Patria Private Equity and Foresight Solar have joined the Association of Investment Companies’ (AIC) list of next generation dividend heroes – trusts that have grown their annual dividends for 10 or more consecutive years but fewer than 20.

Schroder Oriental Income and BlackRock Greater Europe lead the 30-strong list with 18 years of growing payouts. In two years’ time, they will qualify to join the ranks of the full-fledged dividend heroes.

Hot on their heels are CQS New City High Yield and Henderson Far East Income, with 17 years of unbroken dividend increases, followed by International Public Partnerships and abrdn Asian Income Fund, with 16 years.

The next generation of investment trust dividend heroes

Source: Association of Investment Companies, Morningstar. Data as at 20 Mar 2025. *A merger between Henderson International Income and JPMorgan Global Growth & Income has been proposed. **A cash offer for BBGI Global Infrastructure S.A has been proposed.

Foresight Solar has a 9.8% yield – the second-highest amongst the next generation dividend heroes – and over the past five years it has grown its dividend by an average 3.4% per annum. Since Foresight Solar listed in 2013, its dividend has grown by 35% (including the 2025 target).

Lead fund manager Ross Driver said: “Our operational portfolio will continue to produce steady, reliable income from the sale of electricity to the grid. We have a dedicated team to monitor and manage our solar farm assets and ensure they’re producing in the most efficient way.”

The trust has delivered solid long-term performance but made an 11.4% loss over three years to 24 March 2025 in total return terms. The whole IT Renewable Energy Infrastructure sector has struggled during the past three years due to higher interest rates and selling pressure, with an average loss of 28%.

Performance of trust vs sector since inception

Source: FE Analytics

“Our strategy has evolved to adjust to the new post-pandemic reality of higher interest rates,” Driver said.

“To amplify returns, we’re building a development pipeline of solar and battery storage projects that allows us to deliver an additional element of growth on top of the regular income provided by the operational portfolio – improving performance over time.”

Foresight Solar had a market capitalisation of £435m as at 31 December 2024 and was trading on a 31.4% discount to its net asset value of £634m.

The other new entrant, Patria Private Equity Trust (PPET), was run by Aberdeen until it sold its European private equity business to Patria Investments last year. The trust allocates to mid-market private equity funds run by external managers and also invests directly in private companies, alongside these managers.

It has a market cap of £828m and a 3.2% dividend yield, and was trading on a discount of 29.9% as of 24 March 2025. PPET is the third-best performer in the IT Private Equity sector over 10 years.

Performance of trust vs sector over 10yrs

Source: FE Analytics

Lead fund manager Alan Gauld said: “Historically, there has been a debate over whether private equity trusts should be purely about capital growth or not. However, the board of PPET has consistently prioritised returning cash to shareholders. Having a consistent dividend policy has helped build trust with PPET’s shareholders.

“PPET’s portfolio is well diversified and generates a consistent cash yield, usually around 20% of opening NAV per year. As such, this allows PPET to comfortably support a growing dividend. The board’s strategy in recent times has been to at least maintain the value of the dividend in real terms. This has resulted in 5% growth in dividend in 2024 and 11% growth in 2023.”

More than half of the 30 next generation dividend heroes have yields above 4%, which illustrates the advantages of investment trusts for income seekers, said Annabel Brodie-Smith, communications director of the AIC.

“Investment trusts are able to smooth dividends over time because they can hold back income from their portfolio and use this to boost dividends in leaner years. They can also pay income out of their capital profits and their structure is particularly suitable for high yielding hard-to-sell assets, such as infrastructure and property,” she said.

Matt Ennion, head of investment fund research at Quilter Cheviot Investment Management, said the key thing for investors to watch out for is whether the dividend is a natural output of a trust’s investment strategy. A sustainable, growing dividend that is well covered is a good thing for investors, especially if the trust can maintain the dividend through downturns such as the Covid pandemic.

However, the potential problem with getting onto the dividend hero list is when a trust becomes desperate to keep growing its payout and potentially has to use capital to increase its dividend, he warned.

Emerging market equities have faced myriad challenges over the past decade, from President Donald Trump’s trade wars with China to interest rate hikes, a strong dollar at times, the Covid pandemic and then China’s subsequent economic slump.

The market environment was particularly tough in 2018 owing to tariffs and a strong dollar; no fund in the IA Global Emerging Markets sector delivered a positive return that year and MSCI Emerging Markets index fell 9.3%.

Given the eventful backdrop, investors may prefer to gravitate towards experienced managers who have proven their ability to add value consistently, through a variety of different market conditions.

Emerging markets are generally believed to be less efficient and less saturated by analysts’ coverage than developed markets, so theoretically this is an asset class in which active stock pickers should be able to add more value.  

However, the MSCI Emerging Markets index was a tough hurdle to beat over the past decade; no funds in the IA Global Emerging Markets sector managed to outperform in nine or more years.

Source: FE Analytics

Yet two active funds rose above the challenging geopolitical and macroeconomic environment, beating the benchmark in eight years out of 10.

The best known was the Artemis SmartGARP Global Emerging Markets Equity fund, led by FE fundinfo Alpha Manager Raheel Altaf. He has managed the fund since its inception in April 2015, during which time it has surged by 114.4%, beating the benchmark by 50 percentage points.

Performance of fund vs sector and benchmark since inception

Source: FE Analytics

For analysts at Square Mile, the fund has set itself apart from competitors with its “pragmatic approach” founded on the SmartGARP (growth at a reasonable price) strategy of investing.

This process considers “both a company's fundamental potential for return” and its sector, which analysts said is essential in emerging markets where political and economic developments have a large impact on share prices.

“Overall, we believe that long-term investors have access to an attractive offering managed by an experienced manager who seeks to exploit market inefficiencies in the region,” they concluded.

For analysts at FE Investments, the fund benefitted from a quantitative approach to stock selection, which “allowed it to avoid human behavioural biases” in a constantly changing market. They said because of this rigorous approach, performance was “likely to be steadier than peers with a similar strategy”.

“The fact that the fund does not only look at deep value or distressed stocks, and the model incorporates a variety of factors beyond value implies that it could be a core emerging-market allocation,” analysts said.

However, analysts conceded that the portfolio's success was "tied to how good the model was" so failure to improve the model or address inefficiencies could lead to underperformance.

Artemis’ strategy is not bulletproof. In 2020, it underperformed the MSCI Emerging Markets by 15 percentage points, while the average peer surged by 13.7%.

The other fund which beat the MSCI Emerging Markets index in eight of the past 10 years was the £141m Macquarie Emerging Markets Equity fund. Despite underperforming in 2022 and 2024, it produced a 10-year return of 113.2%, the third-best result in the sector.

If we broaden our scope to include funds that beat the benchmark in seven of the past 10 years, eight more funds qualify.

Two strategies from Goldman Sachs stood out: the £2.3bn Goldman Sachs Emerging Markets CORE Equity portfolio and the GS Multi-Manager Emerging Markets Equity portfolio. Respectively, the funds were up by 86.2% and 70.4% over the past 10 years.

Performance of funds vs sector and benchmark over the past 10yrs

Source: FE Analytics

Elsewhere, the £660m Invesco Global Emerging Markets fund, led by a four-strong team including Alpha Manager William Lam, was another consistent choice for investors.

Despite underperforming the MSCI Emerging Markets index between 2017 and 2019, it posted a 10-year return of 125.2%, the best result in the sector. Over the past one, three and five years, it delivered further top-quartile results, never ranking outside of the top 10 in the peer group.

Analysts at FundCalibre said: “The high esteem in which we hold this fund has been backed up by its outstanding long-term track record”.

They explained that the fund benefitted from an “adaptable investment style” and a “tight focus on valuation and contrarianism”, which allowed it to exploit changing market conditions and inefficiencies while competitors may have struggled.

Additionally, they praised the fund's expert management team, with most of the managers having decades of experience analysing emerging market equities.

Other funds which beat the market in seven of the past 10 years included: the JPM Emerging Markets Small Cap fund, the Heptagon Driehaus Emerging Markets Equity and the Allianz Emerging Markets Equity fund. They were up by 85%, 101% and 92.9%, respectively, over the past decade, all of which are top-quartile results. 

All the funds in the IA North America and IA North American Smaller Companies sectors have posted a loss since Donald Trump returned to the White House in January, FE fundinfo data shows.

When Trump won the US election in November 2024, there was an immediate market rally as investors expected his ‘America First’, tax-cutting and deregulation agenda to bolster areas such as US tech, financials and energy stocks, smaller companies and cryptocurrencies.

However, sentiment has soured in recent weeks. Trump’s imposition of tariffs on key trading partners as well as economic worries stemming from layoffs of federal employees and the inflationary nature of some policies have spooked markets.

Performance of equity indices since Trump’s inauguration

Source: FE Analytics. Total return in sterling between 20 Jan and 21 Mar 2025

Between Trump’s inauguration on 20 January and the time of writing, the S&P 500 was down 10.4% in sterling terms while the tech-heavy Nasdaq had fallen 14.2%. In contrast, the MSCI AC World index was down just 6.3% while UK, European, Japanese and emerging market stocks were still in positive territory.

All of the ‘Magnificent Seven’, which led markets in recent years and have become common holdings in US and tech funds, have fallen since Trump took office. Tesla, whose chief executive Elon Musk is heading the controversial Department of Government Efficiency and its cost-cutting drive, has dropped more than 40% between the inauguration and 21 March.

In this environment, fund managers have struggled to make gains. Indeed, FE Analytics shows that all 250 funds in the IA North America sector have made a loss since January’s inauguration (to up 21 March).

Hardest-hit are iShares S&P 500 Consumer Discretionary Sector UCITS ETF, Xtrackers MSCI USA Consumer Discretionary UCITS ETF and SPDR S&P U.S. Consumer Discretionary Select Sector UCITS ETF with losses of close to 20%. US consumer discretionary stocks are down on concerns that tariffs, inflation and shaky consumer confidence could dampen spending.

Active funds with the highest losses include iMGP US Small & Mid Company Growth (down 17.6%), Nomura American Century US Focused Innovation Equity (down 17.3%) and Lord Abbett Innovation Growth (down 16.9%).

All 36 funds in the IA North America Smaller Companies sector have also made a loss since 20 January, according to FE fundinfo data. Artemis US Smaller Companies fell the hardest, down 21.2%, followed by Alger Weatherbie Specialized Growth (down 20.7%) and New Capital US Small Cap Growth (down 19.6%).

Split between positive and negative funds since Trump’s inauguration

Source: FinXL. Total return in sterling between 20 Jan and 21 Mar 2025

Just 23 US funds – all of which are in the IA North America sector – are down by less than 5% for the period under consideration.

