Fund Focus: four key takeaways for fund and trust investors in 2025
Dave Baxter looks at some useful findings from a profitable year for investors.
29th December 2025 08:35
by Dave Baxter from interactive investor
2025 has ultimately felt like an easy ride for most investors. Concerns about tariffs or geopolitical strife notwithstanding, most markets have delivered huge gains. Funds of all stripes have participated in this success and many an investor should be happy with the results.
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Having said that, an unusual year throws up a few useful lessons that we can take into 2026.
1) Out-of-form investments can (sometimes) come good
Many an investment has taken a long time to return to form, with some never managing the feat. That can be especially true when it comes to some active fund managers but also styles and subsectors: value investing struggled for many a year, while China was only recently dubbed uninvestable by some.
The broad and powerful rally witnessed in 2025 has seen some of that turn around. A good example, from the commodity space, is Golden Prospect Precious Metal Ord (LSE:GPM): it sustained painful losses in 2021, 2022 and 2023 before making a respectable return in 2024. This year, shareholders have enjoyed a total return of around 150%, making it one of the top funds of the year.
We’ve seen another powerful recovery for China funds, and Chinese shares in general. Fidelity China Special Situations Ord (LSE:FCSS) returned around 40% in 2025, while in the exchange-traded fund (ETF) space the once popular KraneShares CSI China Internet ETF GBP (LSE:KWBP) has made around 15% for a second year in a row.
Global equity managers may well be mulling the prospect of returning to this region: the Scottish Mortgage Ord (LSE:SMT) team still has a decent level of exposure, while the divisive innovation investor Cathie Wood recently told interactive investor she was considering going back in.
The point is that out-of-favour investments can eventually come good, but that it can take a fierce recovery (or lots of buying at low valuations beforehand) to make it worth it. Golden Prospect Precious Metals has had such strong 12-month returns that it now looks good on a five-year view, but the likes of the China trusts are still down over the latter period.
There is, as usual, the case for holding some laggards alongside your strong performers in case the tide turns, much as it takes plenty of patience. That may well apply for those funds with a quality style that have struggled in recent history, the most obvious examples of which are Nick Train and Terry Smith, managers of WS Lindsell Train UK Equity Acc and Fundsmith Equity I Acc.
2) High expectations are dangerous
Stock markets have been buoyant (again) in 2025 and I worry that this may have warped our expectations.
The FTSE Europe ex UK index had returned around 26% for 2025 at the time of writing, with the FTSE 100 on around 24.5%. Emerging markets were up by around a fifth in sterling terms, with Japan and the MSCI World index enjoying lower double-digit gains.
The S&P 500, which lagged many other major markets, still managed a 7.7% return in sterling terms. Meanwhile, we have seen ferocious returns from some specialist funds, including those that buy the shares of gold miners.
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All I would say is to remember not to bet too big on niche, specialist funds in the pursuit of abnormally high returns, and to be happy with good but unspectacular performance if possible. It also makes sense to take profits on those investments that have run especially hard.
3) Tracker funds haven’t failed you just yet
It has become a cliché over the last decade for a (sometimes underperforming) active manager to warn about the risks of passive funds, and the chance that they will come crashing down. There’s some validity to the idea, but we haven’t seen a collapse just yet.
Let’s examine the numbers. The MSCI World had returned around 12% in 2025 at the time of writing, while as mentioned the S&P 500 lagged many rivals but still made almost 8%.
Concerns still linger about the reliance of such indices on US “tech” mega-caps, but for now the show has continued.
Much as I can’t tell whether these fears will come true, it can be worth diversifying away from the global trackers you hold with, for example, US-light global funds or other regional equity funds, as well as some safe-haven assets.
On this front, we mentioned in November that many new-ish US and global ETFs seek to address such concerns, from equal weight S&P trackers to MSCI World-ex USA funds.
Such portfolios have had mixed results in 2025: the MSCI World ex USA index has returned more than 20%, while the MSCI World Equal Weighted has beaten its parent index.
But the equal weight version of the S&P 500 has underperformed the mainstream version. These funds will likely need a few more tests before investors can decide whether they are worth using.
4) Investors have a voice, but little certainty
Drama in the investment trust sector hasn’t abated but it has been an encouraging year for the likes of ii customers.
DIY investors helped seven trusts to fight off Saba at the start of the year, while smaller professional investors managed to thwart controversial plans for HICL Infrastructure PLC Ord (LSE:HICL) to absorb Renewables Infrastructure Grp (LSE:TRIG).
So, you do have a voice, and a fresh fight between Saba Capital and the board of Edinburgh Worldwide Ord (LSE:EWI) in early 2026 will give you another chance to use it. But let’s remember that uncertainty in the sector only seems to grow as we move into a new year.
Plenty of mergers and strategic reviews are still on the cards, as are multiple wind-downs.
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Chrysalis Investments Limited Ord (LSE:CHRY) appeared to be approaching the latter option recently, having outlined a plan to avoid new investments and focus on returning capital to shareholders.
What’s interesting is even a wind-down plan gives us no chance of certainty.
Of the trusts in the process of wind-down Crystal Amber Ord (LSE:CRS) recently appointed a new investment manager to get the best out of its last remaining holding, while abrdn European Logistics Income PLC (LSE:ASLI) saw a sizeable investor try to get it to change tack in December, arguing that better returns could be made by going back to building out the portfolio.
Investment trusts offer us bargains and opportunities, but also plenty of headaches and unknowns.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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