Top-performing funds and outlook for rest of 2026

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In this half-time report, Kyle is joined by Dave Baxter to look back on the top-performing funds and sectors in the first six months of the year. The duo also consider key drivers for stock markets for the rest of 2026, as well as suggesting funds that could help make a portfolio less exposed to Big Tech and artificial intelligence.

00:00-00:40 - Intro 
00:40-02:31 - Top-performing fund sectors in the first half of 2026 
02:31-04:22 - Concentration risk 
04:22-07:04 - Best fund performers in the first half of 2026 
07:04 –09:22 - Best investment trust performers in the first half of 2026 
09:22 – 10:31- Laggards and how global funds have fared 
10:31 – 11:49 - Why India funds have struggled 
11:49 – 14:15 - Blue Whale Growth fund’s strong showing 
14:14 – 18:19 - Tech and AI key for stock market good times continuing 
18:19 – 19:53 - Fund routes to reduce concentration risk 
19:53 - 22:46 - ‘Blander’ funds that can give your portfolio greater diversification 
22:46-26:58 – Interest rates and ‘unloved’ areas 
26:58-28:02 – Geopolitical risks highlight importance of spreading risk 
28:02-28:50 – Outro

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Kyle Caldwell: Hello, and welcome to our latest On The Money podcast, a weekly show that aims to help you make the most out of your savings and investments.

Today’s episode is a ‘half-time’ report looking at which types of investments have performed well in the first six months of the year, which have lagged, and the key trends. Then we’re going to look at the second half of 2026, highlighting key things for investors to look out for.

Joining me to tackle this topic is Dave Baxter, senior fund content specialist at interactive investor. Dave, welcome back.

Dave Baxter, senior fund content specialist at interactive investor: Thank you for having me on.

Kyle Caldwell: So, Dave, let’s start off with the scores on the doors. The top three Investment Association (IA) sectors for the first six months of the year - and this data is from FE FundInfo – were the Technology sector, [with an] average gain of 29.5%, then Asia Pacific, excluding Japan, [with an] average fund gain of 26.6%, and then Global Emerging Markets in which the average fund returned 25.4%.

Dave, could you talk us through the key performance drivers for each of those sectors?

Dave Baxter: Yeah. I’m perhaps slightly oversimplifying, but I think you can tie this together with one theme, which is the fact that the artificial intelligence (AI) trade has now quite forcibly widened out to include some of those Asian and emerging market stocks. 

If you were to look at the most prominent countries in the Asian and EM indices, those are South Korea, Taiwan, Brazil, India, and China. The two top performers over that six-month period are Korea with around 120% return, then Taiwan with about 65%. You just have some massive strong performers there.

So, Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) was up by around 50%. Over in Korea, you have Samsung Electronics Co Ltd DR (LSE:SMSN), up by more than a 100%, and SK Hynix Inc ADR (NASDAQ:SKHY), up by around 220%.

So, what you’re getting is a big rally from those handful of stocks, perhaps the returns are concentrated around a few names, which I’m sure we’ll get to, but that is lifting those regions, and it’s also lifting technology funds.

Kyle Caldwell: In terms of market concentration, as you just pointed out, a lot has been made about the so-called Magnificent Seven stocks and how they have become an increasing part of the US stock market index.

I think for the S&P 500 index those seven companies are over a third of the index, and we’ve seen those seven companies become even more influential in global markets. So, for the MSCI World Index, those seven companies [comprise] around 22-23% overall.

But as you just touched on, if you hold an emerging market or Asia-Pacific fund, the chances are, whether it’s an index fund or an actively managed fund, there are a handful of names that have been influencing the overall performance.

For example, Taiwan Semiconductor accounts for a 15.1% weighting to the MSCI Emerging Markets Index. We often see active fund managers typically have over 10% in that stock. It’s quite hard for fund managers to go against the company when it’s such a big part of the index. As if it performs well, as it has done, and a manager doesn’t hold it, they could underperform just by not holding that one stock because it’s such a big part of the index.

Other names, so Samsung Electronics, that’s 8.2% of the MSCI Emerging Markets Index, and the AI memory chipmaker SK Hynix is 7.7%.

Obviously, those weightings, they’ve been going up because the share prices have risen a lot for those companies, and they are big companies in their own right.

In terms of what’s been the best overall fund performer in the first six months of the year, the gold medal goes to Franklin FTSE Korea UCITS ETF GBP (LSE:FLRK). That’s up 111%. And then we have Barings Korea I GBP Acc (B9M3RQ4). So, that’s up just over 105%.

But the thing to bear in mind is that these are very specialist funds. Now, if you are considering them, they should be in the adventurous area of your portfolio, and should ideally comprise a small weighting rather than being too much of your portfolio in such a specialist area. I’d say that for any single-country exposure in emerging markets.

Also bear in mind, for example, that with Barings Korea Trust, even though that’s an actively managed fund, it does have 9.5% in SK Hynix and 9% in Samsung Electronics. But then if you look at the ETF under the bonnet, nearly half that tracker fund is in two stocks.

