Forgotten funds that investors are overlooking

Charles Mackay, a 19th-century financial journalist, dubbed it “the madness of the crowd”. Then 50 years later, economist John Maynard Keynes described the idea of “herd investing”.  More recently, investment guru Warren Buffett advised people to “be fearful when others are greedy”.

All three were making the same point: investors who flock to the same stocks and funds for fear of missing out (FOMO), irrespective of the investment case for doing so, put themselves at risk of the bubble bursting.

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There’s another danger here too. By overlooking less popular areas of the market, investors also risk under-exposure to potentially exciting opportunities. As Buffett himself put it, sometimes it pays to “be greedy when others are fearful”. Just as fund popularity may reflect FOMO rather than fundamentals, so unpopularity may simply mean a fund is out of fashion right now.

There is a case for performance chasing – herd mentality can be self-sustaining, potentially for an extended period. Anyway, some of the most popular funds get investor support because they’re well-managed and invested in attractive asset classes or areas of the market.

Still, if this is your strategy, it’s easy to identify potential contenders. The quarterly ii Top 50 Fund Index, for example, tells you exactly which funds are currently in vogue; so you can decide for yourself whether to invest.

By contrast, finding unloved funds with long-term potential is harder work. You may be required to kiss many frogs to find a prince.

With that in mind, we asked five leading investment experts to offer their suggestions for areas of the market where good opportunities are currently being missed, and to pick out funds to secure exposure to these areas. 

Smaller companies at home and abroad

UK mid and small-cap equities have been out of favour for a number of years, with Emma Bird, head of investment trust research at Winterflood Securities, pointing out that the Investment Association (IA) UK Smaller Companies sector seeing net outflows in every calendar month since August 2021.

Bird, however, views this out-of-favour area as a potential opportunity. She notes: “A more benign interest rate and geopolitical environment is likely to be supportive for underlying performance and investor sentiment, which could help drive a re-rating of UK small-cap equity valuations, which are currently depressed relative to their long-term history and compared to other regions.”

Bird suggests Mercantile Ord (LSE:MRC)as a good way to access this potential re-rating, with the investment trust offering well-managed and diversified exposure to UK mid- and small-cap companies. Low cost is a plus point as is the fact that the management fee is based on market capitalisation, providing good shareholder alignment, she says. “The fund also aims to grow its dividend at least in line with inflation, which it has achieved, having delivered consecutive annual dividend increases over the last 10 financial years, at a rate more than double that of inflation.”

“UK small caps are unloved, under owned and out of favour, but they’re cheap,” agrees Ben Yearsley, an investment consultant at Fairview Investing. “If you think the UK as a whole has been a sell for a number of years, then UK small cap is even worse. No one has wanted a small part of a small market in a global context – but valuations are undemanding and growth prospects look pretty good.”

Yearsley’s preferred fund in this area is Artemis UK Smaller Companies I Acc (B2PLJL5), run by Mark Niznik. There is also a sister investment trust, Artemis UK Future Leaders Ord (LSE:AFL).

Last October, Niznik appeared on interactive investor’s On The Money podcast to explain the three rules he lives by when seeking sensible stocks.

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Tom Bigley, a fund analyst at interactive investor, also believes small-cap stocks could be a good place to go hunting for hidden gems. He picks out theWS Gresham House UK Smaller Coms C Acc (BH416G5) fund, managed by Ken Wotton, which invests in a concentrated portfolio of around 40 to 50 smaller companies. Those companies are typically worth between £250 million and £1 billion, with a significant portion of the portfolio at the smallest end of the market.

“Although small-cap investing naturally carries higher volatility and greater sensitivity to economic conditions, the fund’s emphasis on profitable, robust and low-leverage companies offers a measure of resilience,” explains Bigley. “In the current climate, its private equity-influenced approach may be particularly advantageous, given the potential for swift re-ratings as private buyers continue to target undervalued opportunities in UK public markets.”

Not that you have to stay in the UK for small-cap exposure. Scott Gallacher, a chartered financial planner and director at independent financial adviser Rowley Turton, suggests taking a look at VT De Lisle America B GBP (B3QF3G6), a US smaller companies fund.