Common themes among these funds include value investing (MFS Meridian US Value, BlackRock GF US Basic Value, T. Rowe Price SICAV - US Select Value Equity), equity income (WisdomTree US Equity Income UCITS ETF, Aviva Investors US Equity Income), healthcare (SPDR S&P U.S. Health Care Select Sector UCITS ETF, iShares Nasdaq US Biotechnology UCITS ETF), staples (Xtrackers MSCI USA Consumer Staples UCITS ETF, SPDR S&P U.S. Consumer Staples Select Sector UCITS ETF) and low volatility strategies (Invesco S&P 500 Low Volatility UCITS ETF).

Of course, it remains to be seen whether the US sell-off represents a major shift in market direction or just a blip.

Russ Mould, investment director at AJ Bell, said: “Dyed-in-the-wool bulls will assert that the S&P 500 is down by just 8% from its high and the Nasdaq by just 12%. The S&P 500 is back to where it was in late August, the Nasdaq in mid-September, but such pullbacks, in recent times, have simply been chances to ‘buy on the dip,’ goes the bullish thesis.

“Bears will have a different take. They will point to the almost parabolic gains of the past two years and the accompanying rise of meme stocks, one-day options trading, a new all-time high in margin debt in the US and what they would assert are many other classic features of markets that are becoming overheated – complexity, opacity and leverage, right up to a leading figure in the cryptocurrency world buying and then eating a piece of art for which he paid $6.2m as he argued that the value lay in the concept of the design.”

In all, 67.5% of funds in the Investment Association universe have made a loss since Trump returned to the White House, leaving less than one-third in positive territory.

US funds are joined by IA EUR Government Bond, IA Healthcare, IA India/Indian Subcontinent and IA UK Index Linked Gilts in the list of sectors where every fund has made a loss since the inauguration.

More than 90% of funds in the IA Global, IA Technology & Technology Innovation, IA Financials and Financial Innovation and IA Mixed Investment 40-85% Shares sectors are in the red.

Meanwhile, the only peer groups where every fund has made a positive return since Trump’s inauguration are the IA Standard Money Market, IA Short Term Money Market and IA Latin America.

A high proportion of the IA Europe Excluding UK, IA China/Greater China, IA Japan, IA Sterling Strategic Bond and IA UK Gilts sectors have made money over the period.

However, the largest gains of the Investment Association universe tend to come from specialist funds investing in gold –shown in the table below – reflecting the strong gains in the yellow metal as investors flee to safe havens amid the market uncertainty.

Source: FinXL. Total return in sterling between 20 Jan and 21 Mar 2025

NOTE: All fund, sector and index data is accurate to Friday 21 March 2025 but does not reflect the market movements of Monday 24 March.

Young children have a lengthy investment horizon so can afford to stomach the volatility of equity markets in return for long-term growth. Therefore, wealth manager JM Finn uses its YFS JM Finn Adventurous portfolio for clients’ JISAs, which has a strategic asset allocation of 95% equities, then 5% in diversifiers such as government bonds, property and gold.

JM Finn’s current macroeconomic view is also supportive of a high equity allocation for investors with the greatest risk tolerance, said fund manager James Godrich.

“In a world of reasonable nominal GDP growth supported by sticky inflation, you need to own assets which are inflation-linked. If you're owning long-dated fixed income or too much cash, we think you're going to really struggle to maintain pricing power. So we think you have to own equities,” he explained.

“We also do accept that it's a volatile world we live in, so we don't think that's going to be an easy journey. How we try to slightly smooth out volatility is within our bond or non-equity element.”

At present, that 5% non-equity allocation is mostly held in government bonds with a duration of five to six years.

Godrich has flexibility to tweak the asset allocation and is currently a couple of percent below the equity target.

Within equities, JM Finn is overweight the UK where valuations are attractive, slightly overweight Europe and underweight the US. “Everybody seems to hate the UK market [and] that just provides opportunities for a longer-term investor,” he said.

For instance, he described AutoTrader as “a fantastic UK business with unbelievable margins and really strong growth rates” on a reasonable valuation. “If you look at the financial metrics, this comes up as good as some of the US tech businesses,” he added.

The portfolio’s largest UK holdings are Burberry, GSK and Games Workshop.

JM Finn also favours the UK due to its higher weighting towards financials, oil & gas, and materials, which should do well in the current macroeconomic environment.

The wealth manager expects nominal GDP growth to be quite strong, driven by sustained inflation – which it believes will be stickier than consensus expectations due to expansionary fiscal policy.

“In that world, you want to own a lot of hard assets, things like oil & gas companies, like minerals. Longer-term interest rates might get pushed a bit higher – now that's a really nice world for financials,” he said.

The UK overweight is a small tilt because JM Finn prefers not to deviate extensively from benchmark allocations. “We live in a in an uber-volatile world where there's a lot that's unpredictable from a macro perspective, so we think it makes sense to tilt around the asset allocation, rather than to take massive, swingeing bets,” Godrich explained.

JM Finn has a very small overweight to Europe, which faces structural challenges, such as setting an appropriate interest rate. “Often the southern European states might need a different interest rate than northern European states,” he noted.

His short-term outlook is positive, owing to attractive valuations, increased government spending and the new German government’s stimulus plans. And as a stock selector, “you're not literally just buying Europe, you're picking the best [companies] in Europe”, he pointed out.

JM Finn bought Technogym about eight weeks ago, which makes sports equipment and is an Italian family-owned company.

Technogym users swipe their cards into weight machines, which record their workouts and statistics. The machines inform them how hard they are working and recommend when to increase the weight. Once gym-goers are plugged into the system, they want to continue using Technogym equipment, he said.

“It’s a net cash business; it generates a huge amount of money. It’s got really good returns on capital. It ticks all the boxes and it’s attractively valued,” he explained.

JM Finn’s slight underweight to the US has been beneficial during the first quarter of this year, when “markets in the US have completely rolled over”, he continued. “Our benchmark is down 3% and our funds are down 1.5% and a lot of that is down to macro positioning, where the UK and Europe have performed quite well.”

JM Finn has a counter-cyclical investment process which involves buying into market weakness to take advantage of lower valuations. In recent weeks, the firm has been increasing its US equity exposure as the market has fallen, whilst maintaining its underweight to the region.

If the market continues to fall then JM Finn will benefit in relative terms from its underweight allocation; whereas if the market has bottomed out, then its portfolios will have bought in at the lowest point and should gain from there. “We think we get the best of both worlds, in terms of short-term risk management,” Godrich explained.

The adventurous portfolio uses a blended approach: investing in stocks directly in the UK and Europe; using passive exchange-traded funds (ETFs) for North America; and actively managed equity funds for Asia Pacific, emerging markets and Japan. 

“In the UK, we think we have the skills, knowledge, resources and ability to meet management teams that allow us to get exposure through direct equities,” Godrich said.

“But in areas like Japan or emerging markets, we think there's an opportunity to generate active returns but we're not best placed to do it because we're probably not going to go and meet the management teams in Japan. We don't speak Japanese. They're in a different time zone. It's actually a different accounting regime, we'd struggle to understand some of the accounts. So we use active funds there.”

The wealth manager opts for passive funds in the US because of the long track record of active fund managers underperforming there. “A lot of information gets disseminated, there's lots of analysts covering all the equities, so actually it's very difficult to have that edge,” he said.

When selecting external managers for Asia Pacific, emerging markets and Japan, JM Finn combines funds with different styles to avoid specific-style risks.

In Japan, it uses the JPMorgan Japanese investment trust for growth, the Chikara Japan Income & Growth fund for a value tilt and Pictet Japanese Equity Selection, which has a more blended approach.

Performance of funds vs benchmark over 10yrs

Source: FE Analytics

JM Finn then tweaks the allocations between these three managers depending on which style it expects it outperform in the near term.

“This is a living, breathing thing. Every day we're making decisions on these portfolios so we want to retain that bit of flexibility and having those three different funds allows us to do that,” Godrich said.

We’ve seen quite a few investment managers moving out of alternatives in recent months. However, given the structural changes reshaping the financial landscape, it might be wise to pause for thought before rushing back to the traditional 60/40 portfolio.

In the coming years, the traditional benefits offered by negative equity-bond correlations are likely to be challenged by higher inflation, interest rate volatility, larger government deficits, higher starting debt levels and elevated market concentration.

Historically, such periods of higher inflation have led to increased correlation between equities and bonds. To quote Morgan Stanley: “If we go back to the positive correlations that persisted from 1970 to 2000, the challenges to achieving easy diversification will likely increase, producing more volatile portfolio return patterns and increasing the attractiveness of alternative and uncorrelated asset classes like hedge funds and private investments.”

This means that traditional diversification strategies, such as government bonds, may no longer provide the same benefits, particularly as inflation rises above 2.5%, where equity and bond correlations historically tend to turn more positive.

The year 2022 exemplified this shift when equities and bonds moved in tandem, showing that the relationship between the two is not static and cannot always be relied upon for diversification, especially in a higher inflation environment, as the chart below neatly encapsulates.

Correlation between bonds and equities when inflation is higher

Sources: Minack, Bloomberg, Waverton Investment Management; data from Dec 1985 to Jan 2025. The chart shows rolling 36-month correlation between the one-month S&P 500 total return and the one-month 10-year US treasury return, versus the three-year core inflation rate.  

Furthermore, taking a more long-term view sheds a somewhat different light on the ‘traditional’ equity-bond correlation. Looking at data going back to the 1870s, it can be argued that the past 20 years of persistently negative correlation between equities and bonds is more of an outlier than a constant, as the chart below illustrates. The implications for investors could be profound.

Equity-bond correlation since the 1870s

Source: Professor Robert Shiller, Yale University

While it’s true that over the past two years, global equities have performed well, valuations in some public markets are above their historical averages, presenting challenges for asset allocation. Given the current economic context, investors should consider non-traditional assets that either hedge inflation, such as real assets, or deliver returns independent of both equities and bonds, like absolute return strategies.

Real assets, real returns

Real assets are investments in businesses backed by physical assets that generate predictable, often inflation-linked cash flow. These can be property, infrastructure, commodities, asset finance and specialist lending. These assets offer equity-like returns in the long term and provide valuable diversification away from traditional equity and bond markets.

Real assets are characterised by linkage to global economic growth (with returns typically rising in a positive economic environment) and inflation-linked cash flows that offer protection in an inflationary setting.

Cash flows are typically delivered through coupons or dividends, providing attractive income, and due to lower participation from mainstream investors, real assets create a relative value opportunity.

All of the above means that these assets are well-positioned to meet the challenges facing traditional portfolio construction, especially in volatile, high-inflation periods.

Absolute return – the ultimate defensive strategy

For lower-risk investors, traditional fixed income allocations have been challenged in recent years. An absolute return approach – comprising specialist fixed income, structured opportunities and absolute return strategies – offer defensive properties in equity market downturns and weak fixed income environments. These strategies aim to generate returns above what is available in short-term deposits, while providing downside protection and diversification.

