The funds and investment trusts treading a different path

Let It Be, No Woman, No Cry, With Or Without You. Different artists, different genres, different melodies, and yet the base harmonies – or chord progressions – they use are identical. (I-V-VI-IV for those interested.)

Similarly, funds from different providers, often in different sectors, are frequently built on the same foundations when managers gravitate towards the same stocks.

This is because managers often favour larger stocks or big-name companies with more liquidity. These are the companies that have tended to outperform over the past few years, US tech stocks being a case in point.

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The downsides of being overexposed to the Magnificent Seven came to the fore last year as tariff concerns loomed large and whispers of an artificial intelligence (AI) bubble grew louder, prompting a broadening out of the market. Of course, there are plenty of other crowded sectors, prompting the question: how to avoid concentration risk?

We asked the experts to share their high-conviction fund ideas that buck the trends and steer away from hot stocks, instead finding value in overlooked companies.

It’s fair to say UK stocks are not flavour of the month. The Investment Association’s (IA) UK All Companies sector has been the worst-selling sector every year since 2022, while the UK Smaller Companies sector has also been out of favour, seeing £105 million in net outflows in January 2026.

JM Finn’s Samir Shah, senior research analyst for collectives, makes the case for UK smaller companies.

“With investors around the globe still retreating from the UK, I believe there is significant upside in UK smaller companies that have historically delivered long-term rewards for patient investors,” Shah says.

Shah picks Aberforth Smaller Companies Ord (LSE:ASL) investment trust as a way to play this theme. The trust has a value bias, investing in stocks that appear to be underpriced by the market, which Shah says is also attractive.

“Post-pandemic, outflows from UK stocks led to what we described as a triple discount; UK equities traded at a notable discount to global stock markets, while within the UK, smaller companies sat at a significant discount to large caps, and within the small-cap universe, value companies were anomalously cheap,” he says.

“While the first of these layers has now largely been removed, following the FTSE All‑Share’s eye‑catching outperformance versus global stock markets during 2025, the other two layers – the small-cap discount and the value discount, remain firmly in place.” 

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By the end of 2025, smaller companies were much cheaper than larger companies, trading at roughly a 30% price-to-earnings discount, and ASL’s portfolio was even cheaper, Shah explains.

“This is the perfect backdrop for ASL, which looks to harvest the size and value premiums currently being seen,” he says, adding that this disconnect has been driving M&A activity in recent years, boosting portfolio returns.

The closed-ended structure of ASL also makes it easier to invest in less liquid assets – such as smaller companies – as the manager is not forced to sell stocks due to redemption pressure during a market panic.

“It allows the manager to take large stakes in companies and engage both patiently and actively to unlock value,” Shah adds.

For investors sizing up UK smaller companies, but are looking for broader exposure, options include Fidelity Special Values Ord (LSE:FSV) and Lowland Ord (LSE:LWI). Both invest across UK shares of all sizes, but have a bias towards UK smaller firms.

Alex Wright, fund manager of Fidelity Special Values, is a contrarian investor. Around half the portfolio is in UK mid-caps and small-caps.

Lowland also typically has half its portfolio in small and medium-sized companies. Managers James Henderson and Laura Foll have been at the helm since 1990 and 2016, and are highly regarded. Its consistency in growing income can fall under the radar, as Lowland isn’t considered a “dividend hero” after holding its dividend in 2009. However, since then, the dividend has increased every year.

Global value options

The AVI Global Trust Ord (LSE:AGT), run by Asset Value Investors, is another value-oriented strategy – the clue is in the name. AGT invests in companies trading at a discount to their underlying value based on the manager’s assessment of how easy it would be to unlock that value, although unlike ASL it invests across the market-cap spectrum.

AGT has a big underweight exposure to US equities relative to global indices, earning its stripes as a contrarian fund, although the manager pays no attention to index weightings when assembling the portfolio, says James Carthew, head of investment companies at QuotedData.

One of the themes in AGT is the long-term corporate governance revolution in Japan and South Korea.

“Within the asset-backed special situations category, the trust holds several Japanese and Korean companies the manager believes could add value through improved corporate governance,” Carthew says.

“Toyota Industries was the trust’s largest position at the end of January. The manager is campaigning alongside other investors, including activist hedge fund Elliott Investment Management, to secure an improved takeover bid for the company.”

With a market cap of over £1 billion, AGT is a decent size, offers a modest dividend yield, but trades on a discount to net asset value (NAV) of around 8.5%.

“In an uncertain world, AGT’s ability to drive its NAV higher through its own efforts might be appealing,” adds Carthew.​​​​​​​

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Another fund active in corporate governance reform is Nippon Active Value Ord (LSE:NAVF), a Japanese small-cap equity fund, which engages with small and mid-cap Japanese companies to push for change and enhance shareholder value.

“We would tend to hold Nippon Active Value alongside a more conventional Japanese equity fund,” says Oliver Pile, private client investment director at Tyndall Investment Management.

“The fund invests in a concentrated portfolio of smaller companies with a particular emphasis on the industrials and healthcare sectors, rather than the financial and tech-heavy Topix,” Pile says.

He adds: “It also takes an activist approach, aiming to capture significant alpha in a market now keenly focused on corporate governance reform.” 

There are also plenty of opportunities for portfolio diversification in the open-ended space. Pile says the key is to look for funds with a high active share, which means the portfolio differs significantly from its benchmark.

“These funds have the potential to be the growth engine of a portfolio, making them appropriate to hold in an ISA,” he says.​​​​​​​

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Despite being a US equity fund, Pile says the high-conviction GQG Partners US Equity I GBP Acc fund is “the antithesis to a benchmark-hugging fund”.

“The fund’s performance has been strong so far this year, due to its focus on large, defensive companies,” Pile says. “Philip Morris International Inc (NYSE:PM) is 10% of the fund, with other globally recognised names such as Verizon Communications Inc (NYSE:VZ), AT&T Inc (NYSE:T) and Johnson & Johnson (NYSE:JNJ) each representing around 5% of the portfolio, but the fund currently has no exposure to US technology stocks.”

Pile also likes Ranmore Global Equity Institutional GBP, which takes a value approach and shuns the benchmark with a high active share of around 98%; the top 10 includes Petroleo Brasileiro SA Petrobras ADR (NYSE:PBR), Greggs (LSE:GRG), Diageo (LSE:DGE) and Mattel Inc (NASDAQ:MAT)​​​​​​​. 

“The fund is differentiated both in terms of geographic exposure, with 20% US exposure compared to the 70% of the MSCI World, and sector allocation,” Pile says.