The leading funds that suffered a stumble

Data source: MorningstarSo far, 2026 hasn’t been an easy year for investors. There have been significant gains, especially from some of the more volatile funds, but the ones that rise the fastest often have the furthest to fall.

The year started well, with most sectors making gains in January and February. However, they all went down in March, apart from the two money market sectors. 

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The leading funds over the first quarter were the energy funds that benefited from the spike in oil prices following the US-Israeli attack on Iran. The top fund, Schroder ISF Global Energy C Dis GBP AV (B2QM296) Energy, posted a three-month return of 43.1%. WS Guinness Global Energy I Acc (B56FW07) was a close second, up 40.6%.

Stock markets then rallied in April, following the announcement of the US-Iran ceasefire, and the momentum continued throughout May. June was more subdued.

The leading funds over the second quarter were mainly technology funds. They benefited from renewed enthusiasm for artificial intelligence (AI) and for the companies producing the hardware needed to support its growth. 

Saltydog’s top 10 funds in the second quarter of  2026

Data source: Morningstar. Past performance is not a guide to future performance.

At the top of the table was the Barings Korea I GBP Acc (B9M3RQ4) fund, with a three-month return of 73.5%. It was also the top-performing fund in January and a close second in February. Despite falling by 21.2% in March, it still ended the first quarter up 18.4%. During the first six months of the year, it rose by more than 100%.

It is in the Specialist sector but holds some of the world’s largest technology companies, including Samsung Electronics Co Ltd DR (LSE:SMSN) and SK hynix Inc ADR (NASDAQ:SKHY). They benefited when the US technology giants announced plans to increase their spending on AI data centres. This boosted demand for the memory chips manufactured by these Korean companies.

The next five funds were from the Technology & Technology Innovation sector. They were followed by Polar Capital Smart Energy I Acc GBP (BPF0PL5), from the Specialist sector. This is another fund with a strong technology bias, investing in electrification, power semiconductors, grid infrastructure, energy storage and energy efficiency.

All the funds in the table followed a similar trend. April was the strongest month, followed by May and then June. July is proving even more challenging. Last week, the Barings Korea fund fell by 10%.

The ceasefire between the US and Iran has collapsed. The US has resumed bombing Iran, while Iran is retaliating by attacking US bases and allies in the Gulf. Oil prices have started to rise and investors have become more cautious. Growth funds and other higher-risk investments are often hit hardest when risk appetite weakens.

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Over the last few weeks, sentiment towards technology stocks has also weakened. Investors have started to question whether the AI-led rally has moved too far, too quickly. They are concerned that valuations are so high that even strong earnings may no longer be enough to keep share prices moving higher. There is also the question of how long it will take for the huge amounts being spent on AI infrastructure to translate into profits.

We have been here before. The technology sector fell last November amid fears of an AI bubble, but soon recovered. A similar thing happened in March, although the situation was exacerbated by the conflict with Iran. Once again, markets rallied.

Here is a graph showing the longer-term performance of the top three funds from the second quarter, including the recent sell-off. 

Past performance is not a guide to future performance.

It can feel alarming when funds suddenly fall steeply, but on the last couple of occasions these falls have proved to be buying opportunities. If you believe that AI is a revolutionary technology that is only just getting started, and you do not currently have any exposure in your portfolio, it would be considerably cheaper to invest now than it was at the end of June.

On the other hand, investors who have held these funds for some time may find that they have grown into an uncomfortably large proportion of their overall portfolios. In that situation, it may be sensible to trim the holdings and take some profits.

The famous stock trader Jesse Livermore advised that if you cannot sleep at night because of your stock market position, you have gone too far. In that case, sell your position down to the “sleeping point”.

We have held the Polar Capital Global Technology fund in our demonstration portfolios for just over a year. Earlier this month, we roughly halved our holding.

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