While global government bonds may offer short-term appeal in a lower inflation environment, concerns about rising debt levels in the US – even including speculation about America’s very own ‘Liz Truss’ moment – highlight the long-term risks. As the macroeconomic landscape grows more volatile, with greater stock dispersion and less concentrated equity market returns, opportunities for bottom-up alpha generation rise. Absolute return strategies can capitalize on this by generating returns from a range of possible market environments.

Alternatives still essential for diversification

In a nutshell, the challenges presented by high valuations, concentrated equity markets and unstable correlations between equities and bonds should result in investors questioning the traditional diversification offered by the 60/40 portfolio. Investors are increasingly exposed to systemic risks and the global outlook looks like it will remain distinctly uncertain for some time to come. Maintaining diversification into a range of alternative assets is essential to mitigate these risks and ensure your portfolios are best placed for whatever the future brings.

Luke Hyde-Smith is co-head of multi-asset strategies at Waverton Investment Management. The views expressed above should not be taken as investment advice.

Markets have not yet come around to understand the real implications from higher-for-longer inflation and should review their long-term expectations, according to Jasmine Yeo, manager of the Ruffer Investment Company.

Over the past few decades, central banks have maintained a 2% goal on inflation, intervening with interest rate movements whenever prices strayed too far from this figure. Their objective hasn’t changed in today’s market, although post-Covid inflation has proved a harder beast to tame than expected.

“Our view is that 2% has become a floor for inflation, rather than a ceiling,” Yeo said. “In the cyclical theatre of monetary policy, financial markets and fiscal profligacy, we now find ourselves staring down the barrel of a second wave of inflation. Far from being an abstraction, this looming wave appears to be less an ‘if’ than a ‘when’  and yet financial markets are ambivalent.”

The historic pattern has been that inflation comes in waves, as the chart below shows. Today’s experience (in orange) doesn’t look too different from the post-war in green and the 1970s in blue, meaning we might be due a second wave of inflation soon.

Waves of inflation

Source: Ruffer, US Bureau of Labor Statistics. US CPI year-on-year percentage change. Bottom axis shows months before and after first inflationary peak. Data to November 2024.

The Ruffer managers see multiple ingredients for a second wave of inflation already baked into today’s circumstances, including the big fiscal stimulus injected into a global economy that has, for now, sidestepped recession; central banks reversing course from tightening to easing; imminent tariffs to push up goods prices; robust wage growth and labour bargaining power; geopolitical tension simmering, yet never distant from full-blown crises; and commodity prices parked at relatively low levels, awaiting the spark of demand revival.

“The era of low and stable inflation and interest rates has come to end, but the market is just yet to price it in. It’s now four years since the year-on-year Consumer Price Index (CPI) in the US was at or below the Fed’s target, yet the markets pricing of future inflation remarkably remains anchored between 2% to 3%,” Yeo said.

“This is a failure of imagination on the part of the market. Inflation matters to portfolios because it doesn’t just change which assets perform best, it changes the way the assets relate to one another. A more positive stock-bond correlation means periods like 2022, where conventional assets fell in excess of double digits together, are likely to repeat more frequently.”

While the market continues to give policymakers the benefit of the doubt, Yeo has positioned the Ruffer portfolio to benefit from what she sees as “a creeping inevitability not yet priced in”.

The portfolio now holds around 33% across equities and commodities, which should benefit from a broader market rally and continued economic strength. Commodities are one of the best-performing asset classes in periods of inflation, historically delivering 15% when inflation is high and rising, the manager said.

These are supported by exposure to bonds and gold equities, which should rise in value if yields were to fall. Index-linked bonds are “exciting”.

“With the duration element already repriced much lower, the real yields of around 2% look attractive as an each-way bet on normalisation of rates or inflation protection,” she said.

The portfolio then includes a list of unconventional protections, such as derivatives, to manufacture positive returns when bonds and equities are falling in tandem.

On top of that, S&P 500 protection has become “crucial”. With US equities facing poor risk-reward dynamics, “a significant market decline would create fireworks in the portfolio’s S&P put options and volatility plays”, Yeo added.

Finally, yen exposure is “a valuable hedge” against a potential unravelling in equity markets. “With carry trades under scrutiny, foreign exchange dynamics might prove an invaluable stabiliser,” she said.

Performance of fund against index and sector over 1yr

Source: FE Analytics

The manager hopes this recipe will be enough to rescue the trust from its recent “painful” performance. Investors have been patient as the trust made a loss of 0.4% in net asset value (NAV) total return terms for the half-year to December 2024, while in share price terms, the value of the company rose 0.2% over the past six months, meaning that across 2024, the company returned next to nothing while the rest of the market soared.

Yeo remained positive that returns will come “like ketchup from a glass bottle”, as she recently wrote in the latest company report.

AJ Bell has added Schroder Asian Alpha Plus to its favourite funds list and removed Fidelity Asia and Schroder European.

Schroder Asian Alpha Plus was chosen for its strong management team, deep pool of research analysts and considered investment approach, said Paul Angell, head of investment research.

Richard Sennitt has been lead manager since 2021 when veteran investor Matthew Dobbs – with whom he worked for 15 years – retired. He is assisted by co-portfolio manager Abbas Barkhordar.

Angell said: “The pair work with a large group of on-the-ground analysts who cover the breadth of the Asian equity market and look to identify companies with growing earnings, stable balance sheets and most importantly, strong management teams.”  

The £1.2bn fund holds 55 to 60 best ideas and focuses on companies earning above their cost of capital.

Performance is in the second quartile of the IA Asia Pacific Excluding Japan sector over one and five years to 20 March 2025, meaning that the fund outperformed its peer group average, but sits in the third quartile over three years.

The portfolio is also favoured by analysts at Hargreaves Lansdown, who said: “Over the long-term, investors have seen strong relative returns. However, most of this performance can't be attributed to the current management duo. We think the fund has good long-term prospects, though there are no guarantees how the fund will perform in future.”

The fund's investment style means it can, at times, be more volatile than the average fund in the IA Asia Pacific ex Japan sector, the analysts pointed out.

“At the moment, the fund is focused on sectors that can be more sensitive to the health of the economy but could benefit from longer-term trends such as the growing use of technology and online consumer spending. This means the fund is currently focused on sectors such as technology, financials and consumer services,” they said.

Schroder Asian Alpha Plus joins four other funds investing in the Asia Pacific region on AJ Bell’s buy list: Invesco Asian, Jupiter Asian Income, Stewart Investors Asia Pacific Leaders and Vanguard FTSE Developed Asia Pacific ex Japan.

AJ Bell has removed Fidelity Asia, however, to make room for Schroders.

“Fidelity Asia’s lead manager, Teera Chanpongsang, has shown himself a capable investor and has a similarly deep pool of analysts. The two funds also have similar investment philosophies,” Angell noted.

“However, we believe investors are better served by the approach of the Schroders team, which typically results in a more balanced portfolio that is less volatile when their investment style is out of favour.”

Performance of funds vs benchmark and sector over 5yrs

Source: FE Analytics

The £2.3bn Fidelity Asia fund has lagged its peer group over three and five years but is second quartile over 12 months to 20 March 2025.

It remains recommended by analysts at both Barclays and interactive investor.

Rob Mansell, portfolio manager at Barclays, said three things set the fund apart. “First, Chanpongsang’s experience – he has a long and successful track record in fund management. Second, Fidelity has one of the largest teams of analysts in Asia, which is critical in terms of its research capability.

“And finally, the team and manager have followed the same robust investment process for years. These three factors together have resulted in a formidable performance track record for investors.”

Schroder European is also leaving the favourite funds list because AJ Bell has grown less confident in the £547m fund’s manager, Martin Skanberg, and his investment approach.

Skanberg endeavours to build a balanced portfolio of growth, value, cyclical and defensive stocks. “Despite this noble aim, the fund’s performance has underwhelmed over the medium to longer term, delivering returns below its index and peers,” Angell said.

Performance of fund vs benchmark and sector over 5yrs

Source: FE Analytics

Performance has recovered more recently however and the fund is in the top quartile of its peer group for the year to 20 March 2024.

AJ Bell was the only platform among the ‘big five’ (Hargreaves Lansdown, interactive investor, AJ Bell, Fidelity and Barclays) to recommend the fund, meaning it has lost its sole backer.

It leaves Baring Europe Select, BlackRock Continental European Income, BlackRock European Dynamic, Lightman European and Vanguard FTSE Developed Europe ex UK ETF as options recommended by AJ Bell for those seeking exposure to European stocks.

Costs disclosure rules for investment companies have always been a thorny issue and attempts by the Financial Conduct Authority (FCA) to bring some clarity have not worked so far.

One particular issue is how investment trusts disclose their costs on retail platforms. Some refuse to allow a 0% cost, something that the current regulatory framework allows trusts to use.

So they face a choice, use a higher figure that makes them look more expensive (and influences wealth manager costs to boot), or stick with 0% but risk being de-platformed.

Gravis managing director William MacLeod said this was a “massive dilemma”, as they have to choose which of their two audiences to displease, the wealth managers or their retail clients.

So how did we get here?

The origin of the dilemma dates back to September 2024, when trusts were exempted from MIFID II rules that required them to disclose ongoing costs the same way open-ended funds do. This created the misleading impression that fees detract from investment performance, which is the case for open-ended funds but not for the share prices of investment trusts.

The move was welcomed as a momentous breakthrough, particularly by managers who own investment trusts in their portfolios. Investing in trusts was a hurdle for them, as they had to add their own costs to those disclosed by the trusts they owned – practically double counting.

“One can perfectly well understand why wealth managers would regard holding investment companies as detrimental to their relationship with their clients,” MacLeod said.

“They would be happier to seek potentially lower returns but have an easier relationship with their client than to have to explain that the figures that have been published on their valuation statements aren't factual.”

After the September overhaul, it was presumed trusts would start to disclose zero as their costs, which they were now allowed to do, making them look more appealing to buyers, including multi-managers. But this has proved more complicated than expected.

The crux of the issue

Cost disclosure is now facing an unanticipated obstacle – platforms. More specifically, platform systems that are not configured to allow zero as an acceptable cost.

If an investment company sends in its costs as zero, it may trigger a removal from the investment platform.

“If you send a zero, hoping that the wealth managers will be pleased, you could find that you are de-platformed by a retail platform. So as a consequence, the investment companies are faced with a massive dilemma: which of the audiences would they rather service?”, he asked.

“Would they rather send zero and please wealth managers but be potentially de-platformed, or would they rather send a number which pleases the retail platform but displeases the wealth manager?”

Different platforms behave in different ways. On receipt of a zero, some will manually intervene to accept it, but this is too much to ask from the largest platforms, which, given the high amount of data they receive, simply can't manually go through accepting every single submission supplied by investment companies.

While “nobody wants to put themselves in the position where they are reporting information which isn't correct”, trust managers are sending different numbers out into the market, MacLeod admitted – “unhappily, but knowingly”.

MacLeod himself, for Gravis’ GCP Infrastructure trust, is disclosing zero costs on the platforms that allow it and eight basis points on the others.

