to allocate to the US, but he agreed with McDermott and Yearsley that adventurous investors could look at small- and mid-cap companies, which are forecast to deliver double-digit earnings growth and should benefit from the One Big Beautiful Bill Act, he said. He also added that on price/earnings terms, small- and mid-caps trade at 26% and 34% discounts to large-caps, respectively.

That said, “smaller companies do leave you more exposed if economic conditions tighten, so in our MPS we have increased exposure only marginally”.

Instead, Makin is looking at specialist biotech funds, which are predominantly invested in the US and offer useful diversification. Large pharmaceutical companies face a 'patent cliff', with many sitting on large cash piles that could drive more M&A, including in UK-listed biotech trusts.

Although biotech has been under pressure since the post-Covid highs, the portfolio director remained positive on the sector given accelerating earnings growth and the possibility of increased acquisition activity, alongside new programmes to accelerate approvals.

To access the area he turned to investment trusts: the International Biotechnology (81.2% US exposure) and the Worldwide Healthcare (74.2% in the US) trusts.

Both have achieved a maximum FE fundinfo Crown rating of five but differ in size (£316.1m versus £1.4bn, respectively) and risk level (with a respective FE fundinfo risk score of 275 and 165).

Worldwide Healthcare manager Trevor Polischuk has recently been quoted on Trustnet saying: “The confluence of this environment – the innovation, whether it be politics, lowering interest rates, M&A, valuation… – I've never seen it all align like this, and after four years of healthcare underperformance, I think the setup is phenomenal. This is the most bullish I’ve ever been on healthcare in my career.”

Performance of funds against index and sector over 1yr

Source: FE Analytics

Making warned he would however “be mindful of position sizing given that I expect biotech would lag healthcare and the wider market if we see any deterioration in economic conditions”.

Small decisions made or missed before April can have a lasting impact on tax bills, AJ Bell has warned ahead of the tax year’s end.

Laura Suter, director of personal finance at AJ Bell, said: “From savings interest and ISAs to pensions, investments and family finances, small decisions made – or missed – before April can have a lasting impact on your tax bill.”

The end of the tax year represents a hard deadline for using annual allowances. Most cannot be carried forward, meaning unused relief is permanently lost after 6 April, so below Suter highlights 10 mistakes to avoid.

1. Assuming savings interest remains tax-free

Many savers believe their interest escapes taxation, unaware that tax is eroding returns, and the government expects 2.64 million people will tax on their savings this tax year.

Basic-rate taxpayers can earn £1,000 of savings interest annually before paying tax under the tax-free Personal Savings Allowance, while higher-rate taxpayers face a £500 limit and additional-rate taxpayers receive no allowance. Rising interest rates mean millions now exceed these limits, whilst frozen thresholds push more people into higher tax bands. From April, tax on savings interest will increase further.

A saver earning 4.5% needs just £22,200 before hitting the tax-free limit as a basic-rate taxpayer, or £11,100 as a higher-rate taxpayer.

“Savers can move their money into a cash ISA and protect any interest from tax, or potentially benefit even further by moving that money into a stocks and shares ISA,” Suter said.

2. Letting ISA allowances go unused

ISA allowances operate strictly on a ‘use-it-or-lose-it’ basis. Failing to use the £20,000 allowance before 6 April means permanently forfeiting tax-free protection, potentially costing thousands in future tax on interest, dividends and gains.

Each individual can put £20,000 tax-free into an ISA, meaning couples can shelter £40,000 before April. Children receive £9,000 annually. The limit spans all account types.

3. Ignoring pension top-ups

Missing pension contributions before year-end means forfeiting immediate tax relief, which is particularly costly for higher-rate taxpayers where every £1 in a pension can cost as little as 60p.

Basic-rate taxpayers receive 20% tax relief, whilst higher and additional rate taxpayers can reclaim an extra 20% or 25% through online claims or tax returns.

“For some, a small contribution could also prevent them falling into a tax trap,” Suter said. “If you’re close to an earnings threshold that means you’ll lose some tax breaks or government support, such as for childcare, you can contribute to your pension to reduce your effective income, and once again be eligible for the tax break or perk.”

4. Forgetting to bank capital gains

The capital gains tax burden has escalated through cuts to the tax-free allowance and rate increases over the year. The allowance now stands at £3,000 per person, with basic-rate taxpayers paying 18% on gains and higher and additional rate payers facing 24%.

“If you have gains outside an ISA, you could realise the gains up to the annual £3,000 limit and move that money into your ISA – this process is known as a ‘Bed and ISA’,” Suter said.

Investors can also transfer assets to spouses or deploy investment losses to offset gains.

5. Overlooking dividend tax on modest portfolios

The dividend allowance has contracted to just £500, with tax rates set to increase from April. Rates will rise to 10.75% for basic-rate taxpayers and 35.75% for higher rate taxpayers.

“Many investors wrongly assume dividend tax only applies to large portfolios, but even relatively modest holdings can now generate a tax bill if they sit outside an ISA or pension,” Suter said.

A portfolio yielding 5% requires just £10,000 before hitting the limit but investors can use a ‘Bed and ISA’ to transfer dividend-paying investments into ISAs.

6. Falling into frozen-threshold tax traps

Pay rises can quietly push earners over key thresholds, reducing allowances or eliminating benefits such as child benefit or tax-free childcare. Failing to assess income position before April could mean losing thousands in support.

Parents face particular exposure at the £100,000 threshold, where tax-free childcare and funded hours disappear. Child benefit tapers from £60,000 and vanishes at £80,000. Moving into the higher-rate tax bracket halves the Personal Savings Allowance and triggers higher dividend tax rates.

“A small pension contribution could reduce your taxable income below these thresholds,” Suter explained.

7. Keeping assets in the higher-earning partner's name

Couples who fail to share assets often pay more tax than necessary. Not utilising a lower-earning partner’s allowances, ISA limits or tax bands results in avoidable tax on savings, dividends and capital gains.

If one partner earns less, transferring savings or investments into their name allows the couple to pay lower tax rates, Suter noted. Where one partner has not used their ISA, pension, Personal Savings Allowance or CGT exemption, moving assets can maximise available tax breaks.

8. Missing out on tax-free growth for children

Not using Junior ISAs or Junior SIPPs means forfeiting both tax-free growth and, for pensions, automatic tax relief. Over time, this can cost families tens of thousands in lost compound growth.

Junior ISAs allow savings of up to £9,000 per child annually, with funds growing tax-free until age 18. Junior SIPPs permit contributions of up to £2,880 per year, with government relief increasing this to £3,600, though funds remain locked until at least age 57.

“Someone who is able to put away the full £9,000 Junior ISA allowance each year, earning the same 5% return a year, could have £52,200 after five years or £266,000 after the full 18 years,” Suter said.

9. Forgetting to use inheritance tax gifting allowances

Failing to use annual gifting allowances means more of an estate could face inheritance tax later. Pensions will be pulled into the inheritance tax net from April 2027, bringing more estates into the charge.

Every individual can gift up to £3,000 per year free of IHT, with unused allowances carried forward one year. Couples can combine allowances to give away £6,000 tax-free annually.

Extra allowances apply for wedding gifts: £5,000 from parents, £2,500 from grandparents and £1,000 from others. Small gifts of up to £250 per person are also exempt.

“The most generous exemption is for gifts made from regular income, which can be unlimited if they don’t reduce the donor’s standard of living,”. Suter added. “If you haven’t used up your annual gifting amounts, it’s a good idea to consider it before the end of the tax year.”

10. Treating tax planning as an annual scramble

Leaving everything until the last minutes means savers are more likely to rush decision, miss allowances and make mistakes, while savers who fail to automate contributions often under-use their tax shelters year after year.

“It's a good idea to set your finances at the start of the tax year, working out what you can afford to contribute to ISAs and pensions, and then start automating it,” Suter finished.

“You can make sure you’re claiming the government allowances you’re eligible for and can work out what you want to gift, if applicable. You can then check in mid-year if you’re on track and factor in any changes to finances.”

After years in the shadows, the UK stock market was the firecracker of 2025. Global equities enjoyed a strong run last year thanks to steady economic growth and falling interest rates, with the global buzz around AI adding extra fuel. Yet UK equities greatly outpaced global markets, to the surprise of many.

Growing appetite to diversify away from the Magnificent Seven stocks that dominate American and global indices, combined with concerns over unpredictable US government policy, more than offset underwhelming UK economic data that has been the norm for many years now. Attractive valuations across the FTSE All Share created favourable conditions, while tariff disputes and concentration risk served as catalysts for renewed interest.

For some time, commentators have highlighted the risks facing UK investors who adhere to a 4% global benchmark allocation in domestic equities, potentially missing opportunities in a market offering compelling valuations with scope for attractive returns. Those predictions materialised over the past year.

Source: FactSet, Rathbones; FTSE All Share index total returns by calendar year

Investment flow data reveals that overseas investors have primarily driven the return to UK equities thus far. Domestic investors have yet to capitalise on these opportunities to the same extent. Passive flows from the United States gained momentum, with their impact most visible at the upper end of the index. Large-cap banks and defence stocks contributed over half of the FTSE All Share's impressive 24% annual return. In contrast, the FTSE World index of global developed companies delivered 15% by contrast.

Source: FactSet; data contribution to total return of FTSE All Share index for 2025

‘Quality’-oriented stocks, typically flourish during periods of economic stagnation, a descriptor that aptly characterises the current UK environment. Emphasising the quality factor provides a hedge against domestic economic challenges. However, the extent of outperformance from ‘cyclical’ sectors exceeded expectations.

Across Europe more broadly, 2025 marked the quality factor's worst relative performance in two decades, leaving this investment style de-rated and out of favour. This dynamic creates opportunities for when these high-quality British businesses receive appropriate recognition from the market.

