Five fund ideas for 2025

As 2024 draws to a close, investors can reflect on a largely positive year. True, there were some laggards, and undeniably bonds disappointed as the outlook for inflation and interest rates remained cloudy. Yet portfolios weighted towards the US in particular enjoyed strong returns with a significant uplift following Donald Trump’s victory in the US Presidential election.

But what next? Will it turn out to be ‘better to travel than arrive’ in terms of President Trump’s impact on the seemingly robust US economy? Will UK shares finally emerge from the doldrums? And what are the opportunities for the year ahead?

A Happy New Year for investors?

Let’s consider the wider context for bonds first. At the moment, the global economic environment is reasonably benign. Inflation is moderating, albeit at a slower pace than many hoped, but with bond yields already high there is a decent buffer built into prices that should at least underpin values. However, there are still some risks. Tariff policies from an emboldened Trump could fan the inflationary flames, and the market may be correct in its verdict so far that his second presidential term will be better for equities than for bonds.

Now, turning to share markets. A pro-business, lower-tax and regulation-busting approach from President-elect Trump potentially augurs well for US equities. Indeed, there has been a positive reception to the election result so far with financials and smaller companies rallying in the aftermath, especially those in more domestically-orientated areas. Yet US valuations are rich and there is concern that a lot of good news is already priced in.

We could therefore be in for a bumpy ride in the event of economic disappointments. Any earnings misses for highly-valued bellwether stocks could take their toll on individual names and lead to weaker sentiment more broadly. US trade tariffs and particular tensions with China could also serve to disrupt certain companies and sectors and ultimately undermine markets. Meanwhile, markets outside the US including Europe, Japan and the UK arguably offer better value for seasoned stock pickers but come with their own economic and political risks.

Read more: Is the US market due a correction?

This calls for some sensible diversification with investors ensuring their portfolios are not ‘flying on a single engine’. In the US itself that translates to not being too reliant on the mega caps that have dominated for most of the past decade and branching out into other areas. Broader US and global funds could help iron out any volatility ahead while those focusing on dividend-paying shares stand to offer the ballast of returns from income.

As always, diversification by sector, geography and type of asset is wise to help reduce risk and ensure you are not overly reliant on one area or on certain circumstances. Equity valuations outside the US are more attractive, partly owing to the uncertainty of rising trade tensions, and arguably offer a greater margin of safety. The much-loathed UK market continues to stand out in this regard, and smaller companies in particular offer growth at less demanding valuations. Judging by the uptick in merger in acquisition activity, corporate and private equity buyers are seeing opportunity even if the wider investment community are not.

With this backdrop in mind here is a selection of funds we believe could be suited to current conditions and perform well in their respective areas over 2025 and beyond. They should all be considered long term investments meaning five years plus. They are provided for your information but are not a guide to how you should invest. Before investing in any fund please read the relevant Key Investor Information Document or Key Information Document, and Prospectus to ensure they fit with your objectives, risk appetite and wider portfolio. The very broad risk category is indicated.

Gresham House UK Smaller Companies (high risk)

Smaller companies are cheap, even within the context of an inexpensive UK market, despite frequently being able to maintain their growth potential regardless of the economic backdrop. With corporate and private equity buyers continuing to sniff around there may be opportunity to benefit from share price uplifts resulting from mergers and acquisitions.

Funds investing in smaller companies should ideally be large enough to be efficient and lower cost but small enough to react quickly to opportunities. It’s also an area where knowledge and skill combined with a sound selection process can make a big difference to long term returns.

One fund option that could harness the potential of the sector is WS Gresham House UK Smaller Companies. Gresham House might not be a household name, but they are highly respected investors in both market listed companies and private businesses. This crossover means they apply a private equity perspective to public markets, focusing on high quality companies with strong management, market positioning and business models. They also fully consider the potential strategic value of the business to potential trade or private equity buyers.

Managed by the experienced Ken Wotton, we believe it is something of a hidden gem in the sector. However, it is worth noting that the concentrated approach of investing in just 40 to 50 holdings adds to the risk of an already adventurous area. Smaller companies are typically riskier and less diversified than larger businesses.

JOHCM Global Opportunities (medium-high risk)

For those that expect a continued broadening out in stock market performance, diversifying into differentiated actively managed funds could be worth considering to provide something different to passive funds and more growth-leaning active strategies.