“We arrived at that figure because the majority of distributors use a five-year impact-of-cost methodology, and the bid-offer spread on the share price of the trust over five years is 40 basis points. So 40 basis points divided by five gives you 8 basis points.”

Most platforms resolved to present trusts with multiple costs attached – the “completely misleading” full cost, the managers’ fee, which is also shown as a cost despite not being one, the bid-offer spread divided by five that MacLeod and others are disclosing, or a zero.

“If you were to look at that platform, you'd see four entirely different presentations of a number, all of which should be zero.”

What do the platforms say?

Trustnet reached out to four platforms – AJ Bell, Hargreaves Lansdown, Fidelity and interactive investor.

AJ Bell has not intervened nor removed any trusts from its platform, waiting for the FCA and the industry to find a solution. A spokesperson at the firm said that the forbearance applied in relation to MIFID II rules “has simply replaced one problem with another”.

“Platforms want to provide customers with accurate and easily comparable information on costs and charges, but this can only be achieved if the data supplied by investment trusts is accurate and uniform,” they said.

“Given this and the overarching Consumer Duty requirements around customer understanding in particular, it is vital the FCA works with the investment trust sector to come up with a sensible way forward as a matter of urgency.”

Hargreaves Lansdown (HL) confirmed it asks trusts to provide a figure other than zero.

“This is because we do not believe clients can make an informed decision or comparison between other products prior to investment,” a spokesperson at the firm said.

Out of more than 300 investment trusts on HL’s platform, only three have been unavailable for HL clients to buy, the Sequoia Economic Infrastructure Income Fund, HICL Infrastructure and Renewables Infrastructure Group. The latter two have been reinstated onto the platform this week – HICL Infrastructure is now disclosing an ongoing charge of 1.14%, Renewables Infrastructure Group is disclosing 1.04%. The Sequoia vehicle remains unavailable to buy on HL.

“We firmly believe disclosure must be able to help clients understand the cost of an investment trust as a collective investment to support good decisions and client outcomes,” the spokesperson said.

“We have been working closely with the trusts on our platform, the regulator and trade bodies to find a solution that fulfils all our regulatory requirements including Consumer Duty in a way that is transparent and fair to clients. We’re confident our process is aligned to these obligations and will monitor any new guidance issued by the FCA.”

Fidelity reviews information relating to cost disclosures for each investment trust on its platform and will decide to restrict new investments if the level of information provided is deemed insufficient. Currently, this is the case for the Urban Logistics REIT (effective 24 January).

A Fidelity spokesperson said: “As a distributor of investment trusts, as well as mutual funds and other assets, we continue to act in the best interests of our customers and believe that direct costs and other relevant information should be disclosed to retail investors.”

Finally, interactive investor does accept zero costs but publishes an annual management charge (AMC) figure, which MacLeod took issue with.

“Part of this has to do with the language used to describe exactly what's in distribution. Some platforms have been very good at explaining what is a company expense and what is a client cost. But for a retail customer, that's quite a complicated message to understand,” he said.

“If you're displaying a cost but you will not pay it, then why is it called a cost? It doesn't make sense and it requires a conversation between two individuals because the written work isn't clear enough to explain what that number actually represents. I don't think the platforms have yet got to the point of being absolutely crystal clear in their explanation of what these numbers refer to.”

The firm has not replied to Trustnet’s enquiries.

The future of cost disclosure

Last week, the FCA concluded a consultation on the UK’s new Consumer Composite Investments (CCI) rules, which are trying to enable investors to compare trusts with other investment vehicles.

Industry campaigners have opposed the proposal, arguing that trusts should be excluded from CCI.

“We do not believe it is feasible to have a coherent and workable framework that operates across such a disparate range of investment vehicles,” the response document read.

“We have seen hugely damaging impacts from well-meaning regulations purporting to protect consumers, but which ultimately mislead and damage investor interests. These companies are already significantly regulated. The proposed new regime fails to recognise the unique characteristics and benefits of the sector for long-term investors.”

Outperforming momentum strategies with a contrarian approach has been a challenge for the better part of the past decade, but one that Jonathan Pines is proud to have successfully overcome.

The Federated Hermes Asia Ex Japan Equity fund has made top-decile returns in the IA Asia Pacific Excluding Japan sector over all main timeframes, becoming the top fund in the 113-strong peer group over the past three-years, when it distanced the competition by an average of almost 30 percentage points, as the following chart shows.

Below, Pines talks about how he has achieved that performance, why he is happy to buy lower quality companies if the price is right and why passive funds do make his job more difficult, until they won’t anymore.

Performance of fund against index and sector over 1yr

Source: FE Analytics

How do you invest?

We are contrarian, bottom-up investors and we differentiate ourselves in two ways. First, we don't mind buying lower quality if the price is right. We will go down the quality scale for a very attractive price. If there are no Ferraris trading at good prices, we will buy Fords.

Second, we are practically and demonstrably contrarian. On average, the stocks we buy have underperformed over the three, six, nine or 12 months before we have bought them.

Is valuation more important than quality?

We do want quality but we are not going to pay up for it. Sometimes markets fall in love with quality and prices become very expensive, so much so that it will take years to make up for the price even with the company’s compounded earnings.

For the companies we buy, we want the stock price to double within five years and, mathematically, that’s only possible if earnings double or the price multiple doubles.

Right now, some Indian consumer goods companies are trading at 60x P/E (price-to-earnings ratio). How are those stocks going to double? Earnings are not even close to doubling over the next five years and the price is already at a starting point of 60x. It makes it very, very difficult to achieve a doubling in the stock price at elevated starting valuations.

Momentum has won out over contrarian strategies over the past decade. Will the ongoing growth of passive investing make your job even harder?

Passive strategies buy more of the stocks that have done the best and push them up even more, because of the money flowing into them.

For most periods, it is going to be a headwind to be contrarian, until it isn't – until the big gulf between the value and the price of the biggest momentum stocks is recognised by the market, and they will sell sharply.

Will contrarianism be in trend then?

I don't think contrarianism can ever be in trend because, by definition, it's not. What we are hoping for is that at least some of those headwinds become tailwinds in the future. Instead of trying to outperform by stock picking in the context of a hostile overall environment, we will be stock picking in a context when momentum isn't flying.

What were the worst calls of the past year?

In the history of our fund, our consistent underweight to Taiwan Semiconductors (TSMC) has been the worst call that we've ever made, taking hundreds of basis points on performance over the years. In 2024, it cost us a massive 200 basis points.

We had a position in TSMC – it just wasn't big enough. We underestimated the massive price and earnings momentum in artificial intelligence (AI). We've actually been cutting our position TSMC even this year following the DeepSeek news.

Our overweight to Samsung Electronic also cost us 250 basis points. The company has gone through difficulties, which we did anticipate when we bought it at 1.2x book price.

We thought the risk was asymmetric, that if things continued to go wrong, it could trade close to book price but no lower than that; and if things went right, it could get up 2x. Unfortunately, the market was so disappointed with its missteps that the stock went all the way down to 0.85x book value. At this valuation, we really like it, actually.

Performance of stock over the past year

Source: Google Finance

What were the best calls?

Having been wrong for many years on China, our overweight is coming around. Korean financials are doing well as well, as they are improving their governance.

The electric vehicles (EV) sector is doing particularly well. Xiaomi is considered China’s Tesla and Brilliance China, the BMW joint venture in the country, has been trading on such a cheap price – below the net cash on its balance sheets – and it’s paying dividends, so the stock price went up because of that.

Xiaomi added 100 basis points and Brilliance China 140 basis points last year.

What do you do when you are not manging money?

I play squash, which is a great workout and a great game to get a quick sweat – but also injuries.

ISAs have become a key savings vehicle for millions of people in the UK, who rely on the tax-free vehicle to shelter their hard-earned cash.

But they are under threat from chancellor Rachel Reeves, who is reportedly considering lowering the cash ISA threshold for savers from £20,000 to as low as £4,000.

While this may seem like a tax-grab, the reasons are far more complex, according to fund managers, who this week told Trustnet that PEPs (the predecessors of the ISA) were designed to encourage people to invest in the domestic economy, but they have morphed into a catch-all tax shelter.

One reason for lowering the cash ISA allowance but maintaining the stocks and shares allowance, therefore, is to encourage more investment into UK companies.

So let’s look at how much dry powder is sat on the sidelines. On the face of it, stocks and shares are already more popular. Of the £726bn held in ISA accounts across the UK, the majority of the money is in the stocks and shares variety, with just shy of £300m in cash ISAs, according to the latest data from HMRC.

But cash ISAs are far more popular than that. Some 22.3 million adults hold an ISA with around 3.6 million holding both stocks and shares and cash accounts, 4.2 million using ISAs solely to invest and 14.4 million with a cash ISA only. In the financial year 2022-2023, some 63.2% of all money put into the tax wrapper was parked in cash ISAs.

Savers are also twice as likely to put money into their cash ISA as they are their stocks and shares vehicle, according to data from AJ Bell, as the below table shows.

So will savers reallocate their cash if the allowance is slashed? AJ Bell asked its customers if they would be more inclined to invest if the cash ISA allowance was reduced. The resounding answer was no, with some 51% saying they would simply park their money in a taxable cash savings account, as the below chart shows.

Source: AJ Bell

Even those who would consider investing for the first time are by no means guaranteed to place it into UK businesses.

And for new investors, the most common advice for those starting out is to invest through a global equity tracker, which has a low weighting to the UK, meaning the impact would be minimal anyway.

So lowering the tax threshold may not necessarily have the impact fund managers want – to get the UK population backing British and buying domestic companies once again.

So what can be done?

If Reeves does come for cash ISAs – a potentially big decision considering the amount of savers it would hit – one option may be to introduce an inflation-adjusted cap on the total that can be held in a cash ISA.

Once it hits a certain amount, savers would no longer be able to add more in, although they would still be able to accrue money through their interest.

But cash ISAs are far from a catch-all solution. Also on the table include talks of removing stamp duty on UK shares – a measure that could encourage direct investment into UK companies but one that will require individuals to have some understanding of stocks.

Then there is the potential to mandate pension funds to put a percentage of their holdings into the UK.

This all comes on the heels of the failed Great British ISA – a much-discussed measure under the previous government to give people up to £5,000 to invest in UK companies. It hit far too many snags, including how to stop investors from putting money into global equity investment trusts and exchange-traded funds, which are listed as UK equities but still invest only a small portion in domestic names.

It is clearly an area of priority to get the UK market moving and encourage people to put their cash into domestic businesses.

But there is clearly no guarantee the government can get the population to invest with one measure alone. It will take a huge shift to change the cautious mentality of the public.

The first tenet of junior ISA (JISA) investing is that young children have long time horizons, so can afford to take risks and ride out stock market volatility. This is why most wealth managers and financial advisers recommend putting most, if not all, of a child’s JISA into equities.