Mid-caps have endured a historically unusual period of underperformance relative to large-caps. The FTSE 250 has outpaced the FTSE 100 only once this decade, discounting a virtual dead heat in 2023. While long-term evidence demonstrates that mid-caps offer higher returns to compensate for elevated volatility compared with large-caps, passive flows have altered market dynamics. The anticipated trickle-down effect has failed to materialise and market leadership remains narrow, which pose challenges for active managers with defined investment processes.

Academic research indicates that return on invested capital serves as the strongest predictor of through-cycle returns in the UK market. This metric, measuring the profit a company generates from capital raised through equity and debt, remains fundamental to disciplined investment processes. Mid-caps have historically generated above-benchmark returns over extended periods in the UK market, supporting their continued centrality in quality-focused portfolios.

Source: FactSet; data total return 31 Dec 1985 to 31 Dec 2025

The disconnect between short-term market dynamics and long-term fundamentals presents both challenge and opportunity. While recent performance has tested conviction in quality mid-cap strategies, the underlying investment case remains compelling. Attractive valuations, strong business fundamentals and historical evidence of mid-cap outperformance suggest patient investors may be well rewarded.

The UK equity market's renaissance has begun, in our view, driven initially by international investors seeking diversification and value. As domestic investors recognise these opportunities and market leadership broadens beyond a handful of sectors, quality mid-cap businesses with strong returns on invested capital appear well positioned to deliver sustained outperformance. For long-term investors willing to look beyond recent style and size headwinds, the current environment may represent an attractive entry point into overlooked segments of a revitalised UK market.

Alexandra Jackson is manager of the Rathbone UK Opportunities fund. The views expressed above should not be taken as investment advice.

UK smaller companies have been growing at a similar pace to the tech-heavy US Nasdaq index but flows away from the asset class has meant returns have badly lagged.

As a result, Chris McVey, manager of the FP Octopus UK Multi Cap Income fund, said that over the next few years, AIM stocks and main-market listed smaller companies should be able to deliver strong double-digit gains, providing they can stem the tide of outflows.

The chart below shows the underlying growth rates in earnings per share by index, against the enterprise value (EV) and earnings before interest, tax, depreciation and amortisation (EBITDA) multiples. 

Source: Octopus Investments

Companies quoted on AIM lead the way with two-year cyclically-adjusted earnings growth of 23.3%. This is higher than the Nasdaq. FTSE Small Cap stocks (excluding investment trusts) are producing growth of around 16.2%.

“Even if you don't see any progression in valuation multiples, you should theoretically get between 15% and 20% per annum by investing in UK small-caps right now,” said McVey.

“If you get some semblance of re-basing of valuation, they’ll deliver significantly higher returns than that.”

The main issue, however, is “capturing people’s imaginations” and stopping the outflows. On this, McVey said government support around pension funds (forcing them to invest in domestic minnows) would be beneficial.

He noted there are many schemes being considered by the government to attract money back to the UK but admitted he did not know which, if any, would work.

Regardless, investors buying now are starting at a good price, with AIM stocks trading at 6x EV/EBITDA and small-caps on 5x. As such, McVey said he sees “limited downside from a valuation multiple perspective right now”.

“These are basically the lowest they’ve ever been. I can't see any reason for this level of valuation downside from a multiple perspective,” he said.

This is combined with strong historic long-term performance. Small-caps have broadly kept pace with the dominant US large-caps since the turn of the century, with relatively poor performance only starting in recent years.

Source: Octopus Investments

While he cannot guarantee the timeframe (McVey admitted he would have said the same thing at the start of 2025 and 2024), the FP Octopus UK Multi Cap Income manager stated that in three or four years’ time investors will be “kicking themselves for not buying at these levels”.

Alexandra Jackson, manager of the Rathbone UK Opportunities fund, agreed that UK small- and mid-caps (SMIDs) are undervalued but noted there are some external factors that could turn things around.

Firstly, SMIDs are very negatively correlated to interest rates, so falling rates should reverse the trend of recent years.

“They're also very positively correlated to sterling strength, so if your view on the dollar is informed by what you think Donald Trump is doing, then maybe think of currencies that take advantage of that. A stronger pound tends to be good for this part of the market,” she added.

Lastly, she pointed to corporate actions such as mergers and acquisitions and share buybacks, which should boost share prices.

However, having to choose between small and mid-caps, she would choose the latter, noting that it was an easy choice. While the earnings per share are lower, smaller companies tend to be more vulnerable to economic shocks or unfriendly conditions.

Higher debt costs or higher labour costs through things like higher wages or increasing energy bills tend to have an outsized impact on companies with lower revenues.

“So I want to be in that sweet spot, where the growth can really move the dial, but also with a little bit of protection,” she said.

“We have less than 6% of the fund at the moment in true small-caps. A lot of that is because the small-caps that we've owned have become mid-caps, but in the typical life cycle of this fund, you would then expect us to kind of recycle larger-cap capital into smaller companies. We just haven't found enough ‘tomorrow's winners’.”

Investors are underestimating the risk of a sudden market dislocation over the coming year. Paul Wood, manager of the VT Woodhill UK Equity Strategic fund, is not making a precise forecast but believes the odds of a damaging break in markets are uncomfortably high.

“There’s a 40% chance of a sharp collapse over the next 12 months,” he said.

These concerns rest on how politics, monetary policy and markets could interact. As many commentators are noting, the US is running “crisis-type stimulus” at a time when the economy is already in reasonable shape.

A combination of fiscal largesse and politicised rate cuts could recreate the conditions that produced the market turmoil of the 1970s.

Wood drew a parallel with the Nixon era, when the White House encouraged policymakers to keep borrowing cheap despite rising prices.

 “Nixon leant on the Reserve Bank and you ended up with the bond- and equity-market nightmare where they were both going down at the same time.”

If rates were pushed far below inflation again, the traditional investor playbook would break down. “Should I have equity, should I have fixed income… [This question becomes irrelevant because] there’s sort of nowhere to hide really.”

Even assets typically marketed as havens look questionable to the manager. Two years ago, he would have recommended gold as protection against geopolitical and monetary disorder.

“You could buy a bit of gold,” he said of that earlier period. “But I couldn’t say that honestly now. Even the safe assets are looking a bit dangerous because they’ve done so well.”

Performance of gold over 1yr

Source: FE Analytics

The scepticism about crowded trades and false safety is also evident in Wood’s broader philosophy, who has been worrying about strategies becoming fragile when too much money piles in behind the same idea.

Reflecting on the 1990s hedge fund boom, he noted that firms such as Soros Asset Management gradually outgrew many of their original opportunities. “They would get bigger and bigger, until the only thing left was currency, which was the only thing big enough to take that sort of volume of trading quickly.” The implication is that smaller vehicles can remain more flexible and selective.

At £36.5m, VT Woodhill UK Equity Strategic is small, even though many advisers instinctively prefer large, established products. Wood acknowledged that small funds can look unstable if staff leave or performance wobbles but thinks behavioural investor biases also play a role.

“It’s like the old corporate habit of buying IBM equipment simply because everyone else did,” he said. “If you buy something different and the thing you bought is a bit rubbish, then that’s a real problem. But if everybody’s IBM kit is rubbish, that’s fine.” For Wood, that herd mentality is exactly what a nimble fund can – and should – try to avoid.

Wood describes his approach as closer to credit analysis than traditional equity picking, with the aim to own high-quality companies across the market rather than making big sector bets. When they judge the balance of risks to be unfavourable, they hedge the portfolio using FTSE 100 futures.

He is keen to distinguish this from what he calls a “Texas hedge”, where a manager increases, rather than reduces, exposure to market risk by doubling down on an existing position.

Wood says his hedge tracks closely enough that, in stressed markets, his focus on quality can still generate relative gains. “When the market goes down, nearly always the high-quality firms do better than the more fragile ones,” he said, noting that the fund recently made about 1% in a month despite being fully hedged.

Wood is a critic of the idea that you must take more risk to get more return.

“Not all fund managers work to protect your money. They have goodwill but they won’t hedge, they won’t go to cash, they won’t do any of those things because it’s just too much career risk in it for them.”

Performance of fund against index and sector over 1yr

Source: FE Analytics

VT Woodhill UK Equity Strategic achieved a maximum FE fundinfo Crown rating of five and holds about 40 to 50 large-cap UK stocks, chosen primarily for the strength of their balance sheets.

But the approach has not always worked smoothly. Covid was a painful episode because it did not fit the usual frameworks the team relies on.

Wood went into the pandemic hedged and initially protected the portfolio but removed the hedge too early as markets rebounded. The experience prompted a stricter, rules-based stop-loss policy.

Under that system, if the market falls 5% over five days, the fund now hedges fully and keeps that protection in place. If volatility is elevated, the team waits for a VIX reading of about 20 to 30 before easing off the hedge, to avoid trying to “catch a falling knife”.

Wood says the discipline is designed precisely to prevent the kind of mistimed decision that hurt them in 2020.

Three UK funds launched in 2022 crossed their pivotal three-year anniversary last year, data from FE Analytics shows, but only one was able to top its sector while establishing its track record.

In this series, Trustnet looks at the funds launched in 2022 that turned three years old during 2025. To maintain consistency, we have looked at their performance over the three years from the start of 2023 to the end of 2025. Previously we have looked at the US.

JPM UK Equity Core Active UCITS ETF was the only top-performer of the young UK funds. One of three funds on the list from the IA UK All Companies sector, it made a 47.9% return between 2023 and 2025, placing it in the top quartile of the peer group.