As ever, Dave, it is important, isn’t it, for investors to look under the bonnet and see how the fund is exposed to certain areas and themes, and then take a view about whether that has become disproportionate or not.

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Dave Baxter: It’s also worth looking at how these stocks and regions are creeping into all manner of different funds and how you might be getting exposure through what you would see as very different portfolios. 

For example, a generalist global fund might hold more in Korea, a tech fund might hold more in Korea again, and even if we look at a strong performer with a value style [such as] Artemis Global Income I Acc (B5ZX1M7), it has listed - I don’t know if it still does - Samsung Electronics as its top holding for quite a while.

Kyle Caldwell: Of course, market concentration isn’t a new thing. Back in the early 2000s, for example, Vodafone Group (LSE:VOD) at one point was nearly 15% of the FTSE All-Share index. So, it’s just something to always be mindful of.

In terms of other types of funds that performed well in the first six months of 2026, beyond Korea, we have Polar Capital Global Tech I Inc GBP (B42W4J8). That’s up nearly 75%.

Amundi MSCI Semiconductors ETF Acc GBP (LSE:SEMG) that’s up over 70%, and also up just over 70% is Polar Capital Smart Energy I Acc GBP (BPF0PL5) fund. Then, below that, we have a handful of ETFs providing exposure to Taiwan that performed very well, with around 70% returns.

Dave, for investment trusts, you ran the numbers. Have similar trends played out, or were there some differences as well?

Dave Baxter: Broadly similar with a couple of additional trends, I would say. So, I’m going to, again, slightly oversimplify it. A lot of the big gains came from space, AI and Asia, and I suppose those last two categories you can bunch together.

So, kicking off with space, of course we had the Space Exploration Technologies Corp Class A (NASDAQ:SPCX) IPO in June, it was very hotly anticipated and there’s been a lot of market movements around that, so Seraphim Space Investment Trust Ord (LSE:SSIT) continues to do very well, and some of the Baillie Gifford trusts that held SpaceX, so Scottish Mortgage Ord (LSE:SMT) and so on, also produced very big returns.

Turning to AI, you had Polar Capital Technology Ord (LSE:PCT), so the closed-ended version of the fund you mentioned before.

You also had Manchester & London Ord (LSE:MNL), that’s a very punchy fund that previously had massive bets on Microsoft Corp (NASDAQ:MSFT) and NVIDIA Corp (NASDAQ:NVDA). It’s now cut those back and it has big positions in things like TSMC.

And then turning to Asia emerging markets and, again, sort of tech AI, you had names like the Baillie Gifford-managed Pacific Horizon Ord (LSE:PHI) and things like Fidelity Emerging Markets Ord (LSE:FEML).

Finally, I would mention one interesting outlier. We’ve had big returns from Baker Steel Resources Ord (LSE:BSRT), so that’s a commodities fund, that had a very strong run last year and, interestingly, it’s continued that when we’ve had a bit more of a mixed experience for those commodities funds.

Kyle Caldwell: Overall, it’s been a pretty solid first half of the year for both funds and investment trusts. Of course, we did have that pick-up in stock market volatility earlier this year in response to the Middle East conflict, and there were also periods in which certain tech shares had quite short sell-offs.

We also had that sell-off early on in the year, again, for software-related companies, the likes of RELX (LSE:REL), Experian (LSE:EXPN), and the London Stock Exchange Group (LSE:LSEG). They were caught up in that sell-off amid fears over the impact of artificial intelligence potentially disrupting their business models.

In terms of the worst-performing sectors, only three fund sectors actually lost money. So, the India fund sector, it’s at an average loss of nearly 7%. And then there’s two bond sectors that made very small losses of 0.1% and 0.2%, that’s EUR Government Bonds and EUR Mixed Bonds. 

Now global funds are very popular with investors who like the diversification those funds offer. They’ve delivered an average gain of just over 10%.

For UK funds, if we look at the two main sectors, UK All Companies and UK Equity Income, the returns are 6.1% and 5.2%.

I think one of the stories of the first half of the year is that both global and UK equities have continued to climb higher despite lots of uncertainty, lots of potential headwinds due to the political tensions, a higher oil price, and also concerns over the inflationary impact higher energy costs will have on consumers. 

Going back to India, Dave, what are your thoughts on that fund sector being bottom of the performance pile?

Dave Baxter: It’s interesting because I think one reason is that [India] lacks a really obvious AI narrative. A lot of the market momentum, again, has been around that theme, but there’s been interesting coverage of how India basically appears to lack those really obvious AI plays. So, that’s one problem. Also, it’s a big importer of some of its energy. So, when things were looking worse after the advent of conflict in the Middle East, that was one of the big strugglers.

