Experts reveal their favourite ‘hidden gem’ funds

Many private investors running their own portfolios and looking for investment inspiration are reliant largely on what they read about in the press or on specialist websites such as interactive investor.

They might make use of new ideas from the experts, stick to the familiar fund houses that have served them well before, or use model portfolios for inspiration.

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Whichever the scenario, however, the chances are that they are channelled towards higher-profile providers and well-known funds, rather than those run by the multitude of smaller boutique investment managers in operation.

These funds and investment trusts may be strong performers, but too small to attract much attention. Moreover, in some cases they don’t have the marketing budgets to promote themselves to the same extent as the big players.

A quick glance at interactive investor’s compilation of the most-bought funds and investment trusts in the second quarter of 2025 provides some flavour of the dominance of well-known names. The ii Top 50 Fund Index, which every three months ranks the most-popular collective investments, features six open-ended funds, five of which are well-known names: Royal London Short Term Money Mkt (accumulation), Fundsmith Equity, Artemis Global Income and Jupiter India. However, in 50th place is Ranmore Global Equity, which is arguably more under the radar as the fund firm specialises in one area – value investing.

Among the investment trusts the familiar names of Scottish Mortgage Ord (LSE:SMT), Greencoat UK Wind (LSE:UKW), City of London Ord (LSE:CTY), JPMorgan Global Growth & Income Ord (LSE:JGGI), Alliance Witan Ord (LSE:ALW), F&C Investment Trust Ord (LSE:FCIT) and 3i Group Ord (LSE:III) all feature in the top 50.

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But it can make sense for investors to keep an ear to the ground for attractive investments with strong track records that have not yet registered on the mainstream radar.

Apart from any other considerations, these funds tend to relatively nimble (with assets under management on the small side) and run by ambitious managers with plenty still to prove. Therefore, they could sit well alongside more established names in a diversified portfolio.

We asked a range of industry experts to pick out the best of the undiscovered gems they have come across, among both funds and investment trusts.

Open-ended opportunities

Following a strong run of performance for US stock markets over the past 15 years, some investors are now switching their focus to other regions, particularly amid tariff uncertainty.

Evangelos Assimakos, investment director at Rathbones, highlights Mirabaud-Discovery Europe ex UK for the managers’ “astute stock-picking and focus on the smaller, more dynamic companies the Continent has to offer”.

He makes the point that the area of the market on which it concentrates means it can be relatively volatile; “but its track record (90% returns over the last five years as at mid-July, which is well ahead of the MSCI Europe ex UK index at 65%) shows it can work very well as a complement to other larger-cap funds in a portfolio”.

For UK equity exposure, Paul O’Neill, chief investment officer at Bentley Reid, likes the WS Gresham House UK Smaller Companies fund, which he sees as a route, via a “quality active manager”, into a long-neglected part of the market.

O’Neill believes change may be coming as the Labour government attempts to reinvigorate the investment market for UK smaller companies, for example by reducing the regulatory burden and making access to growth capital easier.

“The fund operates in a sector of the market where a lack of research and available passive options means active management can add real value,” he observes.

“Moreover, new ideas are always coming to fruition because the managers’ investment universe changes a lot. Importantly, they avoid investing in loss-making companies or early stage business models, instead focusing on quality niche operators and taking high-conviction, concentrated positions.”

The fund has returned 81.5% over the five years to 15 July, compared with the IA UK Smaller Companies sector average of just 31%; it has also been less volatile.

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For investors who want to look beyond pure equity strategies, Eduardo Sanchez, associate research director at Square Mile Investment Consulting and Research, offers a couple of open-ended ideas.

Latitude Horizon fund is a multi-asset portfolio run by boutique management firm Latitude Investment Management, set up in 2016. Over five years to 15 July, it has returned 39%.

It’s smaller than many competitors, says Sanchez, but has developed a successful investment philosophy. Moreover, the team members come from a wide range of backgrounds and every one is “able to provide challenge and objectivity”.