Managed by James Illsley, Callum Abbot, Christopher Llewelyn and Richard Morillot, the £424m fund aims to beat the FTSE All Share index by moderately overweighting stocks the managers have the most conviction in, while underweighting those they are least keen on.

This strategy means the fund will have broad sector exposure that is similar to the index and a large number of stocks. Currently it holds 145 companies, with HSBC and AstraZeneca (7.5% of the portfolio each) the largest holdings.

It is similar in nature to the JPM UK Equity Core portfolio but uses a different fund structure. Active exchange-traded funds (ETFs) are managed by investment professionals who make decisions on asset selection in real time and aim to outperform the market through stock selection.

They have gained traction in the UK and across Europe as regulatory changes and investor demand for flexibility have aligned.

Source: FE Analytics

The next-best performer launched in 2022 was the £3.3bn iShares UK Equity ESG Screened and Optimised Index (UK). This passive fund tracks the Morningstar UK ESG Enhanced index, which uses environmental, social and governance (ESG) screens to whittle down stocks, weighting the remaining constituents accordingly based on their market capitalisation.

It has the same top two holdings as the JP Morgan fund above, although it has higher weightings at 8.7% and 8.3% respectively and has made a similar return, up 44.4%. This was ahead of the sector average, but placed the fund at the top of the peer group's second quartile.

Among the three IA UK All Companies funds launched in 2022, WS T. Bailey UK Responsibly Invested Equity has the weakest performance.

The £21.8m fund run by Elliot Farley and Peter Askew since its launch has made just 1.4% since inception in February 2022.

Returns over three years to the end of 2025 are better, with the fund up 18.2%, although this remains a bottom-quartile performance in the sector.

Performance of funds vs sector and FTSE All Share over 3yrs

Source: FE Analytics. Data to 31 December 2025.

It invests in stocks that have positive environmental and social sustainability characteristics. The 30-stock portfolio particularly struggled in 2025 as large-caps dominated.

In the fund’s December factsheet, the managers said: “Whilst UK equities remain supported by comparatively high dividend yields and global revenue exposure, domestic growth has remained constrained.

“This market structure has remained a headwind to the fund throughout the year as, despite their share price trajectory, the majority of these market leaders don’t meet the metrics of sustainable financial strength to be eligible investments.”

Indeed, funds with an ESG investment approach lagged their conventional peers in 2025, particularly in the UK, where ESG-focused funds made around 3.7 percentage points less than their more traditional peers.

WS T. Bailey UK Responsibly Invested Equity has a high weighting to industrial goods and services, while just 6.7% in banks, 8.2% in construction and materials, 3.4% in basic resources and nothing in energy.

Hargreaves Lansdown has added Vanguard Global Small-Cap Index to its Wealth Shortlist.

The addition is the first of the year for Hargreaves but not the first recommendation for this particular strategy, which also made its way into interactive investor’s Super 60 list exactly a year ago, on 30 January 2025.

The analysts’ judgement is that the category’s growth potential and different return patterns justify exposure, provided investors can tolerate volatility and have a long time horizon.

“While smaller companies have lagged their larger counterparts in recent years, they’ve performed better over the long term,” passive investment analyst Danielle Farley said.

“We think they offer strong growth potential for the future as they’re often among the most innovative businesses and have plenty of room to grow.”

Performance of indices over 5yrs

Source: FE Analytics

The fund tracks the MSCI World Small Cap index, which holds about 4,000 stocks. Vanguard uses full physical replication, buying every constituent at its index weight. It is a trading-heavy approach because small-cap indices change often and require frequent rebalancing, which pushes up costs, as FE Investments analysts noted.

To offset that drag, Vanguard lends some of the portfolio to approved counterparties in return for a fee. This can reduce tracking difference but adds risk.

The fund’s ongoing charge is 0.30%. FE Investments warned that if asset flows were to reverse, those economies of scale could unwind and fees could drift higher. Vanguard runs only physical trackers, so while there are no derivative counterparties, the fund still relies on brokers and securities borrowers that Vanguard must monitor internally.

On tracking, Hargreaves expects the fund to follow the index closely, given Vanguard’s scale and trading capability.

“The fund invests in all the companies in the index and in the same proportion. This should help it track the index closely,” Farley said.

“[Vanguard] has a large investment team with the expertise and resources to help its funds track indices and markets as closely as possible, while having scale to keep costs down. We rate Vanguard’s index team highly.”

Performance of fund against sector and index over 5yrs

Source: FE Analytics

Farley also cited portfolio construction as another rationale for the addition.

“This fund could be a good way to gain broad exposure to smaller companies. It could also provide some diversification to an investment portfolio focused on shares in larger companies, as they tend to perform differently.”

Hargreaves stressed that shortlist additions are not recommendations to trade.

Private credit has grown remarkably over the past decade. What was once a relatively niche corner of the alternatives universe has become one of its largest and fastest-growing segments.

Fundraising has exceeded $1trn over the past five years, assets under management have grown at 14.5% per annum and private credit has become a core allocation for many institutional portfolios.

But rapid growth rarely goes unquestioned. The pace of expansion, combined with a handful of high-profile credit events over the past year, has inevitably raised concerns.

Critics have asked whether private credit has grown too large, too fast – and whether the attractive returns of the past decade can be sustained.

To answer those questions, it is worth considering why private credit grew so quickly in the first place, how the opportunity set has changed and what investors should focus on as the asset class enters a more mature phase of its cycle.

Why has private credit grown so fast?

Private credit’s rise is best understood through the lens of shifting supply and demand in corporate lending. On the supply side, the post-global financial crisis regulatory regime materially increased capital requirements for banks, making it less economical to lend to riskier small and mid-sized companies. Private credit funds stepped in to fill that gap.

Increased institutional allocations further reinforced the supply shift. Through much of the 2010s, structurally lower interest rates pushed institutional investors to private credit in the search for higher yield.

Pension funds and insurance companies found private credit’s floating‑rate coupons, stable cashflows and yield premium over public credit particularly attractive.

As allocations grew, so did the lending capacity of private credit funds, enabling the market to serve more borrowers. Strong performance then amplified this cycle: over the past decade, private credit delivered attractive risk-adjusted returns with lower volatility and smaller drawdowns than many public credit indices.

That track record supported continued fundraising, further deepening the pool of available capital.

On the demand side, private equity was pivotal. As private equity expanded globally, demand for flexible, non‑bank financing rose alongside it.

Direct lending became an integral part of the buyout toolkit, financing acquisitions, refinancings and secondary transactions. This preference increased demand for private credit relative to traditional bank loans, especially in complex or time-sensitive deals.

Is private credit still attractive today?

Private credit yields are lower today than they were a few years ago but remain at elevated levels. Base rates have come down, while the competition to deploy the large stock of dry powder has put downward pressure on spreads.

Even after compression, private credit yields today are 9.3%, around 160 basis points over broadly syndicated leveraged loans, and around 280 basis points over high yield bonds.

While yields are high in absolute terms, investors must focus on whether they are currently being compensated for taking additional risk in private credit today.

Two considerations make me comfortable that the answer to that question is yes.

First, a combination of high yields and seniority in capital structure creates decent protection against losses. At today’s yields, we would need to see default rates rise over three times their current levels to see negative total returns, assuming reasonable assumptions about leverage and recovery rates.

Second, to fully erode the additional yield premium that private credit offers over high yield, default rates in private credit would need to rise by roughly six percentage points above those seen in public markets, assuming relatively conservative 50% recovery rates. That is a meaningful cushion.

That’s not to say there isn’t risk in private credit. The low default rates of the past decade were supported by lower interest rates. With rates now higher, debt servicing costs are higher and when we do see an economic slowdown dispersion is likely to increase –  both across managers and across vintages.

So how should investors allocate to private credit today?

First, investors need to place greater emphasis on selectivity and risk management than in the past. Reducing concentration risk, avoiding aggressive leverage structures and maintaining diversification across vintage years are increasingly important in mitigating downside risk.

Structural protections – such as strong covenants, seniority in the capital structure and conservative documentation – are also going to matter far more when we enter a challenging environment.

The gap between top-quartile and bottom-quartile managers is already wide and there is little reason to believe it will narrow. On the contrary, as weaker loans come under pressure, differences in portfolio construction and risk discipline will become more visible.

Active selection – informed by track record, team stability, sourcing capabilities and alignment – will be a key driver of alpha over the next cycle.

Second, investors should broaden beyond direct lending. Direct lending remains the core of the asset class, but it is no longer the only source of attractive risk-adjusted returns.

Many investors are increasingly looking to complement traditional direct lending with exposure to real estate debt, infrastructure debt and special situations.

These strategies can offer different risk drivers, longer duration or stronger asset backing, helping to diversify portfolios and reduce reliance on a single segment of the credit market.

In a more competitive environment, such diversification can play an important role in improving portfolio resilience.

Conclusion

Private credit has entered a more mature and demanding phase of its evolution. The era of easy growth, abundant spread and uniformly strong performance is likely behind us. But that does not mean the opportunity has disappeared.

Instead, the asset class is transitioning from rapid expansion to greater differentiation. Returns will increasingly be shaped by manager skill, structural discipline and thoughtful portfolio construction rather than market beta alone.

For investors willing to be selective, private credit still has a valuable role to play in diversified portfolios. The challenge now is not whether to allocate, but how.

Aaron Hussein is global market strategist at JP Morgan Asset Management. The views expressed above should not be taken as investment advice.

YFS Charteris Gold and Precious Metals, Quilter Investors Precious Metals Equity and BlackRock Gold & General have lost more than 15% in recent days after gold and silver were hit with a dramatic sell-off, FE fundinfo data shows.

On Friday 31 January, gold had its worst single day since 1983 while silver posted its worst day since March 1980. The metals continued falling on Monday.