For instance, wealth manager JM Finn uses its YFS JM Finn Adventurous portfolio for clients’ JISAs. The strategy has 95% in equities, then 5% in diversifiers such as government bonds, property and gold.

Lucy Coutts, an investment director at JM Finn, said: “Time is the most important word in investment. Nothing else really matters.”

Rob Morgan, chief investment analyst at Charles Stanley, concurred. “When investing for 10 years plus, being heavily, or entirely, weighted to equities is often appropriate. Enjoying the compounding returns of growing companies will likely result in the best returns over long periods.” 

Nonetheless, the asset allocation chosen will depend on the young person’s age and what they intend to do with the money once they turn 18, said Victoria Clapham, investment manager at Manorbridge Investment Management.

“Younger children should be able to handle higher risk due to the longer period to weather market fluctuations. As the child nears 18, financial needs like buying a car or university fees may become more pressing.”

It might make sense to slowly de-risk by moving into bonds or cash a year or two before the young person turns 18 if they intend to withdraw the money straight away, said Rob Burgeman, senior investment manager at wealth manager RBC Brewin Dolphin. “You don’t want to be fully invested the day before it’s time to cash in.”

If, however, the JISA is going to be used for a deposit on a first property, the young person may wish to remain invested into their twenties or thirties.

When it comes to picking funds, “simple and cost-effective often wins the race”, Burgeman said.

“Over the next 18 years, it’s impossible to say what index or market will be the best to own – it’s like trying to pick winning lottery numbers. For that reason, a global fund is probably the best approach to take. It will ensure you have balanced exposure to all the world’s markets at an affordable rate, meaning you benefit from the growth of the global economy without the ups and downs involved with individual markets.”

The Rathbone Global Opportunities fund is a good place to start, according to Tom Stevenson, investment director at Fidelity International. “The fund’s investment strategy prioritises innovative businesses with strong potential for long-term growth, making it ideal for building wealth over a child’s 18-year investment horizon.”

FE fundinfo Alpha Manager James Thomson and Sammy Dow “take an out-and-out growth approach”, he said, with a concentrated portfolio of companies they believe are future winners.

“They think that to be successful a business must offer something that others can't match – a star quality. It must also be easy to understand, different to its competitors, durable to change and difficult to imitate, as well as being able to grow rapidly without running out of money or overstretching its resources.”

Performance of fund vs sector and MSCI World over 10yrs

Source: FE Analytics

Stevenson also suggested the Fidelity Global Technology fund for “families looking to capitalise on the long-term growth potential of the technology sector”.

“The manager, Hyun Ho Sohn, looks for growth companies focused on innovations or disruptive technologies, cyclical opportunities with strong market positions, or special situations that are mispriced with recovery potential,” he said.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

Clapham and Morgan both highlighted Scottish Mortgage, with Clapham praising the trust’s forward-looking approach.

“Whilst it contains large US technology names such as Nvidia, Tesla and Netflix, its tech exposure is not solely focused on the US, with holdings also in TSMC and ByteDance. China’s competitiveness in areas such as artificial intelligence is something I feel a young investor would benefit from having exposure to,” she said.

“Its largest holding is SpaceX, the private space transportation company founded by Elon Musk. The structure of investment trusts allows for private company exposure which is a key benefit, as many high-growth companies are choosing to stay private. Elsewhere, the trust also provides access to areas such as payment platforms, healthcare and cybersecurity.

“The trust has also been the top performer in its sector over one year, recovering some of the ground from a difficult 2022. However, even after this, the share price stands at an 8% discount to the underlying value of the assets, making it an opportune time to invest.”

Performance of trust vs sector and benchmark over 10yrs

Source: FE Analytics

However, Morgan noted this trust is not for the faint-hearted, as it can be quite volatile and its strategy of backing high-growth companies is risky.

“At times a good deal of optimism can be factored into the share prices. This means any disappointing news can be severely punished, especially in a market downturn. In addition, there is gearing (borrowing to invest) within the trust, which serves to exacerbate the price movements of an already-adventurous portfolio,” he pointed out.

Paul Angell, head of investment research at AJ Bell, stuck with a global remit but suggested investing in smaller companies, which have outperformed large-caps over the very long term.

“Recent years have been more challenging for smaller companies, partly due to the rising, and now structurally higher, interest rates. That said, a period of falling rates could provide the catalyst for a revival, given the lower financing costs, increased profitability and reduced discounting of future revenues that this would bring,” he said.

His choice was abrdn Global Smaller Companies. The nine-strong investment team uses a propriety screening tool called ‘The Matrix’, which weights stocks across four factors: quality; growth; value; and momentum.

“The team then undertakes fundamental analysis on the shortlisted companies where they look for strong company balance sheets, as well as sustainable earnings growth that is not reliant on external factors,” he explained.

Performance of fund vs IA Global sector over 10yrs

Source: FE Analytics

For investors looking to capitalise on the US equity market’s long-term growth prospects, Angell proposed Artemis US Select, managed by Cormac Weldon and Chris Kent.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

“The managers are style agnostic in their investment approach, assessing the fundamental strengths of businesses. They seek to find businesses which they assess to have a two-to-one risk/reward potential. This often results in the fund displaying a higher growth profile than the index,” he explained.

“The fund has enjoyed a return to form in recent years, with stock selection within the Magnificent Seven tech companies being particularly beneficial.”

Twitchy investors are often blamed for reacting too quickly to news and for making portfolio changes at the wrong time – selling low when in a panic and buying when spirits (and prices) are high.

That cannot be said of Vincent McEntegart, manager of the Aegon Diversified Monthly Income fund, who admitted that the last significant change he made to the portfolio was three years ago.

“It is not that often you have to do something very significant. Most of the time over the past 11 years managing this fund, the changes that we made have been gradual. The last big shift was in 2022 into 2023,” he said.

Until 2022, bond yields were gradually coming down, but when inflation jumped on the back of Covid, yields shot up from 1% to 5%.

“That was the last time we had to respond in the fund and we made some significant changes to the allocations. Any changes we have made since then have been modest.”

This prudent strategy has been working well, with the fund maintaining a top-quartile performance within the IA Mixed Investment 20-60% Shares sector over the past 10, five, three years and one year.

Analysts at Square Mile, who have awarded the fund an A rating, said: “Our conviction in the multi­asset team and in the lead manager has strengthened over time. Since launch, the manager has navigated what at times has been a volatile market environment well and in a sensible and thoughtful manner.

“Whilst investors should not expect to see significant asset allocation changes quarter on quarter, over time, changes across asset classes have been within a relatively broad range, indicating a willingness to adapt and be pragmatic, and leaning into investments where the best income and total return opportunities can be found.”

Performance of fund against index and sector over 1yr

Source: FE Analytics

The geopolitical situation in the developed world is front and centre of investors’ minds, including McEntegart, who said the world stage today is his main source of worry.

“At times like this, you feel like your head is exploding, with all of the things that you have to think about,” he said. “But the first thing to do is to pause and think. How much do I actually need to change? Because if you react to every bit of news, you would be selling all your equities to reduce risk one day and then having to buy them back the next day.”

The most recent change the manager made has been to sell about 2% of his US and European equity exposure, taking a small amount of risk out of the portfolio.

“When things are very uncertain, that's just a natural thing to do. It’s good housekeeping, a part of portfolio risk management. We did it as an interim measure to try and make sense of what's going on in Europe and in America, until we decide if we have to do anything more significant,” he explained.

As at the end of January, the Aegon Diversified Monthly Income fund had 14.3% in US equities, its third-largest position after global fixed interest (29%) and UK equities (17.1%). European equities followed (11.2% in British companies, 10.9% in the rest of the continent).

McEntegart is waiting to see how the US administration will continue from here, which will have repercussions on whether the world will continue to see the US as a safe haven.

“I'm not going to attempt to try to make sense of what president Trump will say or do next or of the way that he will say one thing and then say the opposite. It's possible he slows down a little bit in the summer, but I don't see him changing,” McEntegart said.

“Everybody hopes that we can still treat the US as a safe haven and as of today, we still are, but that’s a big question. The thing to worry about is what does that then mean not only for the assets one might have in America, but also for your investments in the rest of the world.”

However, if things in the US do settle down, the manager said he is ready to allocate more to the region, especially as prices, including those of the Magnificent Seven, have fallen quite a lot.

Performance of the Magnificent Seven stocks over the year to date

Source: Yahoo! Finance

“If we can get comfortable with the US situation, we would put some money back into those companies or other ones linked to the artificial intelligence theme, which we feel will continue for many years,” he concluded.

The modern story of globalisation began with efforts to repair the ruined building blocks of trade in the wake of World War II. The Marshall Plan set the tone, with the establishment of the United Nations, the International Monetary Fund, the World Bank and the World Trade Organization all serving to accelerate the process.

Today, by stark contrast, globalisation is no longer virtually unopposed. Donald Trump’s first presidency might have been the key inflection point. The trend now indicates a shift back to bilateral trade relations.

So where does all this leave the managers of global equities portfolios – and, crucially, their clients? Does an investment philosophy that ignores borders have less appeal in an era of conspicuous deglobalisation?

We would argue that the case for global equities has been strengthened, not weakened, by recent and ongoing events.

We say this for a simple reason: it’s still necessary to be different to the market in order to beat the market. In our opinion, identifying the brightest prospects from right across the equities universe remains the best way of accomplishing this goal.

This brings us to the long-underappreciated sphere of smaller companies. These have a record of repeatedly outperforming their larger counterparts, yet they consistently generate little or no attention among the wider investment community.

With 23 developed markets and over 4,000 stocks in the MSCI World Small Cap index, knowing where to look has always been a key challenge. Today, amid increasing trade complexity, this skill may offer more potential for finding unrecognised growth opportunities and alpha.

In search of untapped potential

For some investors, not least during the past two or three years, exposure to global equities has come to revolve almost exclusively around a single country and a single theme. Specifically, it has centred on US technology stocks.

It’s hard to deny the attraction of trillion-dollar corporations whose position at the vanguard of radical, tech-driven disruption is ostensibly unshakeable. Collectively, the ‘Magnificent Seven’ of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla had another bumper year in 2024, with only Microsoft underperforming the S&P 500 Index as a whole.

Yet putting all your eggs in one basket is seldom a great idea. Index-tracking funds in particular are heavily concentrated around these holdings, whose valuations – like those of numerous mega-cap and large-cap businesses – continue to look relatively stretched.

The picture at the other end of the market-capitalisation scale stands in marked opposition. In our view, many smaller companies are notably undervalued – and not because they don’t have what it takes to make investors sit up and take notice.

The problem stems instead from a dearth of coverage. Most investment analysts pay no heed whatsoever to these stocks, preferring to endlessly pore over the established behemoths that capture headlines whenever their share prices move one way or another.