The focus is on businesses with robust returns, high growth and a clear competitive advantage. Sanchez describes the portfolio as “high-conviction, highly liquid and transparent and typically split evenly between equities and bonds, as the manager is acutely aware of the difficulty in correctly anticipating market direction over the short term”.

In some cases ‘under the radar’ funds may be relatively recent launches from well-established managers. Sanchez points to one example from Columbia Threadneedle: the CT Global Social Bond Fund, launched two years ago.

To date it has attracted only limited inflows; nonetheless, says Sanchez, the CT social bond team that runs it was set up 10 years earlier and has considerable expertise.

“The fund combines sound financial analysis with a genuine desire to improve social outcomes,” he explains. “Its bias towards investment-grade corporate bonds should provide everything that an investor would expect from a standard corporate bond fund, including income and diversification from equities.”

Small can be beautiful

Small investment trusts are under increasing pressure to get bigger, by whatever means, as the minimum value of assets under management acceptable to wealth managers investing on behalf of their clients rises year by year.

Some will not now invest in trusts with market capitalisation of less than £500 million, says Peter Walls, manager of the Unicorn Mastertrust, a fund of investment trusts.

“Little wonder that investment trust IPOs are thin on the ground,” he continues. “I think this is a great shame, as the barriers to entry for the next generation of independently minded investment managers with innovative strategies are getting too high.”

He highlights one recently launched trust worth consideration by investors looking for UK exposure. Onward Opportunities Ltd (LSE:ONWD), which invests in UK smaller companies, was the only IPO of 2023 – raising less than £13 million when it came to market that March.

However, Walls reports: “Strong performance, together with a premium rating, has allowed the trust to grow impressively through new issuance to around £30 million today.” The share price returned 32.5% from inception to the end of June, comfortably beating the 0.1% return of the UK AIM All Share Index.  

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As an alternative route into the UK market, Ewan Lovett-Turner at Numis suggests the value-oriented Aurora UK Alpha Ord (LSE:ARR) as “a unique addition to portfolios”.

It is managed by Gary Channon of Phoenix AM; he “seeks to identify ‘great’ companies experiencing short-term price weakness”. The trust takes a high-conviction approach with a portfolio of just 15 to 20 stocks, targeting companies that can deliver 15% return on capital but are trading well below estimated intrinsic value.

“ARR has grown substantially through the recent merger with Artemis Alpha, with a current market cap of £290 million, which should start putting it on the radar of more investors,” adds Lovett-Turner. Over five years to 15 July the shares have returned 78% against the UK All Companies sector average of 66%.

Japanese small caps – by no means every investor’s go-to choice for diversification – are the focus of a couple of interesting investment trusts picked out by experts.

Thomas McMahon, head of investment companies research at Kepler Partners, explains the attractions of the sector.

“Japanese companies are being forced by regulation to divest cash and assets and boost operational performance – they have been set the target by the stock exchange of raising their valuation multiples, or explaining why and facing penalties,” he says. “This means there are hundreds of companies undergoing radical change, and looking for help in understanding how to go about it.”

McMahon likes AVI Japan Opportunity Ord (LSE:AJOT). The managers invest “with a radical strategy of deep, activist engagement with companies, taking large stakes and agitating for change”.

The trust has delivered share price total returns of 70% over five years to 15 July. McMahon notes: “The returns are driven by stock-specific events, not economic developments.”

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Walls favours its peer in the same sector, Nippon Active Value Ord (LSE:NAVF). Its IPO in early 2020 raised £103 million to invest in undervalued Japanese equities, using an active management approach similar to that of AJOT.

“Having subsequently performed well and acquired two smaller Japan trusts, its market capitalisation has grown to £390 million, bringing the trust on to the radar of more investors,” says Walls.

He highlights the fact that over five years to 15 July, NAVF is the top-performing Japan trust in share price total return terms (up 125%). In comparison, the FTSE Japan Index has gained 40%.

So, while larger, more familiar funds and trusts may be a strong bedrock for your portfolio, these and other less mainstream hidden gems can play an important part in enhancing total returns and prospects for the future.