Gold fell from an intraday peak of $5,595 per ounce on 29 January to below $4,500 by Monday morning, while silver crashed from $121.64 to below $78. However, both have rallied this morning.

Performance of gold and silver

Source: AJ Bell, LSEG Refinitiv data

Friday will likely be remembered as the most volatile day for both metals in modern history, according to Nitesh Shah, head of commodities and macroeconomic research at WisdomTree. “These are price swings that would typically be expected over the course of a year - not within a single trading day,” he said.

Russ Mould, investment director at AJ Bell, outlined five competing theories for the meltdown. The first is simply that both metals had gone too far, too fast and were due a pullback.

The second theory holds that losses in Microsoft after its second-quarter results forced investors to sell other positions to cover losses. “If this is true, then the foundations of the markets may be wobblier than we thought, especially given the degree of margin and leverage which are building up within the system,” he added.

The third explanation centres on the nomination of Kevin Warsh as the next Federal Reserve chair. Some see Warsh as a monetary policy hawk whose previous criticism of quantitative easing suggests he will keep policy tighter than expected, supporting the dollar and reducing demand for alternative haven assets like gold.

However, the fourth theory is that Warsh’s previous calls for lower interest rates suggest he would aggressively loosen policy, Mould said. That could weaken the dollar, especially against the Japanese yen, forcing the closure of short yen positions and cutting off a source of cheap liquidity to global markets.

The fifth explanation points to how the COMEX commodity exchange raised its margin requirements on metal-trading positions and switched from a flat dollar fee to a percentage-based fee. This could have left the more speculative metals players needing to liquidate gold to raise cash.

“Whatever the explanation, gold and silver are now trying to recover and both are no lower than they were in early January. Moreover, gold bugs may well be tempted to argue that both of the 1971-1980 and 2001-10 bull runs in the precious metal featured several retreats which did not ultimately nullify or prevent major gains,” Mould added.

Source: FinXL. Total return in sterling between Friday 30 Jan and Monday 2 Feb.

The top 10 hardest-hit funds since the sell-off started are all precious metals specialists: YFS Charteris Gold and Precious Metals is down 16.6%, Quilter Investors Precious Metals Equity 15.9%, BlackRock Gold & General 15.8%, SVS Baker Steel Gold & Precious Metals 15.2% and SVS Sanlam Global Gold & Resources 15%.

But even after the sell-off, most precious metals funds retain positive year-to-date returns. YFS Charteris Gold and Precious Metals is up 9% for the year to 3 February, while Jupiter Gold and Silver has gained 20.3%.

One-year returns remain very strong, given the extended bull run both precious metals enjoyed. Jupiter Gold and Silver is up 176.4% over 12 months, SVS Baker Steel Gold & Precious Metals has returned 163.8% and YFS Charteris Gold and Precious Metals has gained 152.7%.

Looking deeper into what drove the metal’s bull run and recent falls, WisdomTree’s Shah argued that traditional institutional channels do not point to a speculative frenzy.

Net speculative positioning on the COMEX futures exchange shows neither gold nor silver at extreme levels, with silver looking “relatively bearish” by historical standards. Gold ETP buying picked up in recent weeks but not on the scale observed in 2024, while silver ETPs look to have had large net outflows in North America and Europe.

“Taken together, the traditional institutional channels of futures markets and exchange-traded products do not point to a speculative frenzy,” Shah said. “This suggests that retail investors or over-the-counter markets may have seen elevated buying – and subsequent selling – over the past month.”

John Wyn-Evans, head of market analysis at Rathbones, characterised the event as reflecting “stress among specific market participants rather than systemic weakness across precious metals”.

Shah said the sharp drawdown is likely to discourage speculative buying. “Friday's market moves may have flushed out a significant portion of speculative froth – potentially creating space for long-term strategic buyers to re-allocate,” he said.

Source: AJ Bell, LSEG Refinitiv data

Mould pointed to historical precedent showing that major precious metals bull runs regularly experience severe corrections. The 1971-1980 bull run featured three bear markets where gold fell by more than 20%.

Gold’s second surge from 2001 to 2011 also endured two bear markets and five corrections of more than 10%. The current bull run since 2015 has already seen one bear market in 2022, along with corrections in 2016, 2018, 2020, 2021 and 2023.

Source: AJ Bell, LSEG Refinitiv data. *Intra-day, not closing figures.

The fundamental case for precious metals remains unchanged, according to multiple analysts. “The strategic rationale for holding gold as a diversifier – against market volatility, geopolitical risk and policy uncertainty – remains intact,” Wyn-Evans said.

Mould argued that geopolitical uncertainty, sticky inflation and galloping government debts form the bedrock of the bull case for gold. “None of those issues are any different now from the end of last week,” he added.

Shah argued that both gold and silver appear to be undergoing a structural break, catalysed by heightened geopolitical tensions, concerns around fiscal dominance and growing unease over central bank independence. This has been compounded by a broadening buyer base, including Chinese insurance companies and Indian pension funds.

“Together, these dynamics have pushed precious-metal prices into territory that traditional valuation and volatility models - which have served investors well for decades - increasingly struggle to capture,” he explained.

Wyn-Evans countered that the sharp pullback “looks more like a liquidity and positioning event than a change in the long-term case for the asset”. After a bull run driven by momentum strategies, short squeezes and leveraged buying, that same positioning unwound rapidly.

“These dynamics can be sharp but are often transient,” Wyn-Evans said.

Shah said further bouts of volatility cannot be ruled out. Mould suggested bulls may be tempted to argue that the sudden dip represents a chance to buy more, given that the underlying concerns driving precious metals higher remain unresolved.

“From a portfolio perspective, our stance is unchanged,” Wyn-Evans said. “We continue to see a role for measured exposure to precious metals within a balanced, long‑term investment strategy, while recognising that near‑term moves may be dominated by technical factors and positioning.”

The end of US exceptionalism, a plateau in the artificial intelligence (AI) rocket ship and uncertain geopolitics all make for an interesting time to be an active global fund manager.

Many have struggled in an era where US tech giants have grown to become so dominant that overweighting them has become almost impossible for a prudent, risk-aware stock picker.

But the tide could be turning. Last year, the S&P 500 was the worst-performing major index and investors are starting to take note of the opportunities elsewhere.

Below, Trustnet asked fund managers which areas they are closely watching this year.

US smaller companies

Michael Walsh, solutions strategist and portfolio manager at T. Rowe Price, remains constructive on the American market but believes investors need to look further down the market capitalisation spectrum to the lesser-owned small-cap space.

The firm has moved overweight smaller companies in recent months, as earnings and valuations should be supported by interest rate cuts by the Federal Reserve.

“The actions of the Trump administration should also act to boost the prospects of smaller US stocks. We’d highlight the increased focus on deregulation in industries such as financial services and energy,” he said.

“The effects of the fiscal stimulus contained in the One Big Beautiful Bill should also be felt more fully by companies and consumers in 2026.”

Lastly, stronger M&A and IPO activity is picking up after “a couple of more moribund years” following the Covid pandemic, which should boost the small- and mid-cap segments in particular.

Performance of indices over 5yrs

Source: FE Analytics

“We expect equity market gains to be more broad in the coming year. Despite recent strong performance, we believe these factors, as well as potential for overlooked winners tied to the AI build-out, continue to make smaller companies in the US relatively attractive,” he concluded.

Emerging markets

Not everyone stuck to developed markets, however. While the US has outperformed most other regions significantly over past five years (largely thanks to tech), there are now signs that returns are broadening out to emerging markets, according to Paul Middleton, senior global equity portfolio manager at Mirabaud Asset Management.

“We expect the US to continue to do well, but we believe that other regions are also becoming more attractive. One of the regions that we are getting more constructive on is emerging markets, where earnings are expected to grow 22% this year (vs US 14%) and valuations are cheap,” said Middleton. Emerging market stocks sit on a price-to-earnings (P/E) ratio of 13x compared with the US at 22x.

Performance of indices over 5yrs

Source: FE Analytics

His conviction in emerging markets could grow even stronger if the dollar weakens, as any decisive move lower would drive significant flows into the asset class.

“We have had many false dawns on emerging markets, with growth expectations often disappointing and so we target very specific areas where we believe the long-term growth prospects are underrated,” he noted.

One such area is Chinese insurance, where the firm has a position in Ping An Insurance in both of its global equity funds.

“The company is seeing very attractive growth in new business, while also seeing significant productivity improvements, for example in agent productivity, where better data is yielding better results,” he said.

South Korea

Despite the rise of Korean television programmes and the explosion of K-pop on to the music scene, Joe Bauernfreund, portfolio manager of AVI Global Trust, said the market remains “one of the most undiscovered opportunities for global investors”.

The South Korean market houses “numerous world-leading businesses across semiconductors, advanced manufacturing and biotechnology”, yet only accounts for 1% of the MSCI ACWI.

Corporate governance reforms have helped drive the market higher and start its re-rating journey but the ‘Korea discount’ remains.

The “extreme undervaluation” is in the crosshairs of the Korean government, which is aiming to close the gap through ‘corporate value-up’ initiatives.

“Following the election in June, reform has been bold and speedy, with the newly elected government already passing two amendments to the Commercial Act, which enhance previously lacklustre shareholder rights,” said Bauernfreund.

Since then, dividend tax reform was passed in December, while the third commercial act amendment is expected to pass in the first quarter of this year.

Performance of indices over 5yrs

Source: FE Analytics

Yet even without reform, the market is cheap on valuation grounds. More than two-thirds (68%) of stocks trade below book value. For stock pickers,  60% of companies receive no coverage from brokers, 50% of all volumes are driven by retail investors and low foreign institutional ownership makes the market an interesting proposition.

