Fund Focus: the ‘good’ funds that had a bad year

It’s 19 January and thoughts of the previous year have by now shrunk in the rear-view mirror, along with many of our new year’s resolutions. But as we move deeper into 2026, one final glance backward might serve the bargain hunters among you well.

2025 was, of course, a fantastic year for most assets and investors, but pretty painful for long-suffering fans of Terry Smith, Nick Train and “quality” shares.

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And yet, in between these two extremes we also saw some usually strong-performing funds stumble for a year. If you view this underperformance as a blip, it might be the time to buy the dip.

Private struggles

Any fund is cheaper to buy after a bad spell but the principle of getting involved after a portfolio stumbles can be especially useful when it comes to popular investment trusts.

The shares in these trusts can often command a premium to net asset value (NAV), and buying in when the valuation looks more reasonable can boost your returns. Helpfully, a handful of otherwise solid funds ran into trouble in 2025 and many of these are specialist investment trusts.

To start off, there’s private equity. Investment trust fans are likely familiar with the story of 3i Group Ord (LSE:III), which remains the only way to invest in European discount retailer Action and has tended to trade on an eye-watering premium as a result.

The softening of expectations for Action in late 2025 knocked the shares off course and wiped out much of the premium, giving investors a cheaper way in. They duly took that opportunity, with ii customers piling in late last year. 3i shares are now on a roughly 18% premium, still pretty eye-watering but well short of what it once was.

3i Group isn’t the only private equity trust known for trading on a premium. HgCapital Trust Ord (LSE:HGT), which specialises in companies that offer software as a service, has often produced strong returns and commanded a premium as a result.

Last year looked pretty different, with HGT shareholders losing almost 5% while many other private equity trusts enjoyed big returns.

It’s hard to pinpoint the exact culprit here, although analysts have pointed to volatility in public markets (which can influence valuations on private assets), a pause in global IT spending in early 2025, the continued effect of earlier interest rate rises and a slowdown in deal activity for the private equity sector.

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On the latter point, Kepler analysts noted in October that HgCapital’s asset sales had amounted to £325 million over 12 months. This equated to 13.5% of net assets, down from a five-year average of 24%.

To dwell on another figure, the trust trades on a discount of around 8%, leaving room for some nice gains if sentiment recovers.

What would drive such a recovery? There’s the mooted initial public offering (IPO) for Visma, which makes up 12% of the portfolio. An IPO could generate some nice profits for the fund, although any exposure it holds on to will now be subject to share price volatility.

To touch on one final private equity play, Literacy Capital PLC (LSE:BOOK) shareholders lost around 15% in last year, which is admittedly a tough follow-up to a weak 2024.

The trust has actually made a respectable NAV return over a 12-month period, but the shares have slipped. Its share price discount of more than 20% could seem alluring if we expect it to go back to the stunning gains witnessed in 2022 and 2023.

But investors should note that this is a particularly concentrated fund, with top holding RCI Group making up around 31% of the portfolio.

Other names

Some other niche funds have also had a misstep in 2025, including Fair Oaks Income 2021 Ord (LSE:FAIR), which is usually known for paying out huge dividends but had a miserable year of performance.

On a more mainstream note, it’s worth remembering the market (and related funds) that struggled in 2025 after a previously great run.

Here we’re talking India. The market and many of the funds that invest there had a punishing year as sentiment turned and already high valuations came off somewhat.

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That is once again most notable in the investment trust space: as we noted last week, the impressive Ashoka India Equity Investment Ord (LSE:AIE) has slipped to a small discount to NAV, having previously seen its shares trade on a modest premium.

Whether we now view India as cheap, or due an imminent recovery, is a contentious topic. But plenty of once-great funds have come back down to earth for the time being.