“While much of the attention in the US remains focused on the mega-cap technology names, there are many high-quality smaller businesses trading on far more reasonable valuations,” says Gallacher. “Smaller companies have lagged during the ‘Magnificent Seven’ era, but historically they have often performed well over longer periods once market leadership broadens out. This fund takes a disciplined, valuation-conscious approach to that part of the market.”

Diversified income for both yield and growth

Global dividend payments hit an all-time high during the first three months of 2026, according to data just released by Capital Group, with companies paying out $419 billon to their shareholders. This bumper set of distributions is an important reminder that income can make a significant contribution to the total returns that investors earn from equities. And with global interest rates still at relatively low levels by historical standards, this yield looks especially attractive.

“Surprisingly, however, that has yet to translate into demand for income-focused funds,” says Rowley Turton’s Gallacher. “In an environment where many investors still appear heavily concentrated in expensive growth sectors, global equity income remains somewhat unloved despite offering diversification, cash flow and a degree of valuation discipline,” he says.

In which case, Gallacher recommends VT Vanneck Glbl Equity Inc Fund B GBPAcc (BJ4G2B1) as a potential contender for investors looking for new opportunities. “It offers a global equity income strategy focused not simply on headline yield, but also on trying to avoid permanent capital loss,” he explains. “The focus on quality companies with sustainable dividends could prove attractive if market leadership becomes less narrow.”

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Alternatively, Gallacher suggests investors could cast the net more widely while still focusing on the income story. He also likes IFSL Wise Multi-Asset Income B Acc (B0LJ1M4), an actively managed fund that invests across investment trusts, open-ended funds and selected direct holdings.

“Multi-asset income strategies don’t receive as much attention in stronger equity markets, but for many long-term investors the combination of diversification, active asset allocation and a focus on resilient income streams remains compelling,” Gallacher argues. “The investment trust exposure can also create opportunities to access assets trading at discounts that may narrow over time.”

Emerging markets for a rebound

Emerging markets have underperformed for much of the past 15 years, prompting investors to reduce allocations in favour of more exposure to developed economies, notably the US. However, supporters of emerging markets say the prevailing narrative is outdated – that far from being fragile, commodity-dependent economies, many of these countries are increasingly self-sufficient and innovation-driven.

Demographic factors – large populations with high proportions of young people – add to the mix, driving both domestic demand and industrial transformation.

Against this backdrop, interactive investor’s Bigley is an advocate for the Capital Group New World (LUX) Z GBP (BD076B4) fund. It invests in developing countries worldwide and is managed by a team of 12 investment professionals, who each independently run a portion of the portfolio. Supported by a team of analysts who conduct on-the-ground research, the team has a broad portfolio of around 400 holdings.

“The strategy is focused on large, listed companies with strong growth potential,” Bigley explains. “To be eligible for investment, companies must reach the threshold of 20% of assets in the developing world or generate at least 20% of revenues from there. In addition, 35% of the fund must always be invested in companies listed in emerging markets. This strikes a balance between capturing the growth of emerging markets and mitigating risks.”

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Alternatively, for investors prepared to take a more focused – and therefore potentially higher risk – approach to emerging markets. Yearsley talks up the merits of Vietnam. In particular, he recommends Vietnam Enterprise Ord (LSE:VEIL), the investment trust managed by Dragon Capital.

“I’ve been an Asian bull for many years: it offers stronger growth, better demographics and lower debt,” Yearsley explains. “Vietnam is Asia on steroids, with GDP growth of 8%, pro-market policies in a communist one-party state where the general secretary wields huge power.” 

Private equity to unlock opportunity

While there’s a lot of attention on the Magnificent Seven and some highly anticipated IPOs, Alex Trett,  a research analyst at Winterflood Securities, is finding “attractive relative value in the mid-cap private equity space”.

He picks out HarbourVest Global Priv Equity Ord (LSE:HVPE), which he notes gives “investors access to a highly diversified portfolio across the private equity ecosystem”.

The fund’s portfolio is diversified across geography and vintage, he explains, with exposure to more than 1,200 underlying funds and 14,000 underlying companies, offering a broad and liquid entry point into an otherwise illiquid asset class.

Other options in the sector include 3i Group Ord (LSE:III), Oakley Capital Investments Ord (LSE:OCI), Pantheon International Ord (LSE:PIN) and HgCapital Trust Ord (LSE:HGT).