“We believe the combination of structural reform, demographic necessity and wide valuation discounts will prove difficult to ignore in the years ahead,” he said.

Japan

Staying in Asia, Nikki Martin, portfolio manager of the Sarasin Global Dividend fund, highlighted Japan. The market was once “close to the US in terms of global market size” but has spent the past few decades being “shunned” by global equity investors.

“This could now be its greatest advantage. Unlike much of the developed world, Japan is emerging from deflation rather than battling inflation, allowing earnings growth to be supported by improving pricing power, rising wages and firmer domestic demand,” she said.

Like Korea, the main story in recent years has been corporate reforms, which started with ‘Abenomics’ in 2012.

“Corporate behaviour is changing in meaningful ways. Governance reforms, balance-sheet optimisation and a growing focus on shareholder returns are translating into higher dividends, increased buybacks and more disciplined capital allocation,” Martin said, although she noted that there is still a lot further to run as many companies continue to hold significant excess cash on under-levered balance sheets.

However, expectations remain low and valuations are “reasonable”, in particular beyond the most crowded stocks in the market.

A weaker yen has benefited exporters for some time but this opportunity is now being spread beyond the simple export trade to areas such as automation, industrial technology, precision manufacturing and services.

“Japan also offers breadth, something that is fast becoming scarce in global equity markets. Beneath the headline indices lies a deep pool of mid-cap companies with strong niche positions, global relevance and improving governance standards,” she said.

“As investors look to diversify away from highly concentrated US markets, Japan’s quietly evolving equity story could prove to be one of the most compelling, under-appreciated opportunities in 2026.”

Rising political unpredictability in Washington, record market concentration and an increasingly dominant artificial-intelligence trade have left many investors uneasy about their US exposure.

As a result, North American equities have cooled while gold prices pushed to record highs, as the chart below shows, even if the latter half of that move has started to come off the boil in recent days.

Performance of indices over 1yr

Source: FE Analytics

While investing in the US used to be a no-brainer, it now comes with a ‘wall of worry’.

The wall of worry

Managers describe a set of problems that make owning the US feel trickier than in the past. Tom Kynge, portfolio manager for multi-asset strategies at Sarasin and Partners, said the core issue is that policy has become harder to predict.

“Probably the most significant issue is the unpredictability of the administration’s actions, which is unhelpful for businesses making long-term capital-allocation decisions,” he said.

He pointed to episodes of direct government involvement in listed companies, such as Intel, as a departure from historical norms that could chill investment behaviour over time.

There is also unease about the market’s reliance on a single theme. Kynge said he is not bearish on artificial intelligence (AI) in the near term, but warned that the eventual unwinding of the AI trade “could be materially challenging for many investors” if the rest of the economy fails to pick up enough momentum to cushion the blow.

At a macro level, Hugh Gimber, strategist at JP Morgan Asset Management, highlighted a more unusual risk. “The US is running crisis-type stimulus at a time when the economy is already in reasonable shape”, he said.

While this is currently supportive for growth and markets, it leaves less room for manoeuvre if the economy were to slow sharply and ties equity performance more closely to political incentives ahead of the midterms.

Finally, valuation concerns are becoming harder to ignore. After years of outperformance, parts of the US market look stretched relative to other regions, making it uncomfortable to hold ever-larger US weightings simply by default.

The case for staying invested

Despite the above, most professionals still see powerful reasons to keep America at the core of portfolios, the first being: The foundations of US exceptionalism remain largely intact.

Its market structure is far more skewed towards technology than any other major region, a bias that has historically delivered higher growth and profitability. There are also hard data points that make it difficult to abandon the market.

Jack Caffrey, manager of the JPM America Equity fund, pointed to a run of positive economic surprises, with GDP forecasts suggesting real growth above 5% and a steady stream of earnings beats, especially outside of the Magnificent Seven stocks.

For growth investors, the argument goes beyond the cycle. Dave Bujnowski, investment manager on Baillie Gifford’s US Equity Growth team, said amid “dizzying news flow” the most reliable guide remains fundamentals.

Trade tensions, fears of irrational exuberance around AI and bouts of volatility have come and gone, but the companies that have endured are those with resilient earnings. Within the Russell 3000 Growth index, firms with rising earnings per share forecasts held up materially better during the 2022 drawdown when valuation multiples compressed.

Today, his portfolios are still seeing revenue growth of around 20%, improving operating leverage and higher EBIT (earnings before interest and tax) margins.

“Our job is to keep asking a simpler question: what is most likely to drive growth and compounding over the next five to 10 years?” he said, pointing to structural themes such as digitisation, cloud computing and America’s enduring AI advantage.

But investors are changing how they own the US

If the US still looks compelling, the way managers are investing in it has somewhat shifted. At Baillie Gifford, Bujnowski said recent activity has all been about portfolio construction.

“[We have been] taking profits from some larger and volatile winners, increasing our ‘enduring growth’ exposures and recycling capital into higher-conviction ideas, helping reduce volatility and tracking error while keeping the portfolio anchored to long-term engines of growth that appear intact and, in places, accelerating.”

At Sarasin, the adjustments have been more defensive. Given the unpredictability of policy, Kynge said his team has been gradually reducing exposure to companies with direct links to the US government, such as contractors.

At the same time, it has been increasing exposure to emerging markets, which it expects to benefit from a structurally weaker US dollar.

“The key thing to keep in mind for UK investors with US exposure is currency risk,” he said. With the dollar potentially under pressure from fiscal policy, Sarasin has been trimming dollar exposure through hedging. It has also looked to store-of-value assets, such as gold and silver, as a way to monetise that view.

From a fund-picker’s perspective, valuations are also prompting shifts. Sheridan Admans, executive officer of Infundly, said many investors have ended up with far more US exposure than they realised simply by owning global, tech, healthcare and infrastructure funds.

That was not a terrible outcome in recent years, but it is harder to justify now. “You look at valuations out there, it’s hard to feel comfortable,” he said.

Within the US, he has been moving some exposure from pure growth strategies towards value. More broadly, he has been encouraging clients to lean a little more into the UK, Europe and China, where valuations look more attractive and diversification benefits are clearer. “Holding big chunks of portfolios based in the US is a lot more challenging,” he said.

Artificial intelligence (AI) has already crept into people’s lives and not just through the use of large language models like ChatGPT. In some parts of the market, it is shaping what consumers buy, how companies operate and where capital is flowing.

That is most visible in places where AI has moved from a supporting role to the centre of the business model. China is one such place. One of the most digitised consumer economies in the world, many of its most successful companies use data and algorithms not simply to optimise pricing or marketing, but to shape behaviour at scale.

Sophie Elsworth, manager of the Baillie Gifford China Growth trust, said AI is already “driving revenue, margins and returns” at companies such as Tencent and Alibaba. But her favourite example of an AI adopter is coffee chain Luckin Coffee.

Performance of fund against index and sector over 1yr
 
Source: FE Analytics

Rather than competing on branding alone, this company has built its business around an app. “Luckin Coffee operates more like an internet platform than a coffee brand, with its app as the operating system,” she said. “Data drives product development and habit formation.”

Ordering, payment, pricing and product design are all mediated by software, allowing the company to analyse and exploit demand patterns with minimal human intervention, allowing customers to order ‘the usual’ without the need for a barista to remember their face (and their order).

AI systems are being trusted to manage decisions in consumer markets, but a similar approach is taking place in services, especially in sectors that rely on pattern recognition and standardised judgement, such as healthcare.

Healthcare faces mounting pressure from ageing populations, workforce shortages and rising costs. Trevor Polischuk, co-manager of the Worldwide Healthcare trust, argued that these conditions make it particularly exposed to automation. “Every part of the healthcare ecosystem is being influenced and accelerated by artificial intelligence,” he said.

In practice, AI’s role in healthcare is already extending beyond efficiency. Advances in diagnostics, personalised medicine and data analysis are changing how diseases are identified and treated. Polischuk said the result was likely to be a fundamental shift in how care is delivered.

“At the patient level, healthcare is increasingly coming home. Telemedicine is just the beginning,” he said. “We believe primary care and diagnosis will increasingly be supported or replaced by AI interfaces.”

Performance of fund against index and sector over 1yr

Source: FE Analytics

Many of the tasks performed in primary care – triage, pattern recognition, monitoring and routine diagnoses – are well suited to systems trained on vast datasets. The attraction for healthcare providers is not only cost reduction but also consistency and scale, particularly in overstretched systems.

AI is also accelerating progress further upstream, in drug discovery and treatment design. Polischuk said innovation in medicines is now moving faster than at any point in his career, driven in part by advances in diagnostics and data processing.

“We expect innovation in medicines and cures at a pace never seen before, in part due to the revolution in diagnostics and personalised medicine,” he said. That speed has implications for patient outcomes as well as for how capital is allocated across the sector.

The same dynamic is evident in medical technology, where robotic surgery systems already incorporate machine learning and data feedback, allowing procedures to be refined continuously. While human surgeons remain central, the balance of responsibility may shift over time.

“Systems today have vastly greater computing power and embedded AI learning, with some autonomous functions already built in,” Polischuk said, suggesting that the active role of clinicians could diminish as technology matures.

AI does not need to outperform humans in every dimension to be disruptive; it simply needs to be good enough, cheap enough and scalable enough to alter behaviour, he said. That is the same logic that allowed data-driven platforms to dominate consumer markets long before most users recognised the trade-offs involved.

While some sectors are still struggling to find use cases for AI, its effects may emerge in unglamorous areas where efficiency, volume and repetition matter more than visibility. In healthcare, Polischuk sees this as an unusually compelling moment.

“The confluence of this environment – the innovation, whether it be politics, lowering interest rates, M&A, valuation… – I've never seen it all align like this, and after four years of healthcare underperformance, I think the setup is phenomenal.”

