Tim Lucas, lead manager of the £611m BNY UK Equity fund, doesn’t believe in drawing borders around opportunity, with the UK market full of strong companies that are undervalued with improving fundamentals.  

“We think that good ideas can be found in any sector at any time, so we are very open-minded and constantly looking for new opportunities,” he said.

“There are fund strategies that discard whole areas of the market as uninvestable – that is something we will never do.”

He argued that his openness has underpinned the fund’s strong performance.

It has delivered a 111.3% return over the past decade, outperforming the IA UK All Companies sector average of 98.2% and securing a second‑quartile position over that period. More recently, the fund has ranked in the top quartile for both one‑ and three‑year returns.

Performance of the fund vs sector since May 2024

Source: FE Analytics

Lucas spoke to Trustnet about BNY UK Equity’s recent performance and how its positioning has evolved since he stepped into the lead manager role.

What has changed about the fund since you became lead manager in May 2024?

When I initially took over the fund, it was much more overweight in the quality companies trading at higher multiples and had a big underweight in financials.

Over the previous 10 years or so, banks had been poor performers, with interest rates held low and banks under pressure to build up a capital ratio following the financial crisis, meaning every bit of profit made had to go back into the banks to be able to improve balance sheets, leaving nothing for investors.

Yet the perception I had around financials coming in to manage the fund was different. I believed that the safety and quality of the earnings stream from banks is far greater and therefore I felt sufficiently undervalued. Over the course of that first six months, I went from heavily underweight financials to heavily overweight.

These companies have since been re-rated and are performing really well, but we think they are still cheap.

Are there any sectors in which you are notably underweight and why?

We try to keep a balance across the portfolio, so we have exposure to virtually all sectors we have access to, with the exception of technology currently.

Tech companies in the UK are primarily software and data companies, like RLEX and Sage. At the start of last year they were trading at high multiples of between 25x to 30x and growing 5% to 10%. To justify multiples like that, we calculated that these companies would have to maintain those growth rates for 10 to 15 years.

Although there have been no earnings downgrades, I believe the level of certainty investors are willing to put upon them is too high relative to what may change in the market 10 years from now.

However, we are able to selectively make global investments and last year invested in SK Hynix, which makes memory chips for AI infrastructure. Crucially, it was trading at 7x earnings, whereas Nvidia was trading on 30x earnings.

The SK Hynix share price doubled and provided a decent amount of performance last year – just shy of 1% of the overall portfolio.

How important is engagement with the fund’s portfolio companies and why?

As an active manager, what else do you have other than engagement? Yes, we have data, which is all over our screens, but the active side of management is more difficult to replicate with machines. Being able to understand the nuances by engaging with companies can give you an advantage.

It needs to be an active conversation. It’s also important that meetings with management are frequent so any changes in the narrative can be detected quickly and easily.

What were your best calls in 2025?

The biggest contributor to the fund last year was Standard Chartered, which I bought around the time I took over the fund.

It has a very strong wealth business in Hong Kong and an increasing number of people  in China – a big saving economy – are using Hong Kong as a centre to deposit their money and invest in wealth products. That wealth business has grown very strongly and expanded the profits of the overall business sharply. 

Over 2025, the bank contributed 2% to the overall performance of the fund and outperformed the FTSE 100 89% versus 24%.

The other top performer was Barclays, which also contributed 2% to the fund and was up 82% last year. The profitability of the UK business was the big primary driver, as Barclays has increasingly put more capital into the highest returning parts of the bank.

And what were your worst calls last year?

The biggest thing which I didn’t do which I should have done was own Rolls-Royce. It gained 104% through 2025. Not owning it cost the fund 2% relative to if I had an equal weight position. In hindsight, we underestimated the strength of the recovery of the aerospace sector.

An active call that didn’t pay off is the discount retailer B&M, which we bought in June 2025 and has cost me 0.8% of the fund, with the share price declining 40%. The company management has changed and has indicated that it is necessary to reduce its operating margin due to a combination of price declines and operating cost investment. The margins have reset down further than we expected.

It also hasn’t secured loyalty from consumers. Supermarkets like Tesco and Sainsbury’s have utilised loyalty schemes, which are helping them segment their customer base and understand exactly what their customers are doing so they are able to stock and price the right things. B&M doesn’t have that and so that’s one reason it is losing share in its grocery segment.

What do you do outside of fund management?

I love to be outside – whether that’s going for a run, cycling, skiing, hill walking or running around after my son.

If the first two weeks of 2026 are anything to go by, this year is going to be a rocky one. If it were a free trial, I certainly wouldn’t be willing to pay full price for the monthly subscription.

But life is not like Amazon Prime or Apple TV, so on we march.

There have been myriad events already to start the year. Federal Reserve chair Jerome Powell is being criminally investigated over his testimony to Congress on the central bank’s refurbishment; the US has taken over the running of Venezuela after abducting president Nicolás Maduro; and president Donald Trump continues to spark international unrest with talks of acquiring fellow NATO country Greenland.

Closer to home, defections from the Conservative party to Nigel Farage’s Reform are becoming more prevalent, while the Labour government continues to struggle in office. Seemingly out of nowhere, the Green party is surging in the polls, leaving the prospect of two novice parties (Reform and Green) vying for government in the next election.

Staying in the political sphere, Japan is to host a snap election. While prime minister Sanae Takaichi is doing so from a position of strength (as her party’s approval ratings are at their highest in a decade), she only holds a slim majority and there are no guarantees of victory this time around.

This is all against a backdrop of war in Ukraine, precarious economies the world over and the renewed threat of trade wars between the US and other countries.

Yet despite all this, markets are unperturbed. US stocks? Up. UK stocks? Up. European stocks? Up. Emerging markets? Up. Japan? Up.

It could therefore be a year where we have to compartmentalise. On the one hand we can panic, fear and voice concern about what is happening around us. But when it comes to how we invest, we shouldn’t let this thought process take over.

This was much the same in 2025. Despite a year in which everything seemed like it could fall apart, everything ended the year on a high.

As the news events and policies that dominated the first half (highlighted by Trump’s ‘Liberation Day’) began to fade (or in some cases be walked back) in the second half, it ended up being a strong 12 months for markets.

Behavioural investing is one of the most difficult to get right, yet it is always worth reminding ourselves that what we feel is personal and not always replicated by others – particularly when it comes to markets.

Does Trump know what he is doing? Will prime minister Keir Starmer and chancellor Rachel Reeves still hold their positions by the end of the year? Will the Russia-Ukraine conflict end? Will China invade Taiwan? Will trade war rhetoric reignite?

Who knows.

But if last year has taught us anything, it is that markets are a different beast to the politics of the day. Currently, investors don’t seem to care, or are at least far more sanguine about what is going on in the world than the headlines being written.

So, for now, there seems to be little need to hide money under the bed, divert to a doomsday portfolio, or move to the countryside and start rearing chickens and cows for a future in which we go back to a barter economy.

Whether that will be the case at the end of the year remains to be seen, but staying calm and focusing on what markets care about will be as important in 2026 as it was in 2025.

iShares was the most represented fund house on the UK’s major best-buy lists in 2025, underlining the dominance of low-cost passive strategies in the selections made by investment platforms.

Across Hargreaves Lansdown’s Wealth Shortlist, AJ Bell’s Favourite Funds, interactive investor’s Super 60, Fidelity’s Select 50 and Barclays’ Funds List, iShares had 21 recommended funds – more than any other management group.

Vanguard followed with 15, while Fidelity ranked third with 14. The data shows that providers with strong passive ranges continue to attract broad analyst support, although several active managers also featured.

iShares leads the field

iShares, which is owned by BlackRock, topped the rankings with 21 recommended funds. The range is best known for its exchange-traded funds (ETFs), offering low-cost exposure to mainstream equity and bond indices.

Several of its largest and most widely used products appeared on multiple lists. The iShares Core MSCI EM IMI UCITS ETF, which tracks emerging markets equities, was recommended by both AJ Bell and Fidelity. It has assets of £24.4bn and an ongoing charge figure (OCF) of 0.18%.

Developed market exposure was also prominent, with the iShares Core S&P 500 UCITS ETF (£15.1bn, 0.07% OCF) and the iShares Core FTSE 100 UCITS ETF (£13.9bn, 0.07% OCF) among the funds backed by AJ Bell, with the FTSE 100 tracker also making Fidelity’s list.

The breadth of iShares’ representation reflects how central low-cost, highly liquid index trackers have become to best-buy lists designed to serve as core building blocks for portfolios.

Vanguard close behind

Vanguard ranked second, with 15 recommended funds. Like iShares, its presence was driven primarily by its passive offering, reinforcing the view that platforms place significant weight on cost, scale and index fidelity.

One notable addition during the year was the Vanguard Global Small-Cap Index fund, which was added by interactive investor and also appeared on Fidelity’s Select 50. The fund has £4.6bn in assets and an OCF of 0.29%, offering exposure to smaller companies globally.

Vanguard’s flagship S&P 500 UCITS ETF, with assets of £59.0bn and a charge of 0.07%, also featured, recommended by Fidelity.

Multi-asset strategies were represented too, including Vanguard’s popular LifeStrategy range. The largest version by assets under management is the 60% Equity version, which has £18.1bn in assets, an OCF of 0.22% and a place on interactive investor’s Super 60.

Fidelity blends passive and active

Fidelity placed third with 14 recommended funds, standing out for combining index trackers with actively managed strategies.

On the passive side, Fidelity Index World, which has £13.9bn in assets and an OCF of 0.12%, was recommended by Hargreaves Lansdown, AJ Bell and Barclays, making it one of the most widely backed global equity trackers across platforms.

Fidelity also featured strongly for its active funds, however. Fidelity European, with assets of around £4bn and an OCF of 0.91%, was recommended by interactive investor, while Fidelity Special Situations, also a £4bn strategy with a 0.91% charge, appeared on the best-buy lists of Hargreaves Lansdown, AJ Bell and Fidelity itself.

Both are run by FE fundinfo Alpha Managers (Samuel Morse and Alex Wright, respectively), reflecting continued analyst support for selected active approaches alongside passive exposure.

L&G and index investing

Outside the top three, Legal & General Investment Management (L&G) had 13 recommended funds, placing it just behind Fidelity. L&G was recognised for its passive expertise, particularly in UK equities and fixed income.

Among its recommended funds were the L&G All Stocks Gilt Index Trust, which has £2.7bn in assets and a 0.15% OCF, and the L&G Emerging Markets Government Bond (US$) Index fund.

The group’s Future World ESG Tilted and Optimised range also featured, including the developed markets, emerging markets and UK equity variants, reflecting demand for low-cost ESG-tilted index strategies.

Active managers still featured

The top purely active house was Artemis, which had nine recommended funds, four of which are run by FE fundinfo Alpha Managers.

These included Artemis Corporate Bond (Alpha Manager Grace Le and Stephen Snowden convinced both Hargreaves Lansdown and AJ Bell analysts); Adrian Frost’s Artemis Income, which isn’t only popular among Hargreaves, interactive investor and Barclays analysts but is an investors’ favourite too, having amassed £5.3bn of AUM (its High Income sibling also made Hargreaves’ list); as well as the Artemis Strategic Bond, another managed by Le alongside David Ennett and Liam O'Donnell, which is on AJ Bell’s Favourite Funds list.