According to Marlborough’s own research, while a typical large-cap name might be covered by 20 to 50 analysts globally, a small-cap business in Europe is likely to be ‘eyeballed’ by an average of just four analysts – and a micro-crap is likely to stir the interest of only one. As a result, most investors are unlikely to hear a thing about the 4,000 stocks that comprise our investment universe – a major lost opportunity.

This is where the experience and insight of investment teams with a dedicated small-cap focus can deliver an edge. It’s also why direct engagement can be vital in determining which companies genuinely warrant a place in portfolios that are diversified not just along geographic lines but in terms of size, sector, market capitalisation and other factors.

Long-term growth in the face of uncertainty

Especially against a volatile backdrop, it’s often tempting to follow the herd. Sticking with popular trends and big names can frequently appear the safest and most sensible option.

It’s vital to stress that there are occasions when such an approach works perfectly well. On the whole, though, we feel there’s merit in thinking more imaginatively, venturing further afield and digging deeper – which is why smaller companies, ranging from micro-caps to medium-sized businesses, represent around 80% of our holdings.

Looking ahead, it’s reasonable to suppose deglobalisation may bring more losers than winners. For example, businesses with multinational supply chains could suffer in an environment of tit-for-tat tariffs and mounting costs.

‘Easy hits’ might therefore be harder to come by. This is why it could pay to explore the full extent of the market capitalisation spectrum as an ever-shifting geopolitical and geoeconomic landscape compels companies to adapt in their quest for long-term growth.

Some smaller businesses might benefit from a predominantly domestic outlook as markets become more fragmented and inward-looking, as we are seeing in the US at the moment.

Others may be able to escape the turmoil of trade wars by relying on localised production. Company-by-company judgements, not sweeping generalisations, are most likely to separate the wheat from the chaff.

Ultimately, every investor appreciates that uncertainty leads to valuation anomalies and that these, in turn, give rise to opportunities. Since we’re now living in an era in which uncertainty is broadly acknowledged as a ‘new normal’, there should be plenty of both – if you search in the right places.

The notion that ‘small is beautiful’ is unavoidably clichéd. But investors may find it rings truer than ever as the interconnectedness that was once taken for granted erodes at pace and small companies with big potential emerge from the noise.

Tobias Bucks and Simon Wood co-manage the Marlborough Global SmallCap fund. The views expressed above should not be taken as investment advice.

Investors are often told to think about the long term. Indeed, renowned US investor Warren Buffett is often quoted as saying his favourite holding period is forever.

While this is admirable, investors cannot afford to buy and forget about their holdings. Markets move quickly and circumstances can change in an instant. For those wanting to invest in stocks, even with the most long-term mindset, they can only accurately forecast over three years, according to FE fundinfo Alpha Manager Ed Legget.

Investors may want to make note of this, as his Artemis UK Select fund had ranked amongst the top two funds in the IA UK All Companies sector over the past one, three, five and 10 years. With the highest information ratio in the Investment Association universe, he and his co-manager Ambrose Faulks were the market's most skilled stockpickers last year.

Performance of fund vs the sector and benchmark over 3yrs

Source: FE Analytics

He argued three years is an appropriate time horizon because investing over 10 years or longer is challenging for even the most skilled investors.

“I do not think you can say we are buying this thing and holding it forever because forever is a long time”, he said. “Occasionally, the whole world will change” and investors need to be willing to change their outlooks in response.  

He gave the example of the Covid-19 pandemic, where portfolio turnover was extremely high. “How one saw the world on the first of January and the first of March were fundamentally different”, he said, noting that portfolios had to reflect that.

As a result of this more flexible approach, the fund was up by 5.4% in 2020, while the average peer slid by 6% and the market fell by almost 10%.

Performance of fund vs the sector and benchmark in 2020

Source: FE Analytics

More broadly, too long a time horizon may lead investors to the conclusion that “it has been right to ignore some UK sectors”, but things change all the time and the biggest example of this was banks, Legget argued.

For investors such as Terry Smith, banks were uninvestable in 2023, but for Legget, they were underappreciated opportunities and a large part of his top 10 holdings.  

He explained investors had ignored banks despite fundamentally strong balance sheets, easing interest rates and regulatory cycles that had made them much better investments.

Legget said the other challenge of having a much longer time horizon is that it is easy to forget the biggest companies in the market today are not the same companies as they were 30 years ago.

He gave the example of Yell (formerly Yellow Pages), which used to be a prominent member of the FTSE 100 and well-regarded as a steady, cash-generative business.

By contrast, businesses such as RELX have transformed from a print-led service into a digital subscription service and become phenomenally successful, but investors would have struggled to predict this change.

He explained the challenge of a longer time horizon is that investors become overly optimistic and "start using hopes and dreams for the next 10 years to justify valuations today”.

However, while looking too far into the future is dangerous, Legget argued investors should not get swept up in short-term speculation either.

In a market where it is easier for investors to “get lost in the noise” of quarterly earnings and trading updates, investors should take a step back. “You need to consider where the market is going and what you want to learn in the next 18 to 36 months rather than where you want to be today for results tomorrow”.

With a three-year time horizon, Legget explained he found opportunities in companies with negative momentum but strong medium-term outlooks that his competitors may have missed.

“You do not have to look a long way ahead but if you are willing to look a little bit into the future you will find it easier to see value and opportunities in the market”.

He identified housebuilders as an example of this. The sector became extremely unpopular in 2022 due to spiking interest rates and inflation, causing investors to pull out in large numbers.  

However, for Legget, this was the year when companies such as Morgan Sindall came onto his radar because the three-year forecast indicated a turn in the economic cycle that would make these stocks more popular.

“We did not get everything right. But a three-year horizon gives you opportunities to find and build positions in profitable franchises in a world of active management which has become very focused around a handful of factors”, he concluded.

The Bank of England’s Monetary Policy Committee (MPC) has voted to hold rates steady at 4.5% at today’s meeting, with eight members opting to stand pat while the lone dissenting voice wished for rates to fall by 25 basis points.

The pause was largely expected as inflation has remained sticky. Indeed, 12-month consumer prices index (CPI) increased to 3% in January, up from 2.5% in the final month of 2024, which was “slightly higher than expected”. Both remain above the Bank’s target of 2%.

The committee cited “intensified” global trade policy uncertainty, pointing to the US tariff announcements made by president Donald Trump as one factor for holding off on rates.

“Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally,” the committee said in a statement.

“Domestic price and wage pressures are moderating but remain somewhat elevated. Although global energy prices have fallen back recently, they remain higher than last year and CPI inflation is still projected to rise to around 3.75% in the third quarter of 2025 . While inflation is expected to fall back thereafter, the Committee will pay close attention to any consequent signs of more lasting inflationary pressures.”

The Bank’s decision follows the US Federal Reserve, which also opted to leave rates unchanged at its meeting yesterday.

Zara Nokes, global market analyst at JP Morgan Asset Management said the Bank of England was “stuck between a rock and a hard place” as inflation is rising but the economic outlook is weak.

“While it may have been tempting for the Bank to cut rates today, ultimately the decision to hold was appropriate. Inflation and wage growth remain sticky and inflation dynamics do not look favourable in the near term as employer tax hikes, price resets and a minimum wage increase all come into effect in April,” she said.

Lindsay James, investment strategist at Quilter, said the market now expects the Bank of England to cut twice more this year, mirroring expectations for the Federal Reserve in the US.

“The Bank of England will wish to avoid cutting rates too much too quickly for fear of causing further inflationary pressure, so for now this looks reasonable,” she said.

For people in the UK, mortgages and loan rates could remain higher for longer if the Bank continues to stand still, according to Myron Jobson, senior personal finance analyst at interactive investor.

However, cash rates are likely to also stay high, benefiting those with additional savings held in higher-rate accounts.

The government must do something to arrest the struggling UK stock market, according to UK fund managers, who have backed chancellor Rachel Reeves’ idea to make sweeping changes to the ISA and pension landscape in an effort to provide fresh impetus into domestic stocks.

One option reportedly on the table is to cut the cash ISA allowance down to £4,000 from the current £20,000 ceiling – something Premier Miton Investors is in favour of.

“Limiting the future tax benefit to will significantly reduce the almost £300bn allocation to cash within ISAs and immediately increase future investment savings into equities,” the firm said in a statement earlier this week.

Clive Beagles, manager of the JOHCM UK Equity Income fund, also believes the current savings landscape should be looked at, noting the cash ISA was set up for people to “invest in individual equities” rather than their current purpose, where “we have people sticking tens of millions of pounds into ISAs to earn an interest of 4% tax-free”.

“That is not what they were intended for when they were set up but they have morphed into something different. In that regard it is perfectly logical and fair to think about whether that is the right structure and whether it is something that can be reassessed,” he said.

The other area he would consider looking into is pensions, where he estimated the government loses out on around £52bn in tax relief on contributions each year.

Pension fund allocations have shifted markedly over the past 20 years, with most now mirroring the allocations of global benchmarks, meaning very little (around 3-4%, he suggested) is invested in UK companies.

“So £50bn of that ends up in other assets. In recent years that has been going into Amazon, Microsoft, Tesla and all that lot. It might be good for individuals’ wealth creation but the country has gained nothing in return from giving £50bn in relief, in terms of creating growth, jobs and future tax revenues for this country,” said Beagles.

“I think it is perfectly fair and logical to look at that and say: ‘have we got this right or have we allowed it to be too free-market orientated?’

“They [the government] have tried the carrot [to encourage investment into the UK] and that hasn’t really worked so they need to try some kind of stick. They know they need to do something.”

His point was echoed by Ken Wotton, manager of the Strategic Equity Capital investment trust.

“As an investor – or someone with a pension – do I want governments telling me what I should or should not invest in? Or if I am an adviser, do I want them dictating that to me? No, because you are trying to get the best returns within your risk profile,” he said.

“But as a taxpayer, if you are giving a £6bn to £7bn subsidy so people can invest in ISAs per year or the circa £60bn going into pensions, is it reasonable to ask for something back by directing some of the investment in those wrappers into UK domestic assets? Yes I think it is. When you frame it like that, I don’t think it is an unreasonable requirement.”

What the specific policies will be remains to be seen, but Beagles said it “might not take much” to shift the fortunes of the UK market, which has been lagging behind international peers for years. Indeed, the FTSE All Share index made less than half the returns of the FTSE World index over the past decade, as the below chart shows.

Performance of indices over 10yrs

Source: FE Analytics

“Allocations have clearly fallen so far that I think it wouldn’t take a huge amount to make an incremental difference. Whether it is just about doing something to send a message and then international investors go ‘at least the UK is doing something about it’. It could be it doesn’t need much,” he said.

It is crucial the UK has a “functioning capital market that is open for business”, he added, or the current pace of mergers and acquisitions (M&A) will mean “[we] won’t really have a market left at all”.

“I think we have been sleepwalking into oblivion in that regard,” he noted.

Wotton said more companies left the UK market last year than entered it, but added some of this was cyclical, although he appreciated there were structural issues as well.