He concluded: “This is the most bullish I’ve ever been on healthcare in my career”.

What would you traditionally think of when it comes to Korean equities? For me it is a value-driven market with low valuations courtesy of the ‘Korean discount’ caused by weak governance, opacity and poor shareholder returns. But things have been changing in this often scoffed at emerging market.

At the back end of January, the South Korean (KOSPI) index broke through the 5,000 barrier for the first time. The index has been on a tear, returning 80% in the past 12 months, compared with 31% for MSCI Emerging Markets as a whole.

Those low valuations have also been tackled to a degree. The market is trading at a price-to-earnings (P/E) ratio of 24.7x, which is higher than its three-year average P/E of 18.5x – that’s despite earnings remaining mostly flat over this time.

Rationale for the renaissance can be attributed to a number of factors, but two clear ones stand out and, interestingly, they are at polar opposite ends of the market; diversification gives investors optimism that further growth may follow.

The first of these is the role of Korea as a hub (alongside Taiwan) for semiconductor and hardware component production, both of which are integral to the artificial intelligence (AI) boom. Korea specialises in the dynamic random-access memory (DRAM) market.

High Bandwidth Memory (HBM) chips, one of the most advanced types of DRAM, is now essential to the rollout of AI infrastructure, with SK Hynix and Samsung Electronics leading the market in terms of technology and scale.

Matthews Asia portfolio manager Sojung Park said that as the graphics processing unit (GPU) chips of Nvidia, the market leader in GPUs for AI, advance, they require much more bandwidth and capacity from HBM chips.

She said: “Amid the structural supply shortage in the HBM market, together with its growing strategic importance to global AI buildout, Korean companies in the field are seeing more opportunities to establish customer loyalty, longer-term contracts and greater pricing power.

“The memory sector has traditionally been highly cyclical and we still expect expansion and contraction in the area. However, over the long term, we believe Korea’s advanced memory chip makers will further build and expand on their solid market positions.”

This growthier play is being supported at the other end of the market by the ‘Value-Up Program’, a move by the Korean government to fix the aforementioned Korea discount – which reflects those historically low valuations despite strong fundamentals.

The government-led reform was introduced in 2024 to improve corporate governance, encourage shareholder returns and generally make Korean companies more transparent and, ultimately, investor-friendly.

Unlike Japan, where corporate governance changes have been enforced, Korea’s implementation has been a voluntary initiative thus far to encourage listed companies to independently create and disclose plans to improve their corporate value and shareholder returns.

JPMorgan Emerging Markets Growth & Income investment specialist Emily Whiting said while the rationale behind these corporate governance changes in Japan was due to cross-shareholdings, Korea’s motivation is tied up in family ownership (chaebols). At this stage it is heavily focused on areas such as the banks.

She said: “If you went back to Covid, I would have laughed about owning Korean banks, but we now own three of them. A good example is Hana Financial; in 2017 buybacks and dividends combined accounted for total shareholder returns of 16% – they are now in the mid-forties – a threefold increase.

“The P/B [price-to-book] is still 0.7x, despite a 50% share price increase last year, and dividends yield 3%. These aren’t set-the-world-on-fire stocks – but it shows that if you have management that is engaged and understands what signals to send the market (and you have got a company with financial strength) it can deliver an excellent, steady and compoundable exposure,” she adds.

Aberdeen Asian Income fund manager Isaac Thong has moved his portfolio from underweight to neutral in Korea, adding a bank and two insurance companies.

He said: “The banks are embracing change at the fastest rate. We own Shinhan, but if you look at the three big banks – their dividend pay-out ratio three years ago was about 25%. Today it is 45% and in the next year it will be over 50%. They are demonstrating progressiveness to shareholders, and we think they can do more.

“Insurers will follow. We invest in Samsung Fire and Marine, who are the leading insurer in Korea with a great track record of writing protection products. The family-owned nature of businesses in Korea means the corporate change could take longer than it has in Japan.”

However, ING believes some risks are appearing within the economy, pointing to a K-shaped recovery, which remains heavily reliant on robust semiconductor demand. They cite improvement in manufacturing being offset by deterioration in non-manufacturing sectors (particularly those that are domestically orientated, as domestic demand may slow as the impact of fiscal stimulus wanes).

M&G Global Emerging Markets manager Michael Bourke has recently moved from overweight to partially underweight the region, pointing to profit-taking rather than a top-down call on Korea or a negative macro view.

He said: “Korean equities delivered a very strong run through 2025, driven largely by the AI cycle and semiconductor exposure. After this rally, upside seems, in our view, more limited and risks are more balanced, which prompted us to lock in gains.

“Benchmark context also matters when discussing Korea. It is now one of four countries (alongside China, India and Taiwan) that dominate the MSCI EM Index. As the benchmark has become increasingly concentrated, we are comfortable diverging where bottom-up opportunities are less compelling.”

Despite the strong returns already seen, there is plenty of optimism around the market. Importantly, it is a diverse play, with investors not just tied to AI-memory as the Value-Up Program offers an alternative stable returns play in the market.

Those wanting exposure might consider the likes of Invesco Global Emerging Markets fund, which has 15% in the country, while those looking specifically for a dividend approach might look to the Jupiter Asian Income fund, which holds 10%.

Darius McDermott is managing director of FundCalibre. The views expressed above should not be taken as investment advice.

Funds and trusts investing in Latin America topped the performance tables in January, FE fundinfo data shows, while Indian equities continued their struggles from 2025.

Commodities were the standout asset class in the first month of 2026 with a 7.7% return, while global equities gained 0.9%. Treasury and corporate bonds declined, hurt by persistent inflation concerns.

By region, the MSCI Latin America index surged and helped emerging markets to outperform developed markets. Energy and materials sectors were the best global equity sectors during the month.

This meant that funds and trusts focused on Latin American equities topped both the Investment Association and Association of Investment Companies universes, following on from their strong performance in 2025.

Performance of IA and AIC sectors in January 2026

Source: Finxl. Average return in sterling between 1 Jan and 31 Jan 2026.

The primary drivers for January’s performance include rising commodity prices that benefited resource-rich economies, a weaker US dollar that historically channels capital toward emerging markets and deeply discounted valuations, even among emerging markets.

Political catalysts also fuelled investor enthusiasm, particularly in Chile, where president Antonio Kast’s election in December 2025 triggered a market re-rating, and in Argentina where president Javier Milei’s market-oriented liberalisation reforms attracted significant inflows.

The best funds were abrdn Latin American Equity (up 16.5%), Liontrust Latin America (15.6%) and CT Latin America (14.3%), while BlackRock Latin American IT – the only member of the IT Latin America sector – made 20% in January.

Commodities funds and trusts came in second place after a broadly strong month for the prices of metals and energy commodities. That said, the final days of January did see silver and gold, which staged dramatic rallies in 2025 and the start of 2026, hit with a significant sell-off that has continued into February.

WisdomTree Strategic Metals and Rare Earths Miners UCITS ETF (24.3%), YFS Charteris Gold and Precious Metals (24.2%) and UBS Solactive US Listed Gold & Silver Miners UCITS ETF (23.6%) were the three best commodities funds; Geiger Counter (35%), Baker Steel Resources Trust (25.2%) and BlackRock World Mining Trust (13.8%), the best trusts.

The charts above also show emerging market equities rallied in January. The asset class had lagged behind developed markets for an extended period but started to race ahead in 2025 and outperformed for the first time in five years, driven by AI-related enthusiasm, accelerating earnings growth expectations and the weaker US dollar.

The best-performing funds last month were Nomura Emerging Markets (16%), Liontrust Emerging Markets (12.9%) and Barclays GlobalAccess Emerging Market Equity (12.4%), while the trusts with the largest gains were Fidelity Emerging Markets (12.4%), Templeton Emerging Markets Investment Trust (11.9%) and Barings Emerging EMEA Opportunities (10.9%).

Among the fund and trust sectors losing money in January were those investing in Indian stocks (which also struggled in 2025), healthcare equities and dollar-dominated bonds.

Source: Finxl. Total return in sterling between 1 Jan and 31 Jan 2026. Trust sectors excluding IT Unclassified and VCT peer groups.

Turning to individual strategies, the best performing member of the entire Investment Association was WisdomTree Uranium And Nuclear Energy UCITS ETF, which resides in the IA Global sector, with a 36.7% total return. Geiger Counter topped the Association of Investment Companies universe after making 35% last month.

Both offer exposure to uranium exploration and production stocks, with both holding exploration and development company Nexgen Energy, uranium fuel producer Cameco and miner Denison Mines among their largest positions.

Uranium prices have been steadily rising after their lows of the 2010s. Although uranium was caught up in the wider commodity sell-off last week, nuclear energy is viewed by many as being one of the ways the world can meet rising energy demands.

Russ Mould, investment director at AJ Bell, said: “Uranium prices were weak going into Japan’s nuclear accident at Fukushima in 2011 and collapsed after the incident. A shift toward renewable sources of energy left nuclear energy well and truly out in the cold, and uranium with it.

“But a reassessment of nuclear power, thanks in part to rising energy demands worldwide and a review of its potential to act as a source power on a low-carbon basis, now seems to be underway. Japan is slowly reopening the reactors shut down some 15 years ago and China and India in particular are pressing ahead with new reactors, as are the USA, South Korea and UK.”

Korean equities had a strong month (after being one of the best markets in 2025), with Xtrackers MSCI Korea UCITS ETF, HSBC MSCI Korea Capped UCITS ETF, iShares MSCI Korea UCITS ETF, Franklin FTSE Korea UCITS ETF and Barings Korea Trust at the top of the Investment Association.