JOHCM Global Opportunities is a worthy consideration for this. The managers, Ben Leyland and Robert Lancastle, have a decent long-term record of keeping up with global markets when they rise but have also shown ability to preserve capital more when they fall. They have also shown strong stock selection over their tenure, although past performance is not a reliable guide to future returns.

As well a highly selective approach resulting in a concentrated portfolio where stock picking has a significant impact, the approach emphasises capital preservation. If insufficient attractive opportunities are identified, the managers are prepared to hold some cash, an unusual tactic as most funds tend to remain close to fully invested at all times. For instance, the managers took the cash weighting all the way to its 10% limit in 2021 and, more briefly, almost to that level in November 2023.

In terms of stock selection, the managers stick to developed markets, seeking shares in good-quality businesses where there is underappreciated durability of earnings and cashflow. The fund is neither growth nor value biased, instead exploring what the managers refer to as the ‘forgotten middle’ where quality, growth and value styles intersect. The fund can be considered for part of a core allocation to global shares, especially for investors wishing to keep their portfolio anchored by characteristics of quality and value.

M&G Global Dividend (medium-high risk)

Dividends, the pay out of profits a company makes to its shareholders, are an important but often overlooked feature of investing in share markets. Companies whose earnings and dividends can grow despite a changing economic environment provide a flow of income returns to shareholders and will likely have a resilient share price to boot.

One fund that offers a pragmatic, well-rounded approach to dividend investing is M&G Global Dividend Fund, which invests globally in businesses that have the potential to grow dividends significantly over time. Often this means manager Stuart Rhodes accepting a lower starting yield in exchange for probable future growth in payments. Conversely, companies that are only able to maintain their dividends or, even worse, forced to cut them, are actively avoided, though inevitably this is difficult to achieve across a broad portfolio. Any business can fall victim to changing industry dynamics or misfortune.

The manager balances a wide variety of companies to create a core global equity portfolio with an income bias:

• Disciplined firms with reliable growth strategies that can usually thrive no matter what is going on in wider economy, including more defensive areas such as pharmaceuticals and food producers.
• More economically sensitive businesses whose earnings are less consistent but should still trend higher over time, energy or commodities companies for instance.
• Faster-growing companies whose pace of expansion and dividend growth has the potential to surge thanks to rapid expansion in a new market or product line.

This fund could be a useful diversifier in growth-stock laden portfolios and be of particular interest to investors wishing to harness a rising income stream. The historic income yield is 3.0% with potential for payouts to rise over time. All yields are variable and not guaranteed.

Premier Miton US Opportunities (higher risk)

The performance of the US market has broadened out in recent months, offering more opportunities for stock pickers. One beneficiary has been the Premier Miton US Opportunities Fund given its ability to search for opportunities from the small to the very large in terms of company size and the flexibility with which the portfolio is managed.

The managers’ approach centres on identifying good-quality companies and paying appropriate valuations. The managers are not wedded to ‘growth’ or ‘value’ stocks, preferring to take a more nimble and pragmatic approach. We believe the fund can outperform its peers and the index in a variety of market conditions.

Expensive larger technology stocks getting even more expensive has been a strong headwind to the fund’s relative performance in the past few years. The strategy can be expected to underperform if the ‘mega caps’, notably the technology cohort, lead smaller and medium-sized companies. Conditions now appear to be more conducive to the managers’ flexible sector positioning and value-focused stock selection.

For investors whose US exposure is mostly in index tracker funds, this could provide something entirely different to act as a counterweight.

Ruffer Investment Trust (medium risk)

Ruffer Investment Company is designed to be an ‘all-weather’ vehicle for managers, Duncan MacInnes and Jasmine Yeo to dynamically express their views through a wide range of tools. They combine conventional asset classes – global equities, bonds, currencies and gold – with the use of derivatives strategies that serve as protection to market downturns.

The overall aim is to protect as well as grow, so the balance of different assets is designed to pay off in a variety of economic scenarios. Presently, the trust is positioned to be resilient to a second wave of inflation and a more negative scenario for economic growth. It could therefore be an important diversification tool or, more generally, make for a more stable ‘core’ holding in a portfolio.

The managers believe investors aren’t being rewarded well for the risks in US shares given current valuations. They suggest there are better opportunities elsewhere, including in the UK and China, and in other asset classes such as bonds and gold. There is an ability to hold cash and deploy later, as well as employ protection strategies that can offset market falls. Following a poor couple of years for the managers a more turbulent year for global markets could see them return to form.

Although this is a more cautious option in terms of the balance of assets making up the portfolio, as an investment trusts there can be additional risks associated with share price volatility.