He agreed that it was critical for the UK market to thrive, not just for domestic investors but for the overall economy as well.

“I strongly believe the UK public markets, both the main and AIM, are really important components of the growth ecosystem of the UK. They provide access to capital to companies that are using that to innovate and drive growth,” he said.

“You also can’t have a functioning private market if you don’t have a public market as well,” he added, as private investors need a way to recycle their holdings once they have achieved their goals. Otherwise, private companies will simply choose to set up elsewhere, typically in a country with a stock market they intend to list on.

The Federal Reserve (Fed) has kept interest rates steady at 4.25-4.50% in its latest meeting, anticipating a less favourable economic backdrop of higher inflation and unemployment.

Policymakers slashed 2025 GDP growth forecasts to 1.7% from 2.1%, as 2026 and 2027 were also reviewed down on the back of government spending cuts and tariffs.

This monetary committee meeting can be summarised with one word – uncertainty – according to Jack McIntyre, portfolio manager at Brandywine Global, a Franklin Templeton company.

“That term was peppered throughout both the statement and [Fed chair Jerome] Powell’s press conference. It wasn’t a dovish or hawkish pause but an uncertain pause,” he said.

“The Fed has less conviction but is aligned with the market in its view of where policy rates are headed. It was a humdrum meeting, but it was supposed to be, since monetary policy isn’t what’s impacting the US economy right now. Trump 2.0 reflects different sequencing from Trump 1.0 – with respect to the economy, government policy is in the driver seat.”

In the press conference about inflation expectations, Powell referred to tariff-led inflation as being “transitory,” Daniel Casali, chief investment strategist at Evelyn Partners, noted.

“This suggests that he is willing to look through data such as the Conference Board’s 12-month forward annual CPI inflation expectations of 6% in February, its highest rate for two years. However, Powell’s dismissal of inflation expectations raises the risk that the Fed could be caught out by a potential acceleration in inflation down the road,” he said.

“Looking forward, a weaker US growth outlook, and the fact that the US central bank is still set on cutting interest rates, should put downward pressure on the US dollar. Broadly speaking, a weaker US dollar, when accompanied by global growth, is typically positive for financial markets, as more money could potentially flow into risk assets, like stocks.” 

Brickwood Asset Management, the value equities boutique founded by Ben Whitmore, has launched a global fund.

The TM Brickwood Global Value fund is the firm’s second strategy and follows the launch of the TM Brickwood UK Value fund last month.

The global strategy will be co-managed by Ben Whitmore and Dermot Murphy, who will aim to identify undervalued securities and wait for the market to recognise their value. They will focus on large- and mid-cap companies and will endeavour to outperform the MSCI All Country World Index, net of fees, over rolling five-year periods.

Murphy said: “Investing on a global basis allows us to create a portfolio with extremely low valuations without having to concentrate the fund in any single region or sector. We believe this combination of low valuation and high diversification creates a very compelling investment proposition.”

Kevin Murphy, who manages Brickwood’s UK fund and will provide support on the global strategy, said Brickwood invests in high-quality companies facing temporary issues. “We want the company to have generated good cashflow in the past and to have a strong balance sheet, such that it can survive through the tough times,” he said.

Before establishing Brickwood, Whitmore and Murphy worked together at Jupiter Asset Management, where they managed the Jupiter Global Value Equity fund, among others.

Investors who want to grow their capital and simultaneously earn an income often opt for equity income funds but some investment trusts offer a compelling alternative.

Not only do many trusts have a yield above 4% but several of them are trading at wide discounts to their net asset value (NAV), offering investors the chance to snap up a portfolio of stocks on the cheap.

To avoid value traps and poor performers, Trustnet scrutinised the total returns of trusts on double-digit discounts with yields above 4% to find those with the strongest track records.

The International Biotechnology Trust ticked all three boxes comprehensively. It has a 4.4% yield and a 12% discount, according to data from the Association of Investment Companies (AIC), and has beaten its benchmark and sector over one, three, five and 10 years to 18 March 2025.

The current managers, Ailsa Craig and Marek Poszepczynski, have only been in charge since March 2021, so are responsible for four years of the trust’s track record.

It is the best-performing trust in the seven-strong IT Biotechnology & Healthcare sector over the past 12 months and second over three and five years.

Performance of trust vs benchmark & sector over 5yrs

Source: FE Analytics

The trust has a policy of making dividend payments equivalent to 4% of its net asset value at the end of the preceding financial year, through two equal semi-annual distributions.

Shareholders include the MIGO Opportunities Trust, managed by Charlotte Cuthbertson and Nick Greenwood at Asset Value Investors, and the CT Global Managed Portfolio Trust, led by Columbia Threadneedle Investments’ Peter Hewitt, who holds it within his income portfolio.

Cuthbertson said: “In a sector known for its volatility, Craig’s expertise and resilience particularly shines. Her biological insight and investment acumen, alongside co-manager Poszepczynski, have been crucial in navigating the complexities of the biotech sector with precision.”

The abrdn Asian Income Fund also achieved the triumvirate of yield, discount and returns, although it did not outperform in every time period. It beat its sector and benchmark over three and five years but trailed both over a decade. It has increased its dividend for 16 consecutive years, according to the AIC, and currently has a yield of 7.3%. It is trading on a discount of 10.2%.

Performance of trust vs benchmark & sector over 5yrs

Source: FE Analytics

Peel Hunt included it in the firm’s 2025 playbook of investment companies for income.

Anthony Leatham, head of investment companies research at Peel Hunt, said: “The abrdn Asian Income Fund offers a strong combination of attractive total returns and a yield premium over the market and peer group, supported by a consistent dividend track record.

“We believe the disciplined focus on quality, dividends, valuation and growth, along with the constant reappraisal of companies in the portfolio and portfolio positioning, bodes well for both index outperformance and potential discount narrowing.”   

Aberdeen’s well-resourced Asian equity team includes 40 investment professionals across six local hubs. “The team’s edge has been across mid-cap companies with strong balance sheets, often with family ownership. We also see the benefits of regular and proactive engagement,” Leatham said.

Asia is becoming an attractive region for income-seeking investors. Half of the Asia Pacific ex-Japan index currently yields more than 3% and over 50% of the total return from Asian equities is being delivered by dividends, supported by robust free cashflow cover and strong balance sheets, he noted.

Elsewhere, Ecofin Global Utilities and Infrastructure is a contender with a 4.3% yield and a 10.3% discount, but it is difficult to measure its performance. It does not have a single benchmark and there are only two trusts in the IT Infrastructure Securities sector, although Ecofin has beaten its rival – Premier Miton Global Renewables – by a wide margin over one, three and five years.

On its factsheet, it shows five different indices as yardsticks, spanning infrastructure, utilities and stocks: S&P Global Infrastructure; MSCI World Utilities; MSCI World; FTSE All Share; and FTSE ASX Utilities.

Performance of trust vs sector & relevant indices over 5yrs

Source: FE Analytics

Widening the net to investment companies on a discount of 7% or more brings another crop of triple-threat trusts into the scope of this research.

JPMorgan European Growth & Income has a 4.2% yield and a 7.6% discount. It has outperformed its benchmark over one, three, five and 10 years, although it lagged its sector over a decade.

The trust has an FE fundinfo Crown Rating of four, placing it within the top 25% of its asset class for alpha, volatility and consistently beating its benchmark over the past three years.

It is managed by Alexander Fitzalan Howard, Tim Lewis and Zenah Shuhaiber and its largest holdings are Novo Nordisk, SAP, Novartis, ASML and Roche.

Performance of trust vs benchmark & sector over 5yrs

Source: FE Analytics

Marcus Phayre-Mudge’s TR Property beat its benchmark over three, five and 10 years but was in line with its peer group average. It has a 5.3% yield and an 8.5% discount. The trust has increased its dividend for 14 consecutive years.

Elsewhere, BlackRock Frontiers hurdled the MSCI Frontier Markets index over three, five and 10 years (however, it changed its benchmark in 2018 to the MSCI Emerging ex Selected Countries + Frontier Markets + Saudi Arabia Index).

It was included within Peel Hunt’s income playbook for 2025 and has a 4.8% yield. Its income stream comes from cash generated by its underlying investments (as opposed to a yield target).

Led by Sam Vecht, the trust is trading on a 7.2% discount and its portfolio is cheap, according to Leatham; back in January, it had a price-to-earnings ratio of approximately 8x. Frontier markets overall look attractively valued compared to global developed market equities, so the trust offers a double discount, he added.

Three other trusts had a yield above 4% and a discount wider than 7% but a mixed track record.

JPMorgan Asia Growth & Income beat its benchmark over one, five and 10 years but lagged over three years and fell behind its peer group average over three and five years. It has a 4.2% yield and a discount of 8.2%.

BlackRock World Mining bested its peer group over five and 10 years but fell behind over one and three years. It boasts a 4.6% yield and a 9.8% discount.

Finally, Murray International beat its bogie over one, three and five years but not over 10. It hurdled the peer group average over three years but trailed during other periods.

It has a 4.4% yield and recently became an AIC ‘Dividend Hero’ for increasing its dividend for the 20^th consecutive year in 2024.

The trust was run by veteran stockpicker Bruce Stout until his retirement last year and is now co-managed by Martin Connaghan and Samantha Fitzpatrick, who worked alongside Stout since 2017 and 2019, respectively. It is trading on a 7.5% discount.

Income investing can be crucial for investors from all walks of life, although it is often associated with those in retirement who need the additional payouts to cover the shortfall between their pensions and their savings.

There are several ways to get an income, including picking assets that pay out the most, buying strategies that pay out a little less but can grow your cash pot, or by focusing entirely on funds that will grow their dividends over time.

Below, AJ Bell reveals its five fund, stock or investment trust picks for those who want income – no matter how they want to get there.

Starting with the high yielders, these investors will require their choices to pay out more than the 5% available from cash savings accounts, said Dan Coatsworth, investment analyst at AJ Bell.

“That might seem a high bar to clear, yet qualifying opportunities are widespread across stocks, bonds, funds and investment trusts,” he said.

For example, around a fifth of FTSE 100 companies pay a yield above 5%, making the UK market a “treasure trove” for high-yielding stocks.

“Investment trusts are also a popular hunting ground, with big yields from companies across the property, renewable energy and debt sectors,” he noted.

However, it is important not to get suckered in by a flashy yield number, as there is no point owning an asset that loses money in capital terms, even if it offers a strong yield.

Coatsworth’s selection therefore was office and retail sector landlord Land Securities, which has a 7.2% prospective yield. He liked the stock as it is now adding residential properties as a third string to its bow.

“Commercial property might have been out of favour over the past few years amid a rising interest rate environment, but Land Securities has its eyes on the longer-term prize,” he said.

“That’s why it is hungry to increase retail exposure when others are retreating from the space. The plan is to shift the portfolio towards assets that generate a higher income for the group, which implies higher dividends for investors down the line.”