They benefitted from exceptional AI-driven semiconductor demand, with the KOSPI surging after chipmakers Samsung Electronics and SK Hynix posted record quarterly profits. The rally was also supported by president Lee Jae Myung’s investor-friendly corporate reform agenda modelled on Japan’s shareholder value initiatives, which helped the index surpass his campaign target of 5,000 points just months into his presidency.

The table above also includes plenty of commodities strategies, especially those that focus on precious metals. As noted previously, gold and silver prices have rocketed over the past 12 months but sold off aggressively in the final few days of January.

Source: Finxl. Total return in sterling between 1 Jan and 31 Jan 2026. Trust sectors excluding IT Unclassified and VCT peer groups.

Several themes can be seen among the worst funds and trusts of January, including technology. WisdomTree Cloud Computing UCITS ETF and Wellington FinTech are among those losing money as investors worried that growth was slowing whilst valuations remained elevated.

Schroder Ground Rents Income posted the largest fall in the Association of Investment Companies universe, losing 31.3% after the UK government announced it would cap ground rents at £250 per year, eventually reducing to zero after 40 years.

Seven Indian equity strategies appear on the list with losses between 8.9% and 10.2%. Indian stocks fell over the month on a combination of sustained foreign outflows, a weak currency, mixed earnings and uncertainty ahead of the Budget on 1 February.

Other themes in the above table include UK renewable infrastructure trusts, property trusts, specialist lending and private equity.

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Multi-asset portfolios don’t manage themselves. Behind the CT Universal MAP range, which has grown from £15m to over £5bn since launch, sits a team of specialists whose varied backgrounds shape every decision.

The five fund managers profiled here bring experience spanning hedge funds, equity analysis, economics, sustainability integration and quantitative strategies. Together, they run the 11 funds in the CT Universal MAP and CT Sustainable Universal MAP ranges.

Below, five members of the team explain their roles, their career paths and how they think about investing.

Paul Niven

“Multi-asset investing, in my mind, is about solving for required client outcomes and there is real satisfaction which comes with knowing that the team’s investment decisions, in designing and delivering investment performance, positively contribute to the financial wellbeing of those who trust their savings to us to manage,” Paul Niven, head of multi-asset solutions, EMEA at Columbia Threadneedle Investments, said.

Niven launched the Universal MAP range in 2017 with £15m of seed capital and has found it “tremendously satisfying” to deliver robust performance combined with strong asset growth (the range is now over £5bn). He also manages the FTSE 100-listed F&C Investment Trust, giving him regular exposure to retail shareholders and a sense of the history and financial impact which it has made over the past 150 years.

“Both instances give a real-world sense of the positive impact which our team’s collective decisions make for our clients,” he added.

Niven, who runs a team of more than 20 people managing over £50bn in client assets, brings nearly 30 years of fund management experience, with most of that time focused on multi-asset investing. He chairs the Asset Allocation Strategy Group, which determines the team's tactical asset allocation views, though he emphasises the collaborative nature of decision-making across the team.

His typical day involves debate and discussion with colleagues from within the multi-asset team and across the wider organisation, analysis of portfolio positioning and regular interaction with clients from fund boards through to individual retail investors. Outside work, he recently took up padel, where he's working on adapting his tennis player’s game into something more suited to the sport.

Keith Balmer

Portfolio manager Keith Balmer’s financial career started in sales in 2000, which he described as “not a traditional route” to fund management. He spent 13 years at Man Group in the hedge fund world, where his maths degree helped him specialise in quantitative and systematic strategies. After time at BlackRock working on the multi-asset income franchise, he joined Columbia Threadneedle’s multi-asset team nine years ago.

This diverse background, which spans quantitative and fundamental, market neutral and trend following, and income to long-only growth-oriented funds, proved useful while running the Universal portfolios. A typical day starts with catching up on overnight market movements and ensuring the funds are correctly positioned, followed by a range of meetings that can include internal team discussions, cross-floor conversations with single strategy experts, risk reviews and external sessions with clients or research analysts.

But his sales background is useful as he handles the majority of client interactions for the CT Universal MAP range: “The ability to distil relatively sophisticated processes and complex ideas into an easily understandable and explainable narrative has helped with the adoption of the range by a variety of financial professionals.”

For Balmer, the 2020 pandemic showcased the team’s versatile approach under extreme conditions. This brought decisions that needed to be made outside the normal meeting cadence, with no historical precedent to fall back upon. Working from home complicated matters, requiring the team to build new communication methods.

“The fact that the contribution to the portfolios from tactical asset allocation was best in 2020 speaks volumes for the versatility of the team, calmness under pressure and quality of investment capabilities in the face of adversity,” he said.

At weekends, Balmer takes Charlie, his three-year-old Italian water dog, for two to three-hour walks through the woods and fields of Kent. This allows him to catch up on finance podcasts from diverse sources he wouldn’t normally encounter through the usual panel of analysts.

Eloise Robinson

Eloise Robinson leads the CT Sustainable Universal MAP range whilst also assisting with the CT Universal range. Her days begin by checking the funds are in line with both sustainability criteria and asset allocation targets, followed by getting up to speed on overnight news and market moves. She also monitors performance of both the funds themselves and the underlying strategies the team uses.

“I think my collaborative nature compliments both the team approach employed to managing the Universal and Sustainable Universal MAP ranges and the multi-asset nature of the funds – we regularly liaise with colleagues across multiple different desks, from equities to fixed income to responsible investment and risk,” she explained.

“Having worked on the sustainable multi-asset funds for several years prior to my promotion to lead portfolio manager, I also bring knowledge of our company-wide approach to sustainability and how it pertains to our funds.”

A highlight of Robinson’s time on the team was securing Sustainability Focus UK SDR labels for all five funds in the CT Sustainable Universal MAP Range. This required coordinating multiple internal teams, maintaining ongoing dialogue with the FCA under tight deadlines and presenting the team’s sustainability integration approach to fund boards.

“I like to use my time outside of work to focus on other interests and hobbies – ones which have minimal connection to investments or markets,” Robinson added. This includes running, as well as reading and baking.

Rob Plant

Rob Plant focuses on the Universal MAP range as a portfolio manager, where he leads the Universal Income strategy. “Each day begins with a morning meeting where we review macroeconomic developments and share ideas that could influence portfolio positioning,” he explained.

“The rest of my day involves researching investment opportunities, participating in internal fund reviews and meetings on macro themes and valuations, building models, and actively managing portfolios.”

Plant’s background combining equity analysis with macro hedge fund experience shapes his approach to portfolio management. His previous roles allow him to merge detailed bottom-up equity analysis with broader macroeconomic perspectives, helping him navigate complex market environments and identify opportunities across asset classes.

This dual perspective proved valuable in several market events. For example, during the pandemic, he adapted quickly by using alternative data sources to assess the impact of lockdowns. He also identified underpriced risks around major political events such as Brexit and the 2016 US election, implementing hedges to protect portfolios.

Plant grew up playing chess, which shaped his strategic thinking. He now teaches the game to his two daughters, aged nine and six, with weekends usually spent doing activities with them. He also enjoys cooking and hosting dinner parties, while staying active through running and triathlons.

Anthony Willis

Anthony Willis is the senior economist in the CT Universal MAP team, having moved onto the team in April 2025. He has focused on asset allocation since 2007, enjoying the interaction between economics, politics and financial markets and especially considering “what's changed” when events occur.

An example of how this can add value to the funds is how the team reacted to the market turmoil that followed US president Donald Trump’s unveiling of new tariffs on ‘Liberation Day’ in April 2025. “We did a lot of work and research ahead of the US tariff announcements on the likely impact on economies, earnings, supply chains and inflation and concluded that the impact would be less significant than implied by the dramatic market selloff,” he explained.

“We continued to re-run our models as the tariff rates shifted and grew more confident the market selloff was not justified and headline tariffs would ease over time. While in the portfolios from the outside it may have looked like we had chosen to ‘do nothing’, from the inside a huge amount of work went into making that decision.”

Willis produces a daily morning macro update shared across the company, usually arriving at his desk by 06:30 so the key points can lead the team’s daily morning call. Although there is no such thing as a typical day, his time is spent in investment meetings, working on research, presenting to clients or colleagues, and building bespoke reports on specific subjects.

He has worked in financial services since 1997, having studied Economics and Politics at Exeter University. His time in the City – actually a combination of stints in the West End, Canary Wharf and the Square Mile – has spanned a number of market and economic cycles and crises.

“The experience of these events and how investors, central banks and markets react to them has proven very valuable – history may not repeat itself but it often rhymes – and is a useful reminder to keep a ‘cool head’,” he said.

Outside of work, Willis uses his cycling commute through London helps clear his mind from the intense news and market cycle, while maintaining a house he calls “the money pit” focuses his attention elsewhere.

More information on the CT Universal MAP ranges can be found here.

IMPORTANT INFORMATION. FOR PROFESSIONAL INVESTORS ONLY. Your capital is at risk.

Columbia Threadneedle (UK) ICVC III is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a UK UCITS scheme.

The current Prospectus, the Key Investor Information Document (KIID), latest annual or interim reports and the applicable terms & conditions are available from Columbia Threadneedle Investments at Cannon Place, 78 Cannon Street, London EC4N 6AG, your financial advisor and/or on our website www.columbiathreadneedle.com. Please read the Prospectus before taking any investment decision.

This material should not be considered as an offer, solicitation, advice or an investment recommendation.  This communication is valid at the date of publication and may be subject to change without notice. Information from external sources is considered reliable but there is no guarantee as to its accuracy or completeness.

In the UK: Issued by Columbia Threadneedle Management Limited, No. 517895, registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.

Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.

© 2026 Columbia Threadneedle. All rights reserved.