Next up was JPMorgan Asset Management, which housed nine recommended funds, including strategies across equities and bonds.

Among them were JPM Global Bond Opportunities (£154m, 0.64% OCF), added by Hargreaves Lansdown in July, and JPM Global Equity Income (£709m, 0.84% OCF), recommended by AJ Bell. Larger strategies such as JPM Emerging Markets (£2.4bn, 1.12% OCF) and JPM US Equity Income (£2.5bn, 0.63% OCF) were also present.

Schroders followed with eight funds, including Schroder Asian Discovery (£154m, 1.00% OCF, recommended by HL) and Schroder Managed Balanced (£1.9bn, 0.93% OCF, HL).

Invesco rounded out the list with seven recommended funds, four of which run by an Alpha Manager: William Lam and his team convinced with their Invesco Asian and Invesco Global Emerging Markets portfolios, while Michael Matthews’ Invesco Corporate Bond and Invesco Sterling Bond strategies also featured.

Source: Trustnet

Europe has little chance of producing a global champion in artificial intelligence infrastructure, leaving the foundations of the industry concentrated in the hands of a small number of US technology groups.

According to Scottish Mortgage manager Tom Slater, the sheer scale of capital required to build and run the foundations of artificial intelligence (AI) has already locked in a narrow group of winners, leaving other regions and most would-be challengers structurally excluded.

“There is no way we’re getting a European player in AI infrastructure any time soon,” Slater said.

“AI is developing into a market with winner-takes-most or winner-takes-all economics”, he added, noting that the landscape is dominated by a handful of US hyperscale cloud companies.

The reason is not a lack of technical expertise elsewhere but the unprecedented level of spending now required. Slater pointed to the concentration of the infrastructure layer in the hands of companies such as Meta, Amazon and Google. Combined, their investment is on a scale usually associated with national economies rather than private enterprise. The capital expenditure (capex) of these groups is equivalent to the gross fixed capital formation of Spain and roughly two-thirds of that of the UK.

That level of spending acts as an insurmountable barrier to entry. Few companies globally can fund it from their own balance sheets, and even fewer can do so while absorbing the inevitable inefficiencies and missteps that come with building capacity ahead of demand. In Slater’s view, this is why Europe, which lacks technology firms with comparable cash generation, is unlikely to produce a serious contender in this part of the AI stack.

Top 5 hyperscaler capex spend
Source: Bloomberg

This concentration is also what is fuelling a growing debate among investors about whether the industry is in the midst of an AI capital expenditure bubble. Concerns have mounted over the scale of announced spending plans and whether returns will ultimately justify them. Slater rejected the relevance of that question for Scottish Mortgage.

“Whether we’re in a capex bubble or not doesn’t actually matter a great deal,” he said, arguing that investors need to differentiate between companies that can afford to play and those that cannot. The risk lies not with the hyperscalers but with companies trying to compete without the financial resources to sustain prolonged investment.

Slater highlighted his concerns around businesses such as Oracle, which he said has never spent capital on this scale and does not have the existing cash flows to fund it comfortably.

By contrast, he is relatively relaxed about the hyperscalers themselves, even if they overspend. He acknowledged the sums involved are vast in absolute terms, but far less so when set against the cash generated by their existing businesses. Any inefficiency, Slater argued, is unlikely to derail the long-term investment case.

These dynamics are also reflected in a broader shift in where open-ended growth opportunities can be found, with progress in the physical economy “becoming harder to achieve”. Trade tensions, a focus on resilience over efficiency, declining immigration and lower labour force participation all point to rising costs and weaker productivity growth.

By contrast, “the market for intelligence is global”. AI systems can be deployed at scale and serve vast numbers of users at relatively low marginal cost. If companies were able to reach multi-trillion-dollar valuations by distributing entertainment and social media,  the potential prize from deploying intelligence into finance, professional services, creative industries and healthcare is significantly larger, Slater suggested.

This backdrop informs how Scottish Mortgage approaches the sector. Slater stressed that the trust “does not need the average AI company to succeed”.

Performance of fund against index and sector over 1yr

Source: FE Analytics

“Instead, it is looking for one or two exceptional businesses that can exploit the structural advantages created by concentration and scale”.

The trust does not own companies building power infrastructure, data centres or cooling systems, focusing instead on areas such as chips, where demand is being driven by the increasing difficulty of extracting more performance from existing silicon, and on software, where value can compound as AI adoption spreads.

Slater also sees the implications of AI extending well beyond software and data centres. In transport, he argued, AI-enabled systems are approaching a point where steady technological progress translates into sudden market disruption. Autonomous vehicles and aircraft, he said, are beginning to demonstrate capabilities that were not possible under previous paradigms.

In that context, Slater warned that incumbents may be poorly positioned, especially in automotive. “The conventional transport companies are not prepared and they are going to be swept away by this AI wave that’s about to hit this industry,” he concluded.

Over the past two years, we have been in a very narrow market environment in Asia led by momentum-driven flows into specific sectors. This period has seen considerable enthusiasm in areas I describe as ‘themes and dreams’ – investors have chased growth at any price in innovation, biotechnology, electric vehicles and artificial intelligence-led stocks, where fundamentals and valuations have gone in the opposite direction.

But when I return to my long-term mindset and review data over a 30-year period, it is encouraging to see that the small-cap value segment has meaningfully outperformed other segments in Asia. Therefore, as we look forward to 2026, I would like to dispel two myths about this investment universe.

Myth one – Rewarding opportunities in Asian small-caps must be growth stories

When investors think about Asia’s smaller companies, they often picture fast-growing technology or consumer names. In practice, the strongest long-term results have tended to come not from the loudest growth stories, but from solid businesses bought at sensible prices. Time and again, we have seen markets pay too much for excitement and too little for resilience.

I find it useful to think about stocks in the same way you might think about buying a business for your family. If you had £50m to acquire a local business in London, you would not start by asking how quickly it could grow. You would start by asking whether it sells a product customers genuinely want, at a price that allows a good return on capital.

You would insist that the people running it are both competent and honest. And you would work hard on the purchase price, looking for every flaw you can find to ensure you are not overpaying.

That is exactly how I invest in Asia. Many of the companies in the portfolio are not well-known stocks. For example, a noodle or biscuit manufacturer in Indonesia, a security services provider in India, or a specialist distributor in the technology supply chain.

In Taiwan, for example, we own Pacific Hospital Supply, a producer of medical consumables. It is not a large company in global terms but, under new management, it is gaining share in a sizeable industry and trading on valuation multiples that still offer an attractive dividend yield.

These kinds of businesses rarely grab headlines, yet over long periods they have often produced good outcomes compared to widely chased momentum stories.

The lesson from 30 years of data is simple. In Asian small-caps, paying a reasonable price for a good business with good people has mattered more than chasing the highest predicted growth rate.

Myth two – Asian small-caps are too risky

The second myth is that Asian small-caps are inherently too risky. Reality is that risk is not day-to-day volatility; it is the permanent loss of capital. In my experience, such loss usually comes from four sources: buying a fundamentally weak business; backing untrustworthy people; accepting a fragile balance sheet; or dramatically overpaying for even a reasonable company that leaves no margin of safety.

Our investment approach is designed to avoid these pitfalls by focusing on companies with durable cashflows, capable and honest management teams and balance sheets that can withstand shocks. 

And by insisting on valuations that provide a margin of safety, we aim to reduce the likelihood of permanent loss. Viewed through this lens, a diversified portfolio of Asian small-caps bought at sensible prices is not necessarily riskier than the broader market.

Why process matters more than predictions

Discipline of process is what anchors every investment decision. Today, a significant portion of our capital is deployed in Indonesia and China. Indonesia is the region’s third-largest economy after China and India, with favourable demographics, prudent public finances and healthy household balance sheets. Yet its equity market remains out of favour.

Our exposure there spans banks, industrials, building materials and consumer businesses, all selected one by one for our belief in their ability to generate sustainable returns with a margin of safety.

Elsewhere in the region, we own companies like Mega Lifesciences in Thailand, a manufacturer of wellness and pharmaceutical products with a strong distribution network and competitive margins, again trading on undemanding valuations.

What still holds true today

Looking ahead, we cannot say whether Asian markets will be higher or lower in 12 months’ time. What we can say is that the lessons of the past 30 years still apply.

In Asian small-caps, value has beaten growth more often than not and careful attention to business quality, people and price has been a reliable guide through many business and economic cycles.

We do not control outcomes. We control inputs. Our focus remains exactly where it has always been – good businesses, run by good people, at a good price.     

Nitin Bajaj is portfolio manager of Fidelity Asian Values trust. The views expressed above should not be taken as investment advice.

Kopernik Global Investors will soft-close its $8.2bn Global All-Cap strategy on 30 April 2026 after a run of strong performance.

Existing investors who currently hold positions in the Global All-Cap strategy will be able to continue investing additional money. The Global All-Cap Mutual Fund, which soft-closed on 31 July 2025, will not hard close at this time.

Kopernik’s Global All-Cap strategy returned 66.5% in calendar year 2025 while the firm’s International strategy returned 56% over the same period.

In the UK market, the Heptagon Kopernik Global All Cap Equity fund was the fourth best performing fund in the IA Global sector in 2025 with a 63.4% total return. The fund ranks in the sector's top decile over three and five years.

Performance of Heptagon Kopernik Global All Cap Equity vs sector and index over 5yrs

Source: FE Analytics

Heptagon Kopernik Global All Cap Equity is well-liked by fund pickers, having been one of Shard Capital’s choices for bullish investors and highlighted for doing something different to its peers in past Trustnet articles.

Kopernik said in a statement: “After significant consideration, and consistent with our approach of limiting capacity in order to enhance return potential, we have decided to proceed with the soft close of the Kopernik Global All-Cap strategy.”

Kopernik will also launch a Global Opportunities strategy on 30 April 2026,which will invest globally in mid- to large-cap stocks.

Dave Iben and Alissa Corcoran, co-chief investment officers at the deep value investment house, will co-manage the strategy. This is the first launch since Kopernik’s International strategy in 2015.

“Though traditionally, deep value is associated with SMID-cap companies, the Kopernik team continues to take a nuanced approach to determining which companies to invest in and is now finding considerable opportunities in securities with a market capitalisation greater than $3bn,” a representative noted.

Despite 68% of wealth managers considering Artificial Intelligence (AI) to be moderately or very important to their industry, just 27% believe they are leaders in AI adoption, according to a recent MSCI survey.

Instead, a greater proportion of wealth managers (44%) believed that they were behind other financial services firms in terms of their AI adoption.

Joseph Wickremasinghe, executive director at MSCI Research and Development, said: “Wealth managers appear to feel they are lagging other investment managers in an area they consider a strategic focus.”

Source: MSCI.

Indeed, other parts of the financial services industry are increasingly implementing AI into their businesses and analysts at Fidelity International said this is starting to reshape business fundamentals.