Sticking with big payers, fund investors could opt for enhanced income strategies, which sell call options on stocks held in the portfolio to generate additional income.

“These options are contracts that give the buyer the right, but not the obligation, to buy the underlying asset at a specific price on or before a certain date,” said Coatsworth.

Although enhanced income strategies may underperform traditional equity income funds when markets rise, they can potentially make up for this during bear markets.

His option here was Schroder Income Maximiser, which targets a 7% yield and is run by the value management team behind Schroder Recovery. The bulk of its portfolio is in UK shares, but it also has money invested in US, French, Italian and German-listed companies, as well as a small amount in money markets.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

“Charging 0.91% a year, the fund has rewarded investors handsomely in the past,” said Coatsworth. Indeed, it has been a top-quartile performer in the IA UK Equity Income sector over the past one, three, five and 10 years.

Turning to dividend growers – those with lower starting yields but a penchant for upping this payout each year – Coatsworth described these as “dividend aristocrats”.

“The cost of living typically goes up each year so it’s important that dividends grow at least in line with inflation to ensure you maintain spending power. The ability of a company to grow dividends each year can also be a sign it’s a high-quality business,” he said.

There are lots of opportunities here, with many investment trusts upping payouts for more than half a century, but he chose to look to a more passive option: SPDR S&P Euro Dividend Aristocrats.

It tracks an index of 40 high-yield Eurozone companies that have had stable or growing dividends for at least 10 consecutive years. It yields 4% and the ETF has achieved strong returns since launch in 2012, as the below chart shows.

Performance of fund vs sector and benchmark since launch

Source: FE Analytics

“Europe is all the rage this year as investors turn their back on the US stock market and look for cheaper options in other parts of the world. The SPDR ETF is big in financials, utilities and industrials and top holdings include insurer Ageas and pharmaceutical group Sanofi,” he said.

Then there are those that can grow their capital, as well as provide an income. This blended approach may appeal to someone in retirement looking to make their pension last longer, said Coatsworth.

“JPMorgan Global Growth & Income has won fans in recent years, helped by robust performance and offering more jam today than previous investor favourites such as Scottish Mortgage, which is more about jam tomorrow,” he said.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

The global ‘best ideas’ investment trust has almost £3bn in assets under management and it is expected to take on the assets of Henderson International Income, upping its scale once again.

“The portfolio features a blend of tech, media and retail names as the dominant holdings, alongside a sprinkle of other sectors on a smaller basis,” Coatsworth said, and gives investors “a happy medium of dividends and capital gains”.

Lastly, for those who want dependable monthly income, Man Income is the pick. This may appeal to people who have received their salary like clockwork throughout their working life and want the same reassurance that they will get something to help out with their outgoings.

“Investments play a role in replacing that income – either selling small chunks to generate capital or, ideally, using dividends to pay the bills,” he said.

“Individual stocks typically pay dividends twice a year but that frequency might not suit someone who has monthly bills to settle. An investor could create a portfolio with dividends trickling in across different months. Alternatively, there is a growing number of funds and investment trusts paying dividends monthly to investors.”

Man Income yields 4.3% and is helmed by FE fundinfo Alpha Manager Henry Dixon, who aims to beat the FTSE All Share index by investing in companies of all sizes on the UK stock market. “He looks for undervalued and unloved companies that have a dividend yield at least in line with the market,” Coatsworth said.

Tariffs, trade barriers and geopolitical tensions are just a few key risks painting heightened economic uncertainty under the new US administration. Ongoing back-and-forth on tariffs have created a painful whiplash for anyone trying to keep apprised of developments, with the latest headlines indicating further postponement of the 25% Mexican and Canadian tariffs on various imports until early April. 

These mixed signals have called into question what new trade policies will actually come into play, whether there is a full-on trade war at play and what it could mean for the broader macroeconomic environment. As emerging market debt (EMD) investors, we’ve taken a closer look at how this rhetoric could impact the future of emerging markets debt.

Taking a page from our history books, there are two dominant global forces which tend to impact emerging markets debt as an asset class: economic growth and liquidity conditions. The asset class has previously faced performance headwinds when US policies have led to slower economic growth or higher interest rates.

As investors hedge their bets about what the latest geopolitical and trade developments mean in terms of risk and the future of the asset class, is important to note, however, that the EMD universe is very diversified, consisting of over 70 countries. In fact, idiosyncratic risk events have seldomly led to disruptions in the asset class.

Thus, while contrary to popular opinion, we anticipate a favourable market environment for EM debt in 2025 and believe that higher volatility induced by political noise and intense rhetoric could create opportunities for long-term investors looking at EMD. The key, however, is knowing where to look.

Tariff and foreign policy: Impact on EMD vs other economies

In our opinion, the focus of the new US administration will be on immigration, regulation, trade and foreign policy. Weighing potential risks, we look to tariffs as they could negatively impact global trade. We think that countries running large trade surpluses with the United States would likely see the biggest impact on their economies. China, and to a lesser extent Europe, could be particularly affected.

In these places, we would expect to see significant fiscal and monetary policy reaction to offset the impacts of higher tariffs imposed by the new US administration. We would also expect strong retaliation as tariffs could violate World Trade Organization (WTO) commitments, creating additional risks for global trade. 

 While US tariffs would have the potential to impact global trade, we believe emerging market countries should be less directly exposed given the significant growth in intra-EM trade observed over the past few years. In China, we expect to see a combination of strong fiscal and monetary stimulus and a weaker currency as the government implement measures to offset the impacts from US tariffs. China will likely continue to shift exports away from developed economies. EM countries now make up nearly 50% of Chinese exports.

Further, on the US foreign policy front, we believe the new US administration will adopt a more gradual and pragmatic trade agenda, aiming to avoid creating higher inflation for US consumers. In our opinion, US government policies will not significantly disrupt the outlook for the global economy. We expect the global disinflationary process to continue, albeit at a potentially slower pace, and anticipate additional monetary policy easing in developed and emerging economies. The gradual removal of monetary policy restriction should lead to lower global rates and improved liquidity conditions in 2025.

All in all, we anticipate a favourable market environment for EM debt in 2025 and believe that higher volatility induced by political noise and intense rhetoric could create opportunities for long term investors who uncover opportunities in the market.

Frontier markets shine in the search for EMD bright spots

One relative bright spot in our investment universe is frontier markets where local currency bonds play an important role in our strategy. From a structural perspective, more of these countries are making a conscious effort to open-up their capital markets to diversify their financing sources and reduce dependence on foreign currency debt issuance.

Measures to achieve this include strong reform momentum, often supported by multilateral organisations, the reduction or removal of capital controls and additional liquidity measures provided by the central banks. This means that many frontier market currencies offer opportunities for investment with currencies at or below our estimates of fair value supported by high real and nominal local interest rates. These currencies can provide an attractive combination of having a lower beta to the strong US dollar trend in addition to higher carry than is normally found in their larger, emerging market counterparts.

We also expect a number of these markets to continue to benefit from official sector support given their geopolitical importance. This means that they enjoy a combination of strong multilateral and bilateral support. For example, a high number of the markets in frontier space are currently on an IMF program, this benefits them both by cheap levels of financing and strong economic reforms that have been designed to promote a higher and more consistent level of potential growth.

This ample and diversified source of funding has been particularly evident in recent years and has been a strong provider of financial support. In previous years it was standard for emerging market managers to add a small number of frontier local markets to their portfolio in a rather concentrated way.

However, this evolution has convinced us that the frontier market asset class now has the diversification necessary to be relevant as a standalone asset class and has the potential to remain resilient amid the continued political noise that is likely to come.

In summary, we believe that long-term investors seeking opportunities in EMD through an active management approach may find bright spots that could be propelled forward in these volatile times. As we anticipate uneven tariff application across a diverse range of emerging market countries, we believe this may result in a wider dispersion of returns and the creation of additional opportunities for active investors looking in the right corners of the market.

Marcelo Assalin is head of the emerging markets debt team at William Blair Investment Management. The views expressed above should not be taken as investment advice.

Investment platform Tillit has dumped the European Opportunities Trust from its platform, citing “doubts about the manager’s ability to deliver sustainable long-term returns”.

Tillit is unique in its approach, only allowing customers to buy into funds and trusts recommended by an investment committee headed by chief investment officer Sheridan Admans.

While customers can continue to hold non-recommended funds (for instance if the funds have been removed or if clients have moved their portfolios from another platform), they are unable to buy more.

These funds are part of the ‘dark’ investible universe, meaning they can only be held or sold. It means Tillit customers will no longer be able to buy more of the European Opportunities Trust’s shares.

Headed by veteran stockpicker Alexander Darwall since 2000, the £558m market capitalisation trust has been excellent for investors, up 895% over its lifetime, more than three times the returns of the MSCI Europe benchmark.

Performance of trust vs sector and benchmark since launch

Source: FE Analytics

However, more recent performance has fallen away. It is the second-worst trust in the six-strong IT Europe sector over the past 10 years, making 76% versus a 119.9% return for the average peer, lagging the benchmark’s 107.2% gain.

“While the trust’s focus on innovative, cash-generative companies is appealing, it has faced challenges in delivering consistent outperformance against its benchmark and peers over the past decade,” said Admans.

“The shift towards large-cap stocks, coupled with struggles in a higher-rate environment, has moved the trust away from its mid-cap bias and attraction to its original investment proposition.”

The trust, formerly a part of Jupiter Asset Management, was moved over to Devon Equity Management in 2019 when Darwall left Jupiter to set up his own fund house. Since the start of November 2019, when the trust changed over, it has been the worst performer in its sector, with both the average peer and benchmark making three times its return.

 Performance of trust vs sector and benchmark since November 2019

Source: FE Analytics

In the trust’s latest half-year results, the board said it would give investors the option of a tender offer worth 25% of the trust’s shares in the second quarter of 2025 to address its 12.3% share price discount to the net asset value. It is not the first tender offer to address the discount, however.

“The announcement of a further tender offer for 25% of the share capital later this year amplifies the risk of forced asset sales at unfavourable prices, potentially disrupting the trust’s investment strategy,” said Admans.

European Opportunities Trust has also been under scrutiny from activist investor Saba Capital, something which the Tillit CIO suggested could “lead to continued short-term decision-making that further undermines performance”.

The trust also struggled to win over investors during its 2023 continuation vote, although ultimately they decided to keep the trust running.

“This reflects declining confidence in the current management team and their strategy, with nothing yet to suggest waning confidence has been restored,” said Admans.

“With no clear catalyst for recovery and continued headwinds, Tillit has concluded that the trust no longer meets the criteria for inclusion in the Tillit Universe.”

The firm also removed First Sentier Responsible Listed Infrastructure due to “persistent underperformance since inception and concerns about its long-term viability”.

Launched in 2021, the £23.7m fund run by Rebecca Sherlock and Peter Meany has made 13.3% since inception, slightly behind the 16.5% gain for the average fund in the IA Infrastructure sector.