Six funds to watch 2025

2025 has the usual lengthy list of uncertainties, including a new administration in the White House, geopolitical tensions, rising inflation, and economic wobbles. It may be that investors end up sticking with the familiar charms of the US technology sector, rather than looking for options elsewhere. However, for those that want to spread their wings a little, here are some areas that could deliver for investors in the year ahead.

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.

For the adventurous

Liontrust UK Micro Cap

The dominance of the technology sector has left some parts of the market looking very unloved. In most cases, they have been unloved for a reason. However, this has now reached extreme levels and even the slightest change in sentiment could prompt a significant recovery in share prices.

This is true for UK smaller companies, and the micro-cap end of the market in particular. Anthony Cross, manager on the Liontrust UK Micro Cap fund, says: “We feel that there is currently a compelling opportunity for investors in UK shares. The UK is at a clear valuation discount to historic averages and measures of intrinsic value but there is the potential for government policy intervention (focused on pension fund domestic equity allocations in particular) to help turn the tide of investor sentiment and capital flows, which would be of particular benefit to smaller company valuations.”

He admits that the catalyst for a change is unclear, but M&A activity and share buybacks are supporting valuations. If government policy encourages more investors to the market, that would help too. Thin liquidity means the sector could turn quickly if sentiment revives.

Aubrey Global Emerging Markets Opportunities

Although it has been a tough couple of years for emerging market equities, the weakness has come predominantly from China. A new stimulus package in November has helped revive Chinese stock markets, and may remove a significant headwind to the performance of emerging market funds. At the same time, many other countries within emerging markets – such as India – are showing strong growth.

The Aubrey Global Emerging Markets Opportunities fund looks to find 30-40 quality stocks in emerging markets. Manager Andrew Dalrymple believes that emerging markets can provide strong diversification to the technology-heavy US market. It holds a range of companies benefiting growth themes such as emerging market consumption. He adds that valuations look attractive relative to their international peers, making it a good option for 2025*.

For a steady-eddie option

Rathbone Global Opportunities

Against a volatile and unpredictable backdrop, sometimes it’s better to hand the decision-making over to the experts. Rathbone Global Opportunities manager James Thomson looks for exciting businesses that are growing fast and shaking up their industries. This will include some of the US technology giants, but only when the price is right.

James says that US exceptionalism can continue: “It’s the home of innovation, adaptability, repeatable and mission-critical growth.” He says expensive doesn’t always mean over-valued. However, he adds that he is not sure the dominance of the Magnificent Seven can continue and “that’s why our weighting in these names needs to be sized correctly.”

He still holds Microsoft and Nvidia among his top holdings, but they sit alongside less familiar names, such as Cintas, Boston Scientific, Intuitive Surgical and Waste Connections. His largest weighting is in the consumer discretionary sector, and also holds almost 30% outside the US**.

Fidelity Global Dividend

Another firm favourite is Fidelity Global Dividend, managed since launch by Dan Roberts. He looks for companies with understandable business models and predictable, resilient returns, and is happy to pay a fair price for a good company. The criteria for selecting companies falls mainly into two buckets. The first is valuation support, with Dan wanting to make sure he does not overpay for stocks – regardless of how good they look – as he does not want to dilute returns. The second is the quality of the franchise, with the emphasis on investing in resilient businesses which can be depended upon.

For the cautious

Janus Henderson Strategic Bond

The outlook for bonds is complicated. There have been signs of rising inflation, which usually signals a tougher time for bonds, but interest rates are still expected to fall, which would lift bond prices. Bonds still provide compelling diversification away from equities, and a cushion if economic growth starts to head south. However, bond markets will need careful navigation this year and an opportunistic approach could work best for investors.

The Janus Henderson Strategic Bond fund is run by Jenna Barnard and John Patullo, one of the most experienced and long-standing teams in the market. Their strategy has stood the test of time. Jenna is relatively optimistic about the year ahead: “Bond markets are priced for moderate interest rate cuts as central banks take their time getting rates back to what they deem neutral territory amid expected soft landings for economies across the developed world. In contrast, the political world is braced for the upheaval and chaos of Trump’s second term. Should the latter come to pass, bond returns in a number of countries could end up being positively exciting for investors.”

VT Gravis UK Infrastructure Income

It’s been a tough few years for sentiment towards the infrastructure sector. However, the underlying assets have continued to deliver a steady, inflation-adjusted income, and valuations have stabilised. It may be a good time to re-examine the sector.

The Gravis team believes the UK infrastructure sector in 2025 has a once-in-a-century opportunity to transform the economy and drive toward sustainability. This signals a major opportunity for investors, in its view, with significant investments needed to modernise networks, decarbonise the grid, and address challenges like energy intermittency and interconnectivity.

Infrastructure has traditionally been an important ballast in investor portfolios, with its weakness over the past two years a significant anomaly. It could resume its traditional role for investors in the year ahead.

*Source: Aubrey Capital Management, 18 December 2024
**Source: fund factsheet, 30 November 2024
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.