Almost half (49%) of analysts at the firm International said last month that AI will increase company profitability this year, with financial businesses set to be one of the biggest beneficiaries.

They expect more than 80% of financial firms to benefit from AI this year through further improvements to the customer experience or more personalised services.

For MSCI’s Wickremasinghe, the gap between how important AI adoption is to wealth managers and how well they think they are implementing it “may be less about technology and more about the yardstick wealth managers use to measure their AI success”.

Wealth managers and other asset managers have different goals, which can affect their AI implementation. For example, asset managers may use AI to support their funds and trusts by generating new ideas or helping them find ways to outperform the benchmark and deliver returns for investors, the MSCI director said.

Because they typically do this in-house and generally do not use third-party providers for their data sets, asset managers are “more likely to require a bigger investment in AI to achieve their goals”

By contrast, wealth managers oversee hundreds of portfolios and must balance all their unique objectives while attracting new clients. On top of this, they also need to make sure that “every proposal also reflects the client's unique circumstances and preferences”.

“Their competitive edge lies not in proprietary data or complex trading models, but in the strength of their client relationships and their ability to deliver a deeply personalised service,” Wickremasinghe said.

Wealth managers comparing themselves to asset managers or hedge funds may develop the wrong idea of what AI implementation looks like because they are not applying it to their “core competency” of client proposal generation and personalised experiences.

“This may explain why 44% of wealth managers see their segment as lagging other areas of investment management in AI adoption: The survey responses suggest advisers tend to focus on proposal generation, for which there are already off-the-shelf solutions,” the MSCI director said.

Instead, wealth managers should rethink their AI implementation by focusing on their unique needs and differences between their processes and those of asset managers or hedge funds.

“That means focusing their AI use on measurable improvements that may support business goals such as growth and client retention – and measuring their progress against their own needs, rather than those of other investment professionals,” Wickremasinghe concluded.

The UK economy grew faster than expected in November, offering some reassurance that activity did not grind to a halt ahead of the government’s Budget. However, economists cautioned that the headline strength masked underlying fragility, with growth uneven across sectors and confidence still weak among households and businesses.

Official data from the Office for National Statistics showed gross domestic product expanded by 0.3% month on month, ahead of Bloomberg consensus expectations. Services and production contributed to growth, while construction contracted again, underscoring the uneven nature of the recovery.

Russ Mould, investment director at AJ Bell, said the data was encouraging but should not be overstated. “Better than expected UK GDP growth in November is welcome news for the new year,” he said. While some of the improvement reflected the resumption of output at Jaguar Land Rover following a cyber-attack, Mould added that “the increase in services activity shows there is more to the GDP progression than just restarting car production”.

The timing of the growth was also notable. November coincided with a period when businesses and consumers were widely thought to be delaying decisions ahead of the Budget. Mould said it was “positive to see GDP growth for a month where business and consumer decisions might have been put on ice pending the Budget”, though he stressed that overall activity remained subdued.

That caution was echoed by Kallum Pickering, chief economist at Peel Hunt, who said: "It could have been worse.”

Looking beyond the monthly figure, he highlighted that on a three-month-on-three-month basis, GDP grew by 0.1% in November, well ahead of expectations for a decline. Services growth was modest on this measure, while construction output continued to slump, reflecting the impact of high interest rates, weak confidence and policy uncertainty.

Still, the broader picture remains uninspiring, with economic activity “at best lukewarm”. Pickering also pointed to confidence as a key constraint, saying growth remained “constrained mostly by a lack of confidence in the policy decisions of the Labour government”.

Andrew Wishart, senior UK economist at Berenberg, struck a similar tone, arguing that the data challenged the idea that policy uncertainty alone paralysed the economy in November. “What Budget worries? Economic output was surprisingly resilient to policy uncertainty in the run-up to 26 November, according to the official data released this morning,” he said.

Wishart noted that the stronger-than-forecast monthly increase created an upside risk to forecasts that GDP stagnated in the fourth quarter. “The big picture remains that the UK economy has lost momentum since the summer,” he said, adding that Berenberg expected this soft patch to persist into 2026 amid job losses and fiscal consolidation.

The sector breakdown reinforced that view. Within services, real estate and wholesale and retail were among the stronger areas on a three-month basis, though Wishart cautioned that much of the rise in real estate activity reflected higher “imputed rent” rather than a genuine pickup in housing market transactions. Construction, meanwhile, slipped back again.

For monetary policy, the November figures reduces the immediate pressure on the Bank of England to act. Peel Hunt said the relative strength of the data was likely to be enough to keep the central bank on hold at its next meeting in February, with rate cuts still expected later in the year.

Mould also stressed that one stronger month does not alter the broader challenges facing the economy. He said growth remained “pedestrian overall”, with businesses still reluctant to invest and a fragile jobs market. Referring to the chancellor’s strategy, he added: “We’re still in the waiting game for that strategy.”

Twelve IA Global sector funds staged an impressive comeback in 2025, delivering first-quartile one-year returns after a decade trailing their peers.

In this new series, Trustnet identifies funds that languished in the fourth quartile for returns in their sector over 10 years but stormed into the first quartile over one year (to December 2025). We also look at the reverse. We are kicking things off with the IA Global sector.

The 12 funds in the table below delivered strong one-year returns in 2025, beating the sector average of 11.2% despite their weaker decade-long records.

Source: FE Analytics

Their outperformance over the past 12 months can largely be attributed to 2025’s sharp style and sector rotation.

After years dominated by US mega-cap growth, geopolitical uncertainty, falling inflation and rate cuts triggered a rebound in value stocks, cyclicals and global equities outside of the US, with the likes of climate and energy transition, emerging markets and commodity-linked strategies benefiting.

Multi-manager and thematic portfolios also gained over the past 12 months as investors diversified away from concentrated benchmarks.

Leading the charge is the €1.6bn Storebrand Kon-Tiki Verdipapirfond, which vaulted to the top of the table with a one-year total return of 34.7% – a dramatic turnaround for a fund that spent years in the sector’s lower ranks.

Managed by Frederik Bjelland and Espen Klette, it was launched in 2002 and focuses on value stocks across emerging markets, which benefited last year as investors sought to diversify away from the US.

The second best one-year returns were delivered by SVS Kennox Strategic Value, which staged an impressive comeback and gained 24.9%.

In today’s environment of economic distortions, the £79.5m fund has capitalised on its disciplined value approach, seeking industry leaders that are more conservatively managed with shares trading at compelling valuations.

Current holdings in the fund include pan-Asian footwear group Stella International, South Korean outdoor apparel manufacturer Youngone and New Zealand-based sports and entertainment broadcaster Sky NZ.

Rounding out the top three is the €1.1bn Templeton Global Climate Change, which gained 24.3% over the course of 2025.

Climate-related funds have fallen out of favour in recent years, in large part due to the ongoing political pressures placed on environmental, social and governance (ESG) themes – especially in the US.

However, the fund has benefited from its 22.9% allocation to the information technology sector, which enjoyed another overall strong year. Two of its largest positions in the portfolio are tech behemoths Microsoft and Alphabet at 7.2% and 6.2% respectively.

Along a similar vein, the sustainability-focused £1.3bn Schroder Global Sustainable Value Equity managed first-quartile gains in the sector over one year.

Co-managed by Schroders head of value Simon Adler, Liam Nunn and Roberta Barr, the high conviction value fund invests in sustainable companies trading at discounted valuations that the management team believes can deliver earnings growth.

Titan Square Mile analysts said that the fund’s focus on value is a big differentiator. “The sustainable sector is heavily biased towards growth stocks, whereas this fund provides a style diversification, looking for value companies that are better positioned from a sustainability perspective when compared to industry peers.”

Another Schroders fund sits in the fourth quartile over 10 years but the first quartile over 12 months. The $244.6m Schroder ISF Global Equity Yield, also managed by Adler and Nunn, gained 16.9% in 2025, with top holdings including defensive big pharma names such as GSK, Bristol-Myers Squibb and Pfizer.

Following the strong showing from Schroder’s value-focused strategies, JPM Multi-Manager Growth also delivered top-quartile returns over one year, highlighting the breadth of approaches benefiting from 2025’s market rotation.

The £309.8m fund posted a 16.7% one-year return, investing at least 80% of its assets in investment trusts across global sectors, providing diversified exposure through high-conviction vehicles.

Its top holdings include Scottish Mortgage Investment Trust (8.7%), Polar Capital Technology Trust (5.6%) and Edinburgh Investment Trust (3.7%), reflecting a blend of growth and thematic strategies.

Performance of the funds vs sector in 2025

Source: FE Analytics

While some funds basked in the glow of a comeback in 2025, others saw their long-standing dominance dim. Growth-heavy strategies, in particular, found themselves out of step with a market favouring value and diversification.

Source: FE Analytics

LO World Brands has been a standout performer over the long term, delivering a 10-year return of 256.7%, but it slipped into negative territory and lost 1.4% in 2025.

The high-conviction strategy, run by Juan Mendoza and Andrew Gowen, targets high-quality companies with sustainable financial models and resilient business practices.

In the fund’s November 2025 factsheet, the managers acknowledged that the consumer-focused investment universe sits “at the crossroads of key long-term structural growth trends such as global demographic shifts, multiple lifestyle changes and disruptive distribution channels”.

Elsewhere, MS INVF Global Opportunity’s disciplined focus on quality and growth has made the fund a long-term winner, racking up a 312.5% return over 10 years. However, its momentum slowed in 2025 as investors moved away from expensive growth, with the fund managing a modest 4.5% gain.

The $14.2bn strategy has been managed by FE fundinfo Alpha Manager Kristian Heugh since 2010.

New Capital Global Equity Conviction also lives up to its name with a high-conviction portfolio that delivered a 233.7% return over a decade. It also fell short in 2025, managing just 4.6% as last year’s style reversal clipped its wings.

Finally, the 2.8bn L&G Cyber Security UCITS ETF delivered an impressive 250% return over a decade but its performance has since flattened, with a gain of just 0.4% in 2025.  

Performance of the funds vs sector in 2025

Source: FE Analytics

Picking the right fund is only part of the challenge for investors; timing those decisions can be just as difficult. Funds that attract strong inflows after a good run can struggle to repeat that performance, while those sold after a period of weakness can rebound sharply, leaving investors on the sidelines.

Trustnet’s analysis of the most bought and sold active funds of 2024 shows how some popular funds went on to deliver, but others lagged, while several strategies that investors abandoned staged strong recoveries in 2025.

The findings highlight the risk of being swayed by recent performance and the potential cost of losing patience without a clear long-term strategy.

IA Global

The most purchased active global fund in 2024 was Royal London Global Equity Diversified, which had risen 12.5% by the end of 2025. This was a second-quartile result in the IA Global peer group, although it still narrowly underperformed the MSCI World (up 12.8%), just like it did in August, at the time of our last review.

Investors who put money into the Vanguard LifeStrategy 100% Equity fund in 2024 (an actively managed allocation of a passive portfolio) would have been rewarded with a first-quartile return of 16% last year. This performance contribute to it reaching £11bn in assets under management, up from £8.5bn in February.