Defence, financials and companies involved in the build-out of artificial intelligence (AI) delivered standout performances in 2025, but the environmental, social and governance (ESG) issues attached to them (manufacturing weapons, financing the oil and gas sector and driving energy consumption to name a few) mean they aren’t obvious fits for sustainability‑minded funds.

Yet rigorous analysis and active engagement do allow sustainable funds to participate responsibly in these major market trends, according to Hamish Chamberlayne, co-manager of the £1.7bn Janus Henderson Global Sustainable Equity.

“Our mission ultimately is to grow and compound our clients’ wealth by investing in businesses that are aligned with the transition to a more sustainable global economy,” he said, noting that the fund considers both financial materiality and sustainability in equal measure.

On the sustainability side, he looks at 10 themes spanning environmental and social factors, with viable investee companies needing to have at least 50% revenue alignment with these themes. Once invested, active engagement with holdings ensures transparency and addresses any concerns. The fund engaged with 54 companies last year.

“Engagement is one of the main tools [sustainable fund managers] have to understand the risks around our investment exposures,” Chamberlayne said.

Ultimately, no sector is black and white, requiring each investor to decide where to draw the line. Below, Chamberlayne and Naomi Waistell, emerging markets manager at Carmignac, explain how they are currently navigating some of the most financially lucrative but sustainably controversial sectors.

Artificial intelligence

AI was the defining market theme of 2025 (and this is set to continue into 2026), clearly contributing to sustainable goals such as digital inclusion, yet raising growing concerns about the soaring energy consumption required to power its rapid expansion.

Data centres already consume around 2% of global electricity. As AI demand accelerates, the need for power will rise – posing practical challenges for power grids and the ongoing global energy transition away from fossil fuels.

“We have had to recalibrate in terms of [the opportunities] we are looking at,” said Chamberlayne.

The Janus Henderson fund is investing in companies participating in the AI infrastructure build out and improving energy efficiency and renewable sources.

One such company is Magnificent Seven stock Nvidia, a long-term holding for the fund.

“Nvidia’s GPUs have logged huge increases in [energy] efficiency over time, which has reduced the energy-related costs of training these large language models by vast amounts,” he said.

The fund is also invested in companies contributing to global electrification, such as Schneider Electric.

“These are important both from the perspective of serving the power needs of AI and for upgrading the power grid to ensure we can connect more renewable generation to grids around the world,” said Chamberlayne.

Emerging markets, in particular, typically attract less capital from sustainable funds due to weaker ESG disclosure, higher perceived risk and less reliable data.

For Waistell, AI and ESG in emerging markets “aren’t incompatible, [but] there is tension there”.

“On the face of it, a company like TSMC is pretty capital intensive and uses quite a lot of energy – however, if you look on a lifecycle basis, the efficiency of the technology that it enables far offsets the capital intensity it generates,” she said.

“As TSMC makes [the AI roll-out] more energy efficient, we believe [the company is sustainably] beneficial over the longer term.”

Defence

Even as defence spending booms in response to rising geopolitical instability, the sector’s ties to weapons production mean sustainable funds must tread carefully despite its market appeal.

Regulators in both the EU and UK have issued clarifications that defence is not inherently incompatible with sustainable investment regulation frameworks.

At an industry level, new initiatives are in the works to help investors and other stakeholders navigate responsible investment in the defence sector. For example, the Principles for Responsible Defence Investment initiative aims to produce practical guidance for integrating ESG and human rights standards in defence-related investments.

However, the waters are currently murky and so the extent to which a sustainable fund can and will invest in the defence industry remains up to the manager.

Chamberlayne and Waistell both said they don’t invest directly in the defence sector and have strong exclusions in place for their funds.

“There are companies in our portfolio that have exposure to the defence industry but we are careful to ensure that they are not making bespoke products for weapons,” said Chamberlayne.

The fund has an explicit exclusion around controversial and conventional weapons, with a 5% revenue limit for any portfolio company.

Waistell said: “It can be very difficult to get a true sense of every single end market but we don’t invest in any companies that are getting a significant portion of their revenue […] from any government globally. Those would be screened out of our universe.”

However, the growing use of AI and other technologies in defence adds another layer of complexity, requiring sustainable fund managers to assess not just the ‘traditional’ companies involved in the industry but also the tech firms whose innovations may feed into military systems.

“Some of the tech companies we invest in do include the defence sector as an end market,” said Chamberlayne.

For example, portfolio holding Keysight Technologies manufactures electronic testing and measurement equipment and has some exposure to the aerospace and defence sector.

“It is not in the business of making bespoke machines for weapon manufacturing but there are defence companies that will want to use its products for their own purposes,” he explained. “We engaged with the company to find out the nature of the technology used by the defence sector and received reassuring answers on that. For us, it is about the intentionality of the design.”

Another portfolio holding – tech behemoth Microsoft – also has some exposure to the defence industry.

“We have engaged with Microsoft multiple times over the past several years on a variety of ESG topics including its exposure to [the defence industry] so we can understand the level of its involvement and where it draws the line with regards to that involvement,” said Chamberlayne.

“We have always received transparency from Microsoft on this and that has given us the confidence to invest in them.”

Microsoft has strategic partnerships with the likes of BAE Systems and the Defence Science and Technology Laboratory (Dstl). The former focuses on using cloud technology to streamline the development, deployment and management of digital defence capabilities. Meanwhile, Microsoft’s work with Dstl is a collaboration between AI experts on the ethical adoption of AI within the defence sector.

However, risks of misuse remain. Last year, the company announced a formal review of allegations reported by The Guardian relating to the usage of its cloud computing platform Azure by a unit of the Israeli Defense Forces. Microsoft then disabled certain cloud and AI services for that unit.

Financials

Banks were also among 2025’s standout performers, yet their lending to the coal industry and other fossil-fuel activity places financials firmly in the ESG grey zone.

Chamberlayne said he has historically screened out banks with material coal exposure, instead favouring insurers – while recognising insurers also must improve disclosures on investment exposure to carbon‑intensive assets.

“The main tool we have is to engage and do our due diligence and ensure that insurers are aware of the risks around investment exposure to the fossil fuel sector,” he said.

In addition, the Janus Henderson fund leans into financials-adjacent names like credit bureau Experian. Chamberlayne noted that its wealth of proprietary data makes it a “strong economic moat” as the AI surge continues.

Tech companies are no longer funding their investments in artificial intelligence (AI) primarily through equity or internal cash flows, but are increasingly turning to debt, prompting fixed income managers to reassess how much credit risk is building beneath the sector’s rapid expansion.

For much of the past decade, large technology companies sat comfortably in investment-grade portfolios. Strong balance sheets, conservative funding models and large net cash positions meant exposure to the sector was widely seen as low risk. That assumption is now being tested as capital expenditure accelerates and financing choices change.

As Al Cattermole, senior fixed income portfolio manager at Mirabaud Asset Management, put it: “Debt-funded capex introduces greater execution risk, raises leverage and increases the likelihood of rating pressure over time, particularly in a sector where the eventual winners and losers of the AI investment cycle are still far from clear.”

The turning point came late last year, when borrowing began to rise sharply to support data centre construction and related infrastructure. Brent Finck, senior research analyst for global investment grade at Neuberger, said the scale of issuance marked a clear break with previous funding patterns. “The fourth quarter of 2025 marked an inflexion point as companies turned to increased debt issuance to fund capex,” he said.

Around $93bn of AI-related debt was issued in 2025, accounting for more than 5% of total investment-grade supply for the year and almost three times the sector’s average annual issuance over the previous decade, according to Bank of America.

Borrowers, including Meta, Alphabet and Oracle, all raised capital to expand data centre capacity and secure long-term energy supply.

From a credit perspective, this raises two related concerns. The first is balance sheet pressure. Although earnings are still growing, free cash flow is increasingly being absorbed by capital spending, dividends and share buybacks, leaving less headroom than before.

Finck said that many issuers can still fund investment internally in aggregate, but “the cushion is narrowing and, for some issuers, capex will exceed earnings in 2026”.

The second concern is uncertainty over returns. Unlike previous technology investment cycles, the infrastructure being built for generative AI has no track record, making it difficult to judge how durable revenues will be over time.

Cattermole warned that this introduces a speculative edge to lending decisions, particularly given the pace at which the technology itself is evolving.

“Many of the data centres being built could quickly be rendered obsolete by technical improvements that make chips more efficient and reduce the requirement for so much capacity,” he said. As a result, there is a growing risk that today’s assets fail to generate the cash flows investors expect over their full economic life.

These risks are magnified in parts of the high-yield market, where transparency is more limited and contractual structures are harder to analyse.

Cattermole also highlighted the problems of circular arrangements (already known in the equity market), in which major players buy and sell computing power from one another, making it difficult for bondholders to assess true underlying demand.

Delays to construction or changes in contract terms could materially alter credit outcomes, yet are often hard to model in advance.

Concerns extend beyond public markets. Anton Dombrovskiy, fixed income portfolio specialist at T. Rowe Price, said the growing role of private credit in financing AI investment added another layer of complexity, particularly given the lack of disclosure relative to public bonds.

While he does not see a systemic threat at this stage, he warned that rapid growth in less regulated markets has historically been a source of hidden fragilities.

For now, managers stress that the situation is manageable rather than alarming. Data-centre lending still represents a relatively small portion of major credit indices and the largest hyperscalers retain significant balance-sheet capacity.

However, most expect issuance to rise further over the coming years, increasing dispersion between stronger and weaker borrowers.

That is already shaping portfolio positioning. At Neuberger, Finck said the firm remains constructive on the sector over the long term but is more cautious in the near term as supply builds and free cash flow comes under pressure.

“We are tactically cautious on the sector heading into 2026,” he said, citing elevated spending levels and the likelihood of high net new issuance.