For investors looking to refresh their portfolios, experts highlight five funds ideas to consider going into the new year.
As we near the end of 2024, it's important to reflect on the trends that have moved markets this year, to help give an idea as to what could be in store for the year ahead.
Inflation continued to cool in many countries throughout the year, prompting central banks to start cutting interest rates.
And strong earnings, particularly from the major tech companies, has helped push markets to fresh highs.
These indices are key as they include many of the world's most valuable companies, including the top two — Apple (AAPL) and Nvidia (NVDA).
Momentum in these shares has also helped drive investor optimism in other markets. The FTSE All-World index, which covers 98% of the world's investable market capitalisation, is up nearly 19% year-to-date, according to FTSE Russell.
"While the policies actually implemented are expected to be a little softer than the pre-election campaign may have suggested, an increased implementation of tariffs is expected which could give more domestically focused US companies a tailwind."
"Meanwhile, geopolitical tensions remain high and the outlook for markets is far from certain," she added.
With that in mind, here are some funds that she says investors could consider as options in 2025 and beyond.
Concerns around trade tensions, particularly between the US and China, have been ramping up recently. President Joe Biden's administration has already announced broader semiconductor export restrictions aimed at limiting China's access to advanced chips.
"Whilst tariffs are seldom a good thing for growth overall, they could potentially be good for US smaller companies," said Hasler.
"Why? Because trade tariffs favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused," she said. "Combine this with a more supportive monetary policy stance and we believe this year could be a good time to invest in domestic-facing US corporates."
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She highlighted the Artemis US Smaller Companies fund as an option, as it aims to identify smaller companies with potential for their share price to grow relative to the risk of the business.
"We like the way the manager considers how the US economy is performing to identify sectors that are benefiting from trends, as well as the areas that are finding things tough," Hasler said. "We believe this should help the fund take advantage of new or changing policies put in place by the new president."
Top holdings in the fund include real estate company Jones Lang LaSalle (JLL) and investment bank Jefferies Financial Group (JEF).
The fund has generated a return of 53% over past year, well outperforming the 35% delivered by the Russell 2000 (^RUT) index.
Inflation in many countries is at or close to the widely used target of 2% which has led many major central banks to start cutting interest rates.
The US Federal Reserve, European Central Bank (ECB) and the Bank of England (BoE) have all lowered their main rates in 2024, with further reductions expected in 2025.
"In this environment we expect bonds to perform well," said Hasler. "In an uncertain environment, however, we favour either high-quality bonds or, better still, choosing an active manager who can manage interest rate and credit risk for you."
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She said that the Invesco Tactical Bond fund is one which can invest in all different types of bonds, "with a few constraints".
"The performance of the fund hinges on the managers’ ability to interpret the bigger economic picture," she explained. "They aim to shelter the fund when they see tough times ahead and seek strong returns as more opportunities become available."
Hasler said that this fund, therefore, "takes away the hassle" of deciding which bonds to invest in and when because the fund manager makes those decisions.
The fund has delivered a return of nearly 7% over the past year, which is slightly behind that of the 9% delivered by the Investment Association Sterling Strategic Bond sector. However, a return of more than 20% over five years has comfortably beaten the sector's 8%.
Geopolitical risks remain high, with the Russia-Ukraine war and conflict in the Middle East, in addition to rising trade tensions.
"In times of uncertainty one investment which tends to do well is gold," said Hasler.
US gold futures (GC=F), which track the agreed contract price at which to buy or sell the precious metal, are up 33% year-to-date.
"Whilst we wouldn’t necessarily expect returns to continue at this pace, the uncertain outlook combined with increased buying from central banks, particularly in emerging markets, means that the commodity could continue to enjoy support," Hasler said.
She said that the managers of the Troy Trojan fund "manage to take advantage of the attributes of gold without putting all their eggs in one basket".
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The Troy Trojan fund had 12.6% exposure to gold-related investments as of the end of November, including its top positions in the Invesco Physical Gold (SGLD.L) and iShares Physical Gold (SGLN.L) exchange-traded commodities.
Other major holdings in the fund include consumer goods company Unilever (ULVR.L) and tech giant Alphabet (GOOGL, GOOG).
"Rather than trying to shoot the lights out, the fund aims to grow investors' money steadily over the long run, while limiting losses when markets fall," said Hasler.
Over the past year, the fund has generated a return of 8.5%, which is higher than the 3.5% increase in the UK retail price index but behind the 15.8% rise in the FTSE All-Share (^FTAS) index.
While the major tech names continue to be the focus for markets, Alex Watts, fund analyst at Interactive Investor, said: "There is the opportunity to also benefit from a subtle shift that appears to be taking place, investment returns broadening over the past quarter across a range of sectors."
He said that investment returns have been shifting away from mainly large technology names and growth stocks towards previously less popular small and mid-sized companies.
And as central banks lower interest rates, he said that sectors such as utilities and financials are rebounding.
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One fund that Watts said could benefit from this market dynamic is Janus Henderson Global Sustainable Equity.
The fund seeks out companies that can deliver long-term growth, as well as driving environmental and social change, he explained.
Top holdings include French power-equipment maker Schneider Electric (SU.PA).
"With its disciplined investment process, sustainability focus, and robust long-term outlook, the fund could be a compelling choice for an investor seeking to expand the quality global equity exposure in their portfolio," he said.
The fund has returned 22% year-to-date, which is slightly behind the 27% rise in the MSCI World index but ahead of its IA Global sector average return of 21%.
For those looking to diversify their portfolio's geographical exposure, Watts suggested looking at the Guinness Asian Equity Income fund.
"Managed by Edmund Harriss and Mark Hammonds, the fund offers a high-conviction approach to investing in dividend-paying Asian companies," he said.
"The 36-stock portfolio is equally weighted, reducing risk of exposure to a single name and offering differentiation versus the benchmark."
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Even with concerns about the impact of potential trade tariffs in the region, Watts said that only around 10% of revenues from the portfolio stem from the US.
In addition to its exposure to China, the fund also holds investments in Taiwan, Australia, Singapore and India, among other countries.
Top positions include dairy product producer Inner Mongolia Yili Industrial (600887.SS) and insurance firm Ping An Insurance (601318.SS).
Over the past year, the fund has generated a return of 14.4%, which is almost in line with the 14.9% gain in its benchmark, the MSCI AC Pacific ex Japan index. On a five-year basis, that performance gap is much wider, with the fund having returned 31% in that time, versus 19% from the index. Watts also pointed out that the fund has a yield of 3.8%, which is among the top in its fund peer group.
These fund picks highlight that even as uncertainties loom large over sentiment going into 2025, in terms of geopolitics and monetary policy, there are still many opportunities to invest tactically in the face of these potential headwinds.
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