On the sell side, Morgan Stanley Global Brands had £200m withdrawn in 2024 and it continued to underperform last year, sliding 6.2%. Meanwhile, investors continued to sell the giant Fundsmith Equity, which rose by just 0.8% in 2025 – a slight recovery compared to August, but still in the bottom quartile.

Investors also may have sold some funds too early. For example, people who pulled money from Jupiter Global Value Equity (£380m outflows) and Fidelity Global Special Situations (£357m outflows) would have missed out on a 22.2% and 19.1% surge, respectively.

IA UK All Companies

UK equities posted a strong rally last year, with the FTSE All Share up 24% and the average UK All Companies fund up around 15.4%, as investors began to take more notice of the UK market.

This contributed to strong performance from many of the most bought and sold funds of 2024, with the three most purchased active funds  (HL Multi Manager UK Growth, Invesco UK Opportunities and Artemis UK Select) all outperforming the sector.

Artemis UK Select, managed by FE fundinfo Alpha Manager Ed Legget and Ambrose Faulks, was the big winner of the shortlist with a 28.3% total return, the eighth-best performance in the peer group.

Liontrust Special Situations and Lindsell Train UK Equity, which shed more than £1bn in 2024, failed to turn around performance in 2025. The Liontrust strategy fell by 3.8%, while Lindsell Train fell by 7.2%, the only funds on the UK shortlist to make a loss.

But investors did not always get it right. For example, they shunned Invesco UK Equity High Income (£272m outflows in 2024), but it posted a 26.7% total return, one of the best results in the sector.

Managed by Ciaran Mallon and James Goldstone, the portfolio targets a yield higher than the FTSE All-Share, favouring undervalued companies with strong cashflow generation and fundamentals.

IA North America

Shifting focus to the North American sector, investors had a much worse record, with many of their favoured funds underperforming while some they shunned rallied.

Three of 2024’s most popular active funds (Premier Miton US Opportunities, abrdn American Equity and MGTS AFH DA North American Equity) underperformed the IA North America sector, up 7%.

While Aberdeen and MGTS were in the black, Premier Miton was down 11.7%, one of the worst-performing American funds last year.

However, one of the active funds favoured by investors, BNY US Equity Income, rewarded investors with a 11.3% total return. Led by John Bailer, the fund targets stocks with high dividends and durable dividend growth, which leads it to favour value stocks over higher growth companies.

By contrast, every active fund that investors shied away from in 2024 posted a positive return last year. One example is CT American, which faced outflows of £700m in 2024, but delivered a total return of 11.5%, the best result on the shortlist.

IA Europe Excluding UK

European equities had a strong 2025, with enthusiasm over German infrastructure investment and strong performance from defence stocks helping the MSCI Europe index to rise 26.1%.

In such a strong year for European equities, investors had success with some of their 2024 picks. Three active funds made the most bought list in 2024: Liontrust European Dynamic, Quilter Investors Europe Ex UK Equity and Quilter Investors Europe Ex UK Equity Income, all of which outperformed the IA Europe ex UK sector average of 22.5%.

Quilter Investors Europe ex UK Equity Income led the short list with a 36.5% total return, while its stablemate was up 25.4%. Meanwhile, Liontrust European Dynamic surged 29.3%.

Some of the funds investors opted to avoid in 2024 underperformed last year. For example, Baillie Gifford European, Premier Miton European Opportunities, CT European Select and M&G European Sustain Paris Aligned were all in the bottom quartile of the sector.

Investors still made some missteps with their picks in this sector.

For example, Invesco European Equity (UK) lost £724m in outflows in 2024 after one of the worst performances in the sector. By contrast, it was already rallying in the August study and ended the year up 30.8%, a first-quartile return.

We leave a strong year behind, with emerging market (EM) equities having raced ahead of developed market equities in 2025.

While expecting a repeat of such exceptional performance may be too optimistic, we believe the outlook for emerging market equities in 2026 remains constructive.

Several themes that continue to drive earnings momentum across the asset class underpin this outlook.

Artificial intelligence (AI) supply chain

Emerging markets are far from homogeneous and the diversity across countries and sectors creates distinct opportunity sets. AI will likely remain a key driver within the broader information technology space and the structural growth potential of AI continues to support the investment case we foresee across key EM markets.

Importantly, the opportunity set extends beyond the direct semiconductor beneficiaries in Taiwan and South Korea. We believe attractive exposure is also emerging along the AI supply chain – such as electronic manufacturing services, power supply units and printed circuit board companies.

In parallel, select China-based internet companies are increasingly embedding AI into their ecosystems, potentially leading to cost efficiencies as well as incremental growth on top of traditional e-commerce and advertising models.

Leading Chinese internet names are major cloud service providers and should benefit from the rising demand for AI-related workloads. They are developing competitive AI models and developing semiconductor chips, positioning themselves to participate more directly in the AI stack.

China’s industrial leadership

The global demand for power continues to rise, a trend which is accelerating amid the growing energy needs of data centres supporting the AI boom. This need has created a surge in demand for related infrastructure, including energy storage batteries and related power equipment.

Chinese industrial companies are at the forefront of this trend, delivering growth in both their domestic market and, increasingly, through exports.

Similarly, Chinese electric vehicle manufacturers are leveraging their technological advantages to gain international market share, a trend that appears likely to continue throughout 2026.

Policy shifts and domestic reforms

Many emerging market central banks have continued to ease monetary policy to support domestic demand and balance broader policy objectives, and we expect this trend to persist in 2026.

In China, the anti-involution campaign aims to curb excessive price competition and industrial overcapacity. While it is too early to gauge the success of this initiative, it may begin to shift incentives away from margin-destructive competition, particularly in sectors where policy scrutiny is rising.

For well-managed companies this could reduce the need for defensive spending to protect market share, improving earnings quality and enabling a more rational allocation of resources over time.

In India, consumption-focused policy support appears to be having an impact on recent consumption trends. In 2026, the benefits of these reforms should become more evident in corporate earnings.

In Latin America, Brazil is well-positioned to benefit from a more accommodative interest-rate environment in 2026, although upcoming elections could introduce some market volatility. Mexico, meanwhile, continues to benefit from near-shoring dynamics and its strategic proximity to the United States.

Trade, tariffs and resilience

US tariffs have now largely come into place, as most countries have secured trade agreements. At the time of this writing, some emerging market countries, including Brazil and India, remain in active trade talks with the United States.

However, these economies are relatively less reliant on exports than some peers and are therefore somewhat more insulated from direct tariff shocks should they come to pass.

EM equities have already demonstrated resilience by recovering from the initial tariff-related disruptions in 2025. And we believe that adaptability – through supply-chain adjustments, trade rerouting and domestically anchored growth drivers – should continue to support the asset class.

Conclusion

Compelling long-term themes, including leadership in AI-related supply chains, technology, digitalisation, the premiumisation of consumption and healthcare, are shaping the investment landscape for emerging markets in 2026.

These structural growth areas, combined with supportive valuations in select EMs, underpin our constructive outlook for 2026.

Andrew Ness is a portfolio manager at Templeton Global Investments. The views expressed above should not be taken as investment advice.

Initial public offerings (IPOs) lagged in 2025, a “patchy year” both in terms of performance and volume, according to Dan Coatsworth, head of markets at AJ Bell. “[This] goes against the grain for what was a superb year for UK stocks more generally,” he noted.

More relaxed listing rules were meant to attract a greater number of companies to the UK. Certainly, slightly more companies listed in London compared to 2024 – up to 20 from 16 – but only a handful delivered strong returns.

“Investors who bought every one of the 20 UK IPOs this year would have lost money on average” to the beat of a 3.3% loss when comparing the IPO offer price with the year-end market closing level. This is down from a 35.7% positive return on average in 2024.

“In contrast, those who bought a FTSE 100 tracker fund at the start of January [2025] and sat back and did nothing for the rest of the year would have cleaned up with a 25.8% return including dividends,” Coatsworth noted.

As shown below, the top-performing UK IPO in 2025 was tax and advisory services group MHA with a 54% share price return, whereas the worst performer – wellness products provider Wellnex Life – fell by 81.1%.

Source: AJ Bell

MHA announced its public listing on London’s Alternative Investment Market (AIM) market in April 2025 – two weeks after Liberation Day in the US – after the firm raised £98m as part of its offering. Shares were up by 2.5% at £1.25 on its first morning of trading.

Its market capitalisation on admission to the AIM market was £271m. This has since grown to £435.8m.

The net proceeds from the IPO were earmarked for investment in growth-enabling artificial intelligence (AI), repaying partner loan notes and supporting bolt-on acquisitions.

In August 2025, MHA chief executive Rakesh Shaunak said the company is eyeing potential deals to expand its UK presence. It acquired Baker Tilly South-East Europe that same month, giving the company presence in Europe and expanding its audit, tax, advisory, legal and corporate services offering.

Second in the table is One Health, which returned 42.2% in 2025. It is a provider of surgical procedures funded by the NHS. It switched from its listing on the Aquis Stock Exchange to London’s AIM market in March, raising over £7m in the process.

It priced its AIM admission at £1.80 per share, giving the company an opening market capitalisation of £24.7m. Its market cap has increased to £33.6m.

The fresh equity was invested in One Health’s first owned surgical hub, which the company expects to raise between £6m and £9m in revenue per year.

British lender Shawbrook rounds out the top three best-performing IPOs of 2025, returning 31.5%. It was the biggest UK company IPO on the London Stock Exchange in two years, marking the company’s return to the public market after it was taken private by BC Partners and Pollen Street in 2017.

Research firm Tipranked noted that analysts offering 12-month price targets for Shawbrook in the past three months are bullish, with three out of four recommending ‘buy’ and the other recommending ‘hold’. The average price target is £5.38.

The company planned to use part of its IPO proceeds to fund acquisitions, building on the 24 deals it has made since 2011. It is also targeting mid-to-high teens annual profit growth over the medium term.

Shawbrook dividends are expected to reach 20.1p in 2027, equivalent to a 4.1% yield.

However, not every IPO in 2025 bore fruit.

Wellnex Life had a strong start to the year before it went public in March 2025, reporting an 89% year-over-year increase in revenue in the first two months of the year, with brand sales increasing by 46% and IP licencing revenue up by 600%.

Such results indicated a positive outlook for the company’s future growth.

By listing on London’s AIM market, the company hoped to gain access to a broader investor base and greater liquidity to enable more strategic positioning within the European market.

However, despite its pre-IPO surge, the company struggled in the months that followed and is down over 80%.

Meanwhile, specialist engineering consultancy RC Fornax lost 69.2% over the course of 2025.

It was founded by two ex-RAF engineers who spotted deficiencies in the existing outsourced contract defence market and now supports national security projects.  

The company listed on London’s AIM market in February 2025 following successful fundraising in which it raised £6.2m.

Finally, First Development Resources, an exploration company focused on materials such as copper, gold, uranium, lithium and rare earth elements, is also at the bottom of the table.

It debuted on London’s AIM market, raising £2.3m, with plans for a flagship project to be undertaken in Wallal, Western Australia.

The project yielded disappointing results, with the company announcing it was abandoning the drill hole, weighing on investor sentiment and leading to a sharp share price decline.

Shares in First Development Resources subsequently slumped by 50% to £0.04. As of the end of 2025, the company lost 52.8%.

2025 was a year of turbulent economic conditions and geopolitical uncertainty, offering investors both challenges and opportunities.

Sticky inflation, trade tensions and debate over bubbles demanded adaptability – rewarding funds from UK small-cap specialists to global income strategies and renewable energy plays. 

Trustnet asked leading fund selectors to share the funds they believe defined success over the past 12 months.

According to Alex Watts, senior investment analyst at interactive investor, one area that began to see quiet improvements was UK small-caps.

While they still lag large-caps and face persistent outflows, valuations have recovered from 2022 lows, which Watts said has left a pool of undervalued, high-quality businesses.

Although he noted that few managers have succeeded in drawing an inflow in this environment, his favourite fund for 2025 is WS Gresham House UK Smaller Companies, which “stands out for its impressive track record of performance in its peer group over the longer term”.

Managed by Ken Wotton, the fund invests in a portfolio of between 40 and 50 UK-listed smaller companies with a market capitalisation of £250m to £2bn. It is heavily weighted to the smallest end of the market cap spectrum, with over a third of the fund in AIM-listed companies and another quarter in FTSE small-cap names.

The management team takes a bottom-up approach to finding well-managed, high-quality companies with strong profit margins and earnings growth which are cash generative, with minimal leverage and decent valuations.

“Since the fund’s launched in early 2019, it has returned just under an annualised 10%, which is well over double the average return of the funds within its IA UK Smaller Companies peer group,” Watts added.

“The fund’s approach has proven itself over its lifetime, and across differing market environments, such as the bull market of late 2020 into 2021, and the drawdowns of 2022, when interest rate hikes and geopolitical chaos put immense pressure on small-cap funds and indices alike.”

Performance of the fund vs sector over 2025

Source: FE Analytics

Meanwhile, Rob Morgan, chief analyst at Charles Stanley Direct, took a more global view, selecting the “hugely impressive” Artemis Global Income as his favourite fund of 2025.

He pointed to manager Jacob de Tusch-Lec’s “strong reading” of the macro picture and subsequent targeting of underpriced areas, combined with strong stock selection.

“The fund has benefited from a free-thinking and eclectic approach to finding under-the-radar dividend payers beyond the usual suspects,” said Morgan. For example, areas such as European banks and defence companies were deeply out of favour when the fund first bought in.

The fund has been part of the Charles Stanley Direct Preferred List since 2015. “Truth be told, we waited quite a long while for the fund to come good,” Morgan said. “However, patience has rewarded fund holders spectacularly, and it just goes to show the benefits of backing a good quality manager when things aren’t quite gelling for them.”

Performance of the fund vs sector and benchmark over 2025

Source: FE Analytics

One of the most important lessons of 2025 for Tom Stevenson, investment director at Fidelity International, is that sometimes simple is best.

“Some of my best picks over the year have been the plain vanilla global funds, run by experienced and unflashy managers,” he said.

An example where simple paid off for Stevenson is Dodge & Cox Global Stock Fund, which he noted has been a good diversifier away from a “relatively stretched US stock market”. It also has a value bias which served investors well as they rotated away from growth. 

As a value fund, it prefers to invest in a fairly priced company – however, Stevenson noted it is pragmatic, “so it will own a growth stock if it can buy it at a cheap price alongside more traditional contrarian value stocks”.

Performance of the fund vs sector and benchmark over 2025

Source: FE Analytics

While Morgan and Stevenson stuck to broader equity strategies, Jake Moeller, associate director of responsible investment at Titan Square Mile, turned to a more specialist corner of the market: the energy transition.

He said his top picks – Schroder Global Alternative Energy and Guinness Sustainable Energy – were standout beneficiaries of recovered interest in clean power and infrastructure throughout 2025.

Schroder Global Alternative Energy is managed by Felix Odey, Alex Monk and Mark Lacey and returned 27.4% in the 11 months to November 2025.

“Its recovery stemmed from a more constructive policy backdrop, renewed interest in undervalued transition assets and a rotation into long-duration growth themes as stagflation fears have faded,” Moeller said.

Although US tariff uncertainty weighed on parts of the energy value chain throughout the year, Moeller said the fund’s positioning “offered some buoyancy”, particularly through its selective exposure to US-sensitive names and stronger holdings in European infrastructure.

“Underweights in challenged solar and battery manufacturers supported relative gains, while holdings tied to clean hydrogen, grid investment and energy efficiency services benefited from strengthening demand,” he said.

Performance of the fund vs sector and benchmark over 2025

Source: FE Analytics

Guinness Sustainable Energy is managed by Will Riley and Jonathan Waghorn and returned 20% over the same 11-month period.

It entered 2025 with a deep valuation discount paired with “materially stronger long-term fundamentals”, setting the stage for a sharp recovery, according to Moeller, as clarity around US policy, interest rate cuts and rising electricity demand from artificial intelligence and data centres all improved earnings visibility.

“As we progressed through 2025, the fund consolidated good performance across electrification, grid expansion and power equipment names,” he said, adding that the sector cycle also began to turn, with solar and battery markets showing early signs of stabilisation and renewable power installations “hitting record levels”.

Performance of the fund vs sector and benchmark over 2025

Source: FE Analytics

Finally, Victoria Stevenson, head of private clients at Whitman, picked RIT Capital Partners, which was founded as the Rothschild Investment Trust in 1971. It is listed on the London Stock Exchange and has assets totalling around £4bn.

“We believe it is another investment trust with the wrong discount [at 21.7% to NAV], although it has narrowed a little lately,” said Stevenson.

“The trust has returned 10% annualised since its inception and it has a good mix of public and private companies, as well as exposure to some uncorrelated strategies.”

Another positive is that RIT is committed to regular buybacks, she said, making it a “perfect holding for the long term”.

Performance of the trust vs sector over 2025

Source: FE Analytics

Two private equity trusts have been cut from Winterflood’s 2026 recommendations list, with further changes in its debt and flexible investment picks, the firm revealed today.

Having looked at how the research house’s 2025 selections performed and the equity trust recommendations for the year ahead, below, Trustnet highlights Winterflood’s alternative and fixed income picks.

RIT Capital

Starting with the IT Flexible Investment sector, Caledonia Investments has made way for RIT Capital Partners. The analyst team, headed by Emma Bird, said: “We continue to view the former’s outlook as favourable but see greater upside at RIT Capital, which is trading at a larger discount to its long-term average rating and stands to gain from a venture rebound. In addition, the recently refreshed management team is streamlining both the investment approach and the portfolio.”

They described it as an “interesting proposition”. Shares have traded at a premium for much of the century but were hit hard in 2022 as its private holdings detracted from returns and are now on a hefty 22.9% discount to its net asset value.

“Our long-held view is that the de-rating went well beyond reason,” Winterflood analysts said. “There have certainly been lessons learned and the team has seen substantial turnover, while the large ownership by the Rothschild family continues to provide good shareholder alignment.”

The trust aims to achieve long-term capital growth through a mix of global equities, private companies and uncorrelated strategies while limiting downside risk.

Fixed income

The other non-equity addition to the firm’s recommendations came in the debt sphere, where TwentyFour Income was picked.

It is “well positioned to capture the benefits of the supply/demand dynamics and regulatory reform within the structured credit sector,” the analysts said, noting that manager Aza Teeuwen and his team are “competent, experienced investors”.

The trust specialises in European and UK asset-backed securities (ABS), a market that is “poised for growth”, the analysts said, as banks return to traditional funding and increased corporate activity expands supply.

While its shares trade at a premium, the trust itself has frequently traded on a premium since inception, Winterflood analysts noted, adding that this is sustainable because the vehicle offers a “100% realisation opportunity” every three years, providing “solid downside rating protection”. The next instance of this is due in Autumn 2028.

TwentyFour Income Fund joined BioPharma Credit, CVC Income & Growth and Invesco Bond Income Plus as favourites for the year ahead.

Private equity

The only other sector with meaningful changes was the IT Private Equity peer group, where two trusts were removed for 2026.

While Winterflood’s analysts kept HgCapital Trust, HarbourVest Global Private Equity and Schiehallion Fund (which was put on the list in October 2025), two names did not make the cut.

Pantheon International was dropped as they “felt there was a stronger argument to be made for several other fund of funds investment trusts”.

“In the coming months, we will get more clarity on these vehicles’ ability to capture the substantial exit activity of 2025, and we will adjust our preference accordingly,” they said.

Meanwhile, Seraphim Space Investment Trust, which was initially added when the discount reached 70%, has been removed. Back then, investors were “clearly misjudging” the portfolio. However, at a 9% premium, the risk/reward is now “much more balanced”, they said.

Other alternative favourites

Last year was a tumultuous one for Winterflood’s favourite trusts investing in property, with Care REIT and Urban Logistics REIT both taken over in the first half of the year, while Suprmarket Income REIT left the trust universe after a listing transfer.

In July, the research team made a number of changes, adding Target Healthcare REIT and Tritax Big Box REIT.

“As such, we have made no further changes at the start of 2026, maintaining the number of recommendations within the property allocation at four”.

The other names on the list are Custodian Property Income REIT and TR Property.

Elsewhere, Winterflood analysts have kept five names in the infrastructure and renewable energy space. 3i Infrastructure and Cordiant Digital infrastructure get the nod among trusts that specialise in economic infrastructure.

On the social side, HICL Infrastructure is retained, having only recently joined the list in July to replace BBGI Global Infrastructure following the latter’s deal with British Columbia Investment Management.

On an environmental front, Foresight Environmental Infrastructure was retained for its diversified revenue sources, limited exposure to UK power markets, regulatory frameworks and weather systems, while Gresham House Energy Storage (GRID) covers the firm’s constructive view on battery storage.

“While GRID lacks the geographical diversification of its key listed peer Gore Street Energy Storage, it is executing well on its more focused strategy and over the past year has seen better NAV (and share price) total return performance,” Winterflood analysts said.

In 2008, Facebook astonished observers when it took just four and a half years to reach 100 million users. Last year, Deepseek achieved that in seven days. ChatGPT is on track for a billion users.

With astonishing progress in machine learning capabilities, adoption rates continue to accelerate. Over the next decade, business models will be turned on their heads in ways we have yet to imagine.

But index investors find themselves in a bind. Their portfolios are increasingly exposed to the most capital-intensive parts of the Artificial Intelligence (AI) arms race. With the large hyperscalers – Alphabet, Microsoft and Meta – competing to outspend each other, they face a dilemma: stick with the giants, hoping for further gains, or look elsewhere?

Index concentration brings risks and questions about whether there’s an AI bubble. The reality is that no one knows because, after three years of astonishing progress and staggering levels of spend, there is little clarity on the market’s future shape and where value will accrue, especially if AI models become commoditised and monetisation proves elusive.

Whilst index investors grapple, active investors can seek opportunities away from the crowded trades, focusing on businesses with less exposure to these competitive dynamics – especially if they take a long-term view

So, where can we explore what the market is missing in AI?

Bottlenecks and pinch points

History shows that the greatest value from new technologies often accrues to businesses that address critical bottlenecks in the system. In this regard, both TSMC and ASML occupy enviable supply chain positions, as the engine rooms of modern technology. Over 90% of the world’s most advanced chips are made in TSMC’s foundries, chips 20,000 times thinner than a human hair.

ASML’s high-end ultraviolet lithography equipment is also critical for etching those minuscule semiconductors. Without these two companies, AI would not exist.

Energy represents another strategic pinch point. For decades, computing energy efficiency doubled every year and a half or so. But recently, the rate has slowed.

AI data centre energy consumption has soared, with power spending up 15-fold in three years. Now, computing capacity is measured in watts, not bytes.

This has profound implications. In the US, investment in renewables and grid upgrades is lagging, while China is surging ahead, benefiting companies such as CATL, which is well-positioned through its battery and energy systems. CATL’s energy storage could become a much larger part of its revenue.

Business models built on AI foundations

Beyond the core infrastructure a new generation of companies is emerging by building business models on the foundations of AI.

Cloudflare optimises web performance and security with the potential to play a key role in AI governance. Its ‘Crawl Control’ software helps online publishers control access to their data and enables machine-to-machine micropayments at scale.

Samsara is harnessing AI to transform the operations of trucks and industrial equipment. Having them in the right place at the right time, thanks to predictive analytics, saves customers millions of dollars a year.

Duolingo uses generative AI to expand its education offerings and personalise learning – launching over 150 new courses this year. Without AI, it took over a decade to create its first one hundred courses. Duolingo’s machine-learning model ‘Birdbrain’ continuously assesses each learner’s knowledge and assigns exercises at a level of difficulty to maximise engagement.

Applovin uses AI-powered advertising targeting and analytics to help app developers acquire users and monetise apps, processing millions of ad-decision requests every second.

Intuitive Surgical deepens its competitive edge with AI-powered surgical robots and analytics, improving patient outcomes and returns on investment for hospitals.

Further East

China remains overlooked by many investors, yet it is registering hundreds of new generative AI tools each month. An improving business environment and the global mobility of Chinese technology talent mean the country will be a major force in shaping the future of AI.

Homegrown infrastructure and software companies such as Enflame, Moore Threads, Meta X, Biren, Kunlunxin, and Minimax have made major strides forward. Meanwhile, Chinese robotics players such as Unitree are widely considered to be a long way ahead of Western counterparts.

Chinese electric vehicle (EV) players such as BYD have transformed their brands and quality levels. It will be interesting to see how BYD develops autonomous driving capabilities and premium models from here.

Adventures and imagination

These examples show the breadth of opportunity created by AI. History suggests that the winners of the future are rarely the same as the winners of the past. Those enabling, supporting, and innovating around the core trends look best placed to benefit.

For those concerned about an AI bubble, the answer is not to retreat from global equities, but to look beyond the index. The greatest returns rarely materialise from following the crowd, but from imaginative, adventurous and patient exploration.

Tim Garratt is an investment specialist on the Baillie Gifford Long Term Global Growth fund. The views expressed above should not be taken as investment advice.

Winterflood Securities has updated its recommended trusts list for the year, after a strong 2025 for its favourite strategies.

The majority of the trusts it recommended last year delivered positive returns and a clear majority outperformed both a relevant index (26 out of 40, or 65%) and peer groups (24, or 60%).

Performance among the strongest performers was spread across sectors. Seraphim Space Investment Trust stood out, delivering a share price total return of 122% versus 12% for its index, driven by what Winterflood described as one of the sharpest re-ratings in investment trust history.

Gresham House Energy Storage also performed strongly, rebounding from a weak 2024 to return 68% against an index gain of 11%, while Urban Logistics REIT delivered a 62% return ahead of its takeover. RTW Biotech Opportunities also featured among the leading performers, returning 52% versus 21% for its comparator.

At the other end of the spectrum, BlackRock Energy & Resources Income lagged its index, which was boosted by strong gains in gold and precious metals, while HgCapital Trust underperformed broad global and European equity benchmarks despite its more specialised focus.

Against that backdrop, Winterflood has made a limited number of changes to its recommended list at the start of 2026. Five funds have been removed and four added, leaving a total of 35 names – slightly fewer than a year earlier – with lower turnover than is typical for the start of a calendar year, partly reflecting takeover-driven exits in property and infrastructure during 2025. Below, we focus on the equity trust recommendations.

UK equities

Within UK equities, the number of recommendations has been reduced from five to four.

In the UK All Companies sector, Fidelity Special Values and Mercantile Investment Trust remain on the list, while in the UK Equity Income peer group, Winterflood switched its recommendation from Temple Bar to Lowland Investment Company.

Both trusts delivered strong net asset value total returns during 2025, supported by their value bias. However, Temple Bar experienced “a much sharper re-rating” over the year, while Lowland’s discount narrowed more modestly. Winterflood head of research Emma Bird viewed this as leaving Lowland as “offering more attractive value”.

Lowland is positioned as a core, value-oriented UK equity income trust with a pronounced bias towards smaller companies and the use of gearing. In 2025, it outperformed its benchmark, delivering a NAV total return of 31% compared with 24% for the FTSE All Share, and ranked second in its UK Equity Income peer group.

Despite this, its discount moved from 11.7% to 9.5% over the year, compared with Temple Bar’s move from a discount to a premium. Winterflood believes this valuation gap provides scope for further re-rating if sentiment towards UK equities improves. The trust’s income credentials also feature prominently, with a yield of 4.0% and 16 consecutive years of dividend increases.

Performance of trusts against index and sector over 1yr

Source: FE Analytics

The third and final change in the domestic market was within smaller companies, where Winterflood removed JPMorgan UK Small Cap Growth & Income. While continuing to rate it “highly as a core vehicle”, several of its other UK recommendations already have meaningful allocations to smaller companies.

Mercantile Investment Trust, another ranked name run by JPMorgan, was highlighted for its sizeable small-cap exposure, reducing the need for a separate dedicated holding within the list.

Small-cap specialist Odyssean Investment Trust remained recommended.

Europe

The European equity recommendations have gone from one to two.

The Fidelity European trust was retained for core European exposure, with the new addition being the European Smaller Companies trust.

The strategy underwent a series of structural changes during the year, including the introduction of performance-conditional tender offers, a formal discount target and a one-off tender offer, followed by its merger with the European Assets trust.

Winterflood described the transaction as an opportunity for the trust to “relaunch as the largest, best performing investment trust in the European Smaller Companies peer group”, supported by stronger discount controls, reduced fees and improved liquidity. The trust now also operates an enhanced dividend policy.

Bird believed these measures, combined with a diversified portfolio and a balanced investment approach, create scope for discount tightening from current levels, also pointing to the removal of a temporary share overhang linked to platform-related selling as a potential near-term catalyst.

Performance of trusts against index and sector over 1yr

Source: FE Analytics

Other equity sectors

No changes have been made to other equity sectors, with Winterflood retaining its existing regional and specialist equity selections.

Scottish Mortgage was retained for high-growth global equity exposure, including access to private companies. Winterflood pointed to the trust’s recovery from a weaker period in 2022–23 and its subsequent outperformance of global indices in both 2024 and 2025, alongside what it described as “several drivers for the fund to sustain performance in 2026”, including the sharp uplift in the valuation of SpaceX. Ongoing buybacks, a stable rating and the ability of the trust structure to accommodate a substantial private allocation were also cited as supportive factors.

JPMorgan Global Growth & Income continues to be recommended for global equity income, with Winterflood citing its style-agnostic, research-driven approach as a driver of consistent relative performance.

In emerging markets, the firm continues to recommend both JPMorgan Emerging Markets Growth & Income and BlackRock Frontiers.

For the former, analysts highlighted the benefit of a long-tenured, cycle-tested manager and the adoption of an enhanced dividend policy in late 2025, under which the fund will distribute 4% of prior year-end NAV, while stressing that this change will have “no impact on its investment philosophy”.

In Japan, JPMorgan Japanese remains the core holding for exposure to Japan, while AVI Japan Opportunity Trust continues to be recommended for Japanese smaller companies, where Winterflood sees its concentrated, activist approach as well suited to ongoing corporate governance reform. It also noted that the trust’s annual 100% exit opportunity and commitment to buybacks help to mitigate downside rating risk.

The North American allocation also remains unchanged, with Pershing Square Holdings retained as the sole recommendation. For allocation to Asia Pacific, the pick remains Schroder Asian Total Return.

Finally, moving to thematic investments, Allianz Technology remained ranked, but there were more opportunities in biotechnology and healthcare, where the Worldwide Healthcare trust and RTW Biotech Opportunities remain recommended.

In RTW’s case, Winterflood reiterated its view that the trust is well positioned for a recovery in biotech IPO activity, having previously described the scale of its discount as “an aberration”, while also pointing to the portfolio’s exposure to merger and acquisition activity during 2025.

BlackRock Energy & Resources Income continues to be Winterflood’s preferred option within commodities and natural resources.

Source: Winterflood

Last year was an immensely strong one for equity investors, provided they eschewed the US in favour of other areas such as Europe, the UK and Japan.

Unfortunately for the Trustnet editorial team, we lacked this foresight. Instead, our selections for 2025 were centred around global equities, which are predominantly weighted towards the US.

Despite a strong first half in which most of our selections were ahead of the benchmark, in the end, we fell a long way short of global markets.

Anyone invested in the combination of fund picks we selected at the start of last year would have made less than MSCI World index. In fact, only one of our selections beat the index, despite it being a far from banner year for the common global benchmark.

Among major equity markets, the MSCI World languished near the bottom, only ahead of the S&P 500, while the European, UK and emerging markets indices all near-enough doubled the return of the index.

Performance of indices in 2025

Source: FE Analytics

Below, we look at what our team got right in 2025 and (more aptly) what we got horrendously wrong.

The only good pick of the year

This section is short and sweet, but at least there was one positive last year. That was the selection of Artemis Global Income made by reporter Patrick Sanders. At the time, he liked the fund for its “broad exposure” to global markets.

While the US was the fund’s largest allocation at the start of 2025 (31.1% at the end of 2024), it has since been overtaken by Europe (32.6%), with the US second (30.3%) and the emerging markets (25.1%) in third.

This asset mix helped the fund last year, which was the top performer in the IA Global Equity Income sector, up an impressive 45.2% overall.

Source: FE Analytics

There were some positives with these picks, if you really looked for them

No other funds selected by the Trustnet team made top-quartile returns in their respective sectors last year. In fact, none of them beat their average peers in 2025 either.

In truth, the rest of the list is a disappointing one, but we have broken it into two parts as the next group were less disastrous than the selections below.

Brown Advisory Global Leaders (up 7.2% in 2025) and Rathbone Global Opportunities (5.7%) were both third-quartile performers in the IA Global sector last year, but at least made positive returns.

The first fund was picked by former news editor Emma Wallis, who worried at the time that 2025 could be a volatile one. “I am still undecided about whether the US will continue outperforming all other regions or if cheaper areas are a safer bet. So I’ve decided to delegate geographic decisions to the experts,” she said.

“I don’t know how much longer the current late-stage bull market will last and if next year will be volatile – quite possibly with Donald Trump at the helm of the US. But wherever markets and economies are headed, the companies within Brown Advisory Global Leaders, which are solving problems for their customers and taking market share, are well placed to weather any storms.”

While the fund made money last year, it was a poor one for quality-growth strategies with some of the most high-profile names in the sector struggling.

It was a similar story for my pick: Rathbone Global Opportunities. Heavily skewed to the US (albeit less than an index tracker), I thought Trump would broadly be constructive for markets, having run his campaign on the promise of huge fiscal spending.

As it happens, his ‘Liberation Day’ tariffs and aggressive trade policies had the opposite effect last year. However, one thing I got broadly right was that the fund’s diversification (through holding some ‘Magnificent Seven’ names alongside more defensive companies) at least allowed it to cushion some of the worst falls of the year.

Performance of Trustnet fund picks vs MSCI World in 2025

Source: FE Analytics

The abject disasters

In a year when every major market made money, investors were hard-pressed to pick an equity fund that made a loss, yet two of our picks last year managed this unwanted feat.

Head of editorial Gary Jackson picked abrdn Global Smaller Companies, which ended the year down 1.1%, the sixth-worst return in the IA Global sector.

At the time, he said: “Historically, small-cap companies have shown the potential for higher growth compared to their larger counterparts, particularly during periods of economic recovery. With global economies stabilising and the direction of interest rates likely to remain favourable, smaller companies could stand to benefit.”

However, with so much uncertainty in the US, investors turned their attention to large markets elsewhere in the world. This boosted the returns of non-US large-caps, but did little to bolster minnows in these regions.

Yet, then senior reporter (now deputy editor) Matteo Anelli took the wooden spoon last year with Premier Miton US Opportunities registering an 11.7% loss.

His assertion that the best returns would move away from the ‘Magnificent Seven’ large-cap tech names and filter down the market to other areas that the Premier Miton fund invests in proved incorrect, with large-caps dominating again (although the best returns overall were outside the US).

Here’s hoping our selections this year prove more consistent.

Investment analysts covering FTSE 350 stocks have issued their most bullish ratings in 12 years, with 63% of recommendations tipping ‘buy’ and just 7% ‘sell’ as 2026 begins, according to AJ Bell.

For the FTSE 100, 61% of all analyst recommendations are buys and just 8% are sells, representing the highest and joint-second-lowest scores over the past 12 years respectively. The shift reflects a steady increase in analyst confidence that has built since 2022.

The trend marks a significant departure from historical averages, where buy recommendations on the FTSE 100 stood at 53% and sells at 12% between 2015 and 2026.

Analysts’ views on UK equities by calendar year

Source: LSEG Refinitiv data, Marketscreener, analysts’ consensus, London Stock Exchange. 2026 data as of 7 Jan 2026.

Russ Mould, investment director at AJ Bell, said: “This is understandable in the context of how mood tends to follow price and the FTSE 100 is now trading above 10,000 for the first time in its history.

“Further all-time highs could stoke further confidence and fresh interest in the still much-maligned UK equity market, especially as the rising percentage of ‘buy’ recommendations and falling percentage of negative ratings is finally translating into strong positive returns on an absolute basis and also now relative to the previously all-conquering US markets.”

Analysts have reason to feel confident entering 2026 after delivering strong results in 2025. Their top 10 FTSE 100 picks generated a total return of 27.6%, beating the index’s 25.8% return, AJ Bell found.

“Analysts’ top picks failed to beat the FTSE 100 index in 2015, 2016, 2017, 2018, 2020, 2021 and 2022,” Mould said. “However, they have done so in 2023, 2024 and now 2025, to repeat the success of 2019.”

Source: LSEG Refinitiv data, Marketscreener, analysts’ consensus, London Stock Exchange. 2025 analysts’ recommendations data as of 10 Jan 2025.

Strong gains from three companies drove the outperformance. Prudential returned 83.4%, Barclays 82.2% and Games Workshop 48.5% to lead what Mould described as “thumping gains” from the most popular stocks.

What’s more, analysts’ least preferred names significantly underperformed the market. The 10 stocks with the highest percentage of sell ratings generated a positive total return of just 4.2% in 2025.

Five stocks in this group fell during the year despite the broader bull market. Rightmove, Auto Trader, Diageo, Bunzl and WPP all posted negative returns, with WPP suffering particularly badly.

WPP fell 56.5% and dropped out of the index after what Mould described as “a shocking run, a profit warning and the departure of its chief executive”. Diageo declined 34.2% while Bunzl fell 35%.

“Analysts covered themselves in glory in 2025, as their top picks outperformed and their least preferred names did less well than the FTSE 100,” Mould said.

“Perhaps momentum, US equities and tech are no longer the only game in town, as investors seek to at least calibrate their exposure to richly valued, dollar-denominated assets and hunt out alternatives.

“This in turn may be giving active stock pickers their chance to shine, after a period where running with the herd and using passive investment strategies has worked so well.”

But results were less clear-cut across the broader FTSE 350 index. The 10 most popular stocks by buy percentage fell 3.7% in aggregate, markedly underperforming the index’s 25.1% return.

Source: LSEG Refinitiv data, Marketscreener, analysts’ consensus, London Stock Exchange. 2025 analysts’ recommendations data as of 10 January 2025.

The least popular FTSE 350 picks returned 28.6%, marginally outperforming the benchmark. WAG Payment Solutions helped the buys with a 59.5% gain, but Essentra, Spire Healthcare and Auction Technology all fell sharply despite their 100% buy ratings.

Yet the successful year does not eliminate the inherent difficulties of stock selection. “It is easy to poke fun of analysts, not least because picking individual stocks is hard, even if it is your full-time job,” Mould said.

“Markets will tend to do what causes the greatest degree of surprise and analysts do not intentionally set out to sit on the fence. Their views and research shape the debate and help to form opinion, but markets will price in the prevailing consensus pretty quickly.”

Investors should treat broker research with particular caution when stocks attract universal enthusiasm, especially when they seem universally popular.

Analysts’ current favourites include London Stock Exchange, Beazley and RELX, which all go into 2026 with 100% buy ratings from analysts covering them.

Other heavily favoured names include Prudential with 93% buy ratings and both AstraZeneca and 3i at 90%. Endeavour Mining, Hikma Pharmaceuticals and Entain also feature amongst the top 10 most popular stocks.

Source: LSEG Refinitiv data, Marketscreener, analysts’ consensus, London Stock Exchange. Data as of 7 Jan 2026.

Rightmove leads the least popular stocks with 38% of recommendations rated as sells, followed by BT and Kingfisher both at 33%. Vodafone carries a 31% sell rating while Bunzl sits at 26%.

Phoenix Group, Games Workshop, Associated British Foods, Berkeley and Burberry are in the list of least favoured FTSE 100 names.

However, Mould said individual investors must conduct their own analysis regardless of analyst opinion: “Anyone prepared to pick their own stocks rather than pay a fund manager or index tracker fund to do it for them simply must do their own research on individual companies before they even think about buying or selling any of its shares.”

The most and least popular stocks therefore provide a starting point for further investigation rather than ready-made recommendations.

“At least 2025's results give credence to the case that analysts’ research can provide some genuine added value,” Mould finished.

After seeing in the new year; some investors will already have, or be planning to, read some year-ahead investment outlooks, as they prepare their portfolios for a spring clean.

Of course, unlike the Earth’s orbit around the sun, the stock market does not move in annual cycles, so a great dollop of salt will have to be taken along with them.

Perhaps the most accurate year-ahead prediction ever given apparently came over 100 years ago. When the banker John Pierpoint Morgan was asked what the stock market would do, he replied that “it will fluctuate”. Astute, indeed.

The Kepler office participates in an annual investment trust tipping competition, yet making serious predictions for the year ahead is fraught with danger – as my investment portfolio can attest to.

Still, when it comes to the year ahead (and beyond), we see silver linings on the horizon for trusts signalling brighter times and the potential for discounts to narrow.

Stock markets are, of course, riding high on the back of hope that artificial intelligence (AI) will herald the next industrial revolution; inflation seems to be finding its new normal; and interest rates are expected to fall further. These factors should continue to be constructive.

Yet there is a bigger potential coup for investment trusts that we hope will have a positive impact by encouraging larger investors to take more of an interest. That is the issue of cost disclosure. The Financial Conduct Authority (FCA) finally came up with a different approach to the presentation of costs for investment trusts.

Previously, investment trusts have been forced to calculate all-encompassing cost figures, called the reduction-in-yield (RIY), and publish them on key investor documents (KIDs).

Professional investors have been obliged to report these costs in the look-through calculations of any portfolios they run on behalf of clients, making those including closed-end funds look more expensive.

This has helped to contribute to declining participation in the investment trust sector by large, institutional investors and has accelerated the reduction in the number of trusts over the past few years, leaving those that have survived on wider discounts than they might otherwise have been.

The most important of the FCA’s changes, in our view, is that fund of funds will no longer have to include the ongoing charges figure (OCFs) of investment trusts when reporting look-through costs.

This removes one big obstacle to investment at size by large, open-ended fund managers and could prompt the return of institutional buying next year, which could be positive for share prices.

Two obvious beneficiaries are private equity and real assets, sectors where discounts have remained stubbornly wide for longer than perhaps they should have.

Listed private equity trusts have historically had to report high KID RIYs, including the cost of their gearing facilities. Since reporting high costs will no longer be a factor holding back institutional investors from the sector, high discounts could look tempting.

NB Private Equity (NBPE), for instance, trades on a discount of 23% at the time of writing, despite having two-thirds of its portfolio in tech, media & telecoms; consumer/e-commerce; and industrials/industrial technology, all of which are popular growth sectors in the public markets.

CT Private Equity (CTPE), meanwhile, offers exposure to another historically high-growth area, small-caps, with a portfolio of niche businesses unlikely to be found in any public equity small-cap fund. The discount has narrowed in the past five or six weeks, from 30% to 20%.

Moving onto real assets, where portfolios are often seen as being full of complex investments, institutional investors are well placed to do the research and understand the likely values of each portfolio.

Crucially, they can also agitate for corporate activity, whether that be buybacks, asset divestments, or wind-ups, an approach to value realisation that is gathering steam across infrastructure and property sectors.

MIGO Opportunities (MIGO) has recently revamped its approach to concentrate on trusts in these sectors and engage with boards to unlock the value. Greater institutional presence in the sector could see more momentum behind these trades, potentially helping MIGO itself.

Away from the obvious, the near-£13bn Scottish Mortgage (SMT) and its ilk are large and liquid enough for institutional investors to take meaningful positions. Despite SMT looking relatively cheap from an ongoing charges figure (OCF) perspective, its most recent KID RIY was 50 basis points higher.

SMT presents investors with a cheap – and discounted – way of accessing exciting private holdings such as SpaceX, which is reportedly mulling an IPO that would make it the sixth largest company in the world and by far and away the global leader in an industry with massive growth potential.

We’ll refrain from making too many predictions that are at risk of being immediately wrong and/or out-of-date, but we do hope that while work still needs to be done in other areas, the FCA’s changes to cost disclosure rules will be good for the sector and for its many shareholders.

David Brenchley is an investment specialist at Kepler Trust Intelligence. The views expressed above should not be taken as investment advice.

Investors are becoming concerned about a market crisis that may or may not occur, but John Wyn-Evans, head of market analysis at Rathbones, has suggested they also need to think about “what could go right” in 2026.

Last year, markets made strong returns, “pleasantly surprising investors who are still climbing a wall of worry,” he said.

Indeed, the MSCI World made 12.8% in 2025, with areas outside of the US faring particularly well. Europe led the rankings, while emerging markets and UK equities all made more than 20%, as the chart below shows.

Performance of indices in 2025

Source: FE Analytics

Despite this, the “general mood does not reflect that”, said Wyn-Evans, as towards the end of the year there was a more cautious mood among investors.

Data from Calastone this week revealed equity fund outflows peaked during the summer and autumn, as UK investors became more nervous, although this tapered off towards the end of the year.

Overall, investors took some £6.7bn out of equity funds last year, more than double the previous record of £3.3bn set in 2016 following the Brexit referendum.

Wyn-Evans said: “Some [investors] are disappointed not to have made more, given another exceptional period for companies involved in the development of generative artificial intelligence (genAI); others remain fearful that some sort of market crisis is just around the corner.”

Much of this may stem from the volatility experienced in 2025, which was brought about largely thanks to US president Donald Trump’s ‘Liberation Day’ tariffs. The prospect of upsetting the post-war economic world order caused a near 20% fall in US equities and a weakening in the bond markets and the US dollar, although the president quickly announced a pause in their application, leading to a strong recovery.

Looking ahead, Wyn-Evans looked at areas investors might wish to pay close attention to this year and outlined the risks and potential positive outcomes that could take place.

Artificial intelligence (AI)

The big AI winners of 2024 suffered significant bouts of volatility in 2025, starting with the emergence of China’s DeepSeek, which threatened to replicate the performance of US tech giants at a much lower cost. “The reality was not quite as compelling, and confidence soon recovered,” Wyn-Evans said.

Then came the release of an MIT study claiming that 95% of corporations employing AI were seeing no benefit.

“We are very early in the adoption cycle and it seems that many of the users were trying to use generic large language models where application-specific tools were needed. We remain confident that usage will evolve and deliver increases in productivity,” he said.

However, the risk remains that, with these tech giants spending “hundreds of billions of dollars” each year on data centres, investors will be “keen to see a return on that investment”.

As such, we are at an “inflexion point” where companies will need to show more revenue and profits. This is not out of the question and the success of rumoured initial public offerings (IPOs) for currently private tech firms OpenAI and Anthropic could be a good litmus test for the sector.

The economy

Investors may be hung up on technology and trade, but Wyn-Evans noted that global economic conditions are “generally favourable”, with consumer and corporate finances in “decent shape”.

With inflation lower, interest rates are falling in the majority of countries while governments around the world remain fiscally expansive. “Even Germany has rediscovered the spending habit,” he said.

“A year of tariff-related uncertainty has left a potential backlog of (non-AI) capital investment that needs to be made. The probability of recession – one of the main threats to an equity bull market – is currently low.”

However, the risk investors will need to watch is whether growth is “too perky” or inflation proves “too sticky”.

“Our central view is that it is likely to remain generally higher and more volatile than in the pre-Covid era, fuelled by political preferences (for more deficit spending and less ‘globalisation’) and issues such as climate change and demographics,” he said.

This will have an impact on the bond market in particular, where he prefers shorter-dated and less interest-rate-sensitive government bonds to longer-dated bonds, which “remain vulnerable to concerns about persistently high government debt”.

For diversification, precious metals such as gold can still play a role, although he caveated that investors shouldn’t expect last year’s strong gains to be repeated.

Politics

Already this year politics has taken centre stage after the US captured Venezuelan president Nicolás Maduro and took temporary administration of the country.

However, when it comes to Trump, Wyn-Evans said the president “may well be keen to whip up support and not create economic upsets” as the country moves towards November’s mid-term congressional elections, particularly as his favourability ratings are at a low point.

There is potentially more alarm domestically, where there is little optimism that prime minister Keir Starmer or his chancellor Rachel Reeves will remain in place for much longer if betting markets are to be believed.

“A change of leadership could take Labour’s policies further to the left, a prospect that investors are unlikely to cheer,” he said. “The pound is a barometer of political risk to keep an eye on. For now, it remains in the middle of the trade-weighted range held since the Brexit referendum.”

Asset allocation

With uncertainty abounding, but some pockets of optimism, Wyn-Evans said balanced portfolios should continue to do well in 2026. Last year’s equity gains were made on the back of strong corporate profit growth, but prices have risen further relative to earnings in anticipation of future growth. “It is harder to see valuations going up again this year, he warned.

“But we also continue to resist talk of a bubble in equity markets. Yes, the average price of shares in the US market looks elevated at around 22x 2026 earnings forecasts, but with projected earnings growth of around 13% and a core of very profitable companies, a specific catalyst such as an unexpected economic deceleration or sharply higher interest rates and bond yields (we’re not expecting either) would be needed to push valuations lower,” he said.

He does expect the broadening out trend of 2025 to continue, however, with non-US markets still on attractive valuations despite their strong relative gains last year.

“It wouldn’t take many things to ‘go right’ for them to attract further interest from investors,” he said. “As ever, diversification is the key to sustainable returns.”

The US Department of Justice has opened a criminal investigation into Federal Reserve chair Jerome Powell over his congressional testimony about building renovations, sending gold and silver to record highs.

The Fed received grand jury subpoenas on Friday, threatening criminal indictment related to Powell’s testimony before the Senate banking committee in June about a $2.5bn renovation project that has exceeded its budget by a substantial margin.

The US attorney’s office for the District of Columbia is investigating whether Powell lied to Congress about the scope of renovations to Federal Reserve buildings. The probe was approved in November by attorney Jeanine Pirro, according to the New York Times.

Powell announced the investigation in a video statement on Sunday, calling it “unprecedented action” that should be seen in the “broader context of administration threats and pressure”.

“This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress's oversight role; the Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. Those are pretexts,” Powell said.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions – or whether instead monetary policy will be directed by political pressure or intimidation.”

Powell said he will not resign and will continue doing the job the Senate confirmed him to do. “Public service sometimes requires standing firm in the face of threats,” he said.

Gold hit a record high on Monday, going above $4,600 per troy ounce. Silver also reached a record high, hitting $84.58 per ounce.

The dollar fell against major currencies whilst futures tracking the S&P 500 declined. The yield on the 10-year Treasury rose 0.03 percentage points to 4.2%.

Trump denied knowledge of the investigation in an NBC News interview on Sunday. “I don't know anything about it, but he’s certainly not very good at the Fed and he's not very good at building buildings,” Trump said.

The president has repeatedly attacked Powell for not cutting interest rates more aggressively, calling him a “stubborn mule” for declining to reduce borrowing costs. The Fed cut interest rates three times in the second half of 2025.

The Trump administration has already installed a close ally on the Fed’s board of governors and previously attempted to fire Fed governor Lisa Cook over allegations of mortgage fraud, which she denies.

Republican senator Thom Tillis, a member of the Senate banking committee, said he would oppose confirmation of anyone Trump nominated to replace Powell “until this legal matter is fully resolved”.

“If there were any remaining doubt whether advisers within the Trump administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” Tillis said.

Democratic senator Elizabeth Warren said the Senate should not move forward with any Trump nominee for the Fed.

“As Donald Trump prepares to nominate a new Fed chair, he wants to push Jerome Powell off the Fed board for good and install another sock puppet to complete his corrupt takeover of America’s central bank,” Warren said.

Neil Wilson, chief markets analyst at Saxo UK, said the investigation is about Trump making clear to the next Fed chair and existing policymakers that the White House will set interest rates.

“All this uncertainty around the Fed is negative for USD and Treasuries,” Wilson said.

The investigation raises questions about the independence of the US central bank, which investors consider essential for stable financial markets. Precious metals typically gain when investors perceive threats to Fed independence.

Powell’s term as Fed chair expires in May, though he can remain on the Fed’s board of governors until 2028. Trump is expected to announce his nominee to replace Powell in the coming weeks, with White House economist Kevin Hassett seen as a frontrunner.

The Supreme Court will hear arguments later this month on a landmark case regarding the executive branch's powers to sack senior central bank officials.

The Department of Justice did not immediately respond to requests for comment from several publications.

Guinness Global Investors has launched the Guinness Global Environment fund, targeting five key environmental resources.

The fund, which is co-managed by Jordan Patel and Jamie Melrose, invests in companies that benefit from rising demand for food, water, climate, waste and land. It holds 30 positions, each broadly equally weighted.

Patel and Melrose will use the quality-focused equity investing approach that Guinness applies across its fund range. This emphasises bottom-up analysis to find quality companies with sustainable free cashflow.

Will Riley and Jonathan Waghorn, who have 18 and 25 years of experience in thematic investing, will serve as advisers to the fund.

Edward Guinness, chief executive of Guinness Global Investors, said: “We believe that it is a great time to launch our Global Environment fund. Valuations are low and we have applied what we have learnt from the cycles in the environment sector to build a robust strategy that can identify companies benefiting from the long-term trend towards more efficient use of resources.

“Despite wavering government support for environmental initiatives in the short term, this is a long-term investible theme for the next 20 years and beyond."

Jordan Patel joined Guinness in 2024 and has 12 years of equity investing experience. He previously worked at Federated Hermes, where he served as deputy fund manager on the Biodiversity Equity strategy and as a senior equity analyst on the Impact Opportunities fund.

He said: “Environment is an attractive growth theme, with many mature, high-quality businesses helping address rising demand for environmental resources. This is a well-established phenomenon and has led to outsized growth for companies providing ecological solutions over the past decade.”

Jamie Melrose joined Guinness in 2019 and has been the senior investment analyst for the firm’s Sustainable Energy strategy. He previously worked at Berenberg as a thematic equity research analyst, specialising in battery technology, and at Railpen as an investment manager in sustainable ownership. Melrose is also a board member of the UK Sustainable Investment & Finance Association.

“We feel well placed to invest in the environment theme, leveraging our combined 23 years of experience covering sustainable industrials and the energy transition. We plan to focus on mature companies offering above-average returns on capital, repeatable business models, and long-term thematic growth,” Melrose said.

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

Performance of markets in 2025

Source: FE Analytics

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

The debate over AI

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

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

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

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

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

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

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

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

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

Market cap weightings in the US

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

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

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

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

Opportunities beyond AI

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

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

Altaf saw compelling opportunities in financials, commodities and cyclicals.

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

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

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

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

Which markets will outperform?

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

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

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

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

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

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

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