Another thing is that it might simply still be having a bit of a hangover from its strong performance in the past. For a while, it was a bit of an emerging market darling. China was struggling, while India was doing amazingly, and that led to these concerns that valuations were looking a little bit frothy. So, I guess we’ve seen a pullback from that.

But, of course, whenever something’s down, it might be an interesting contrarian play, so perhaps people will start to turn an eye there. But I suppose they do need to look at these valuations and whether they do seem to have come off enough to look attractive.

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Kyle Caldwell: In terms of global funds, as mentioned, the average return for that sector in the first half of the year was just over 10%. But there’s a wide variety of different strategies and there’s hundreds of funds. Some funds focus on global energy stocks, for example, while others are more generalist. Are there any trends or funds you can pick out from the first half of the year?

Dave Baxter: As you say, it’s a very disparate sector and you often see the very specialist funds both at the top and the bottom of the table. At the minute, we have things like cybersecurity and AI funds at the top.

But I think it’s an interesting time to look at the so-called generalist global funds. They’re doing quite different things at the minute in terms of whether they’re, for example, bailing out of Magnificent Seven shares on the back of worries about AI spending and so on.

I wanted to highlight one name which is the best performer out of the generalists and that is WS Blue Whale Growth I Sterling Acc (BD6PG56). It’s returned, I think, about 45% over the six months, which is no mean feat. It’s a very growth-y fund, and has in the past been accused of basically being a tech fund, but it does focus a fair bit on AI. It also holds some things like certain defence companies, that kind of thing. It was one of the funds to slash its exposure to Mag Seven companies last year on the back of concerns about AI spending.

Kyle Caldwell: We’ve both interviewed the Blue Whale fund manager over the years, Stephen Yiu. He is very active, and he’s not afraid to change the direction and position of the fund. Some fund managers, their top 10 holdings, you look back and think three years ago, they are quite similar to what they were then. But with Blue Whale Growth, I’ve noticed that over the years even the biggest holdings in the fund, over time they have changed as he’s adapted to where he thinks the next best opportunities are.

Dave Baxter: Yeah. He will make quite dramatic moves and suddenly turn kind of sour on a sector and completely bail out of one particular part of the market and then focus on something else.

In the past people might worry about that, they might worry about a lack of consistency, but what’s interesting is in recent years we’ve seen some of those classic buy-and-hold managers actually having quite a challenging time, and then these more flexible names are doing pretty well.

Kyle Caldwell: Let’s now move on to the second half of the podcast in which we get our crystal ball out and discuss prospects and key considerations for investors for the rest of 2026.

Dave, one of the big questions for me is whether the good times for stock markets are going to continue. In particular, the strong rally that we’ve seen, and in particular across semiconductor and memory chip stocks, which have performed phenomenally well. 

For me, it really does heavily hinge on whether the world’s biggest technology companies, the so-called Magnificent Seven, continue to deliver the earnings growth that investors are expecting on the basis [and] whether the valuations justify the potential earnings growth as well.

Ultimately, a big question mark is whether the scale of capital expenditure on AI advancements is going to lead to the earnings growth and profits that investors are expecting down the line in the future.

One thing that many fund managers are keeping a very close eye on is how much of that capital expenditure is being spent through debt, or [whether it is] being taken out of the business in other ways.

Dave Baxter: Yeah. It’s interesting, isn’t it. You have this dichotomy where the equity markets are still very excited, and we’ve seen that with things like SpaceX as well. But now you also have these companies turning to the bond markets, which are a bit more cautious and a bit more concerned.

It will be interesting to see whether that spending comes through, and, of course, there are these arguments about the past if you look at the internet boom and dotcom boom and bust. You did have a life-changing technology, but it didn’t actually lead to profits in the short term for a lot of these companies.

So, there is potential for a shake-up. There could be jolts, although perhaps you have to turn back to the original principles and maybe you just need to stay diversified. But you also probably need to avoid knee-jerk reactions, and you need to stay invested if you can.

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Kyle Caldwell: There’s a quote that came into my inbox that I thought summed up the situation very well. It was from Anthony Willis, senior economist at Columbia Threadneedle Investments. He said: ‘The critical question is whether companies can monetize that spending and generate an attractive return on investments. Expectations around AI-related capital expenditure, revenue growth, and profitability are now high, which means earnings results could become an important source of volatility.’

I thought that summed up the situation very well because every time these big companies report, there’s a lot of expectation, and because there’s a lot of expectation baked into how high the valuations are for the share prices.

Dave Baxter: Do you also have to watch out for what I’m going to call ‘AI washing’ in reports? We’ve already seen some companies slashing headcounts at their organisations and they’ve tried to attribute this to AI, but actually they’ve had poor performance anyway, so they’re perhaps finding an excuse for it.

We arguably used to have this with Brexit, where UK companies would have a rough quarter and just find this catch-all excuse. As always, investors need to be a bit savvy and a bit discerning when they read through these statements and maybe take things with a pinch of salt in terms of what management are trying to tell them.

Kyle Caldwell: Yeah, it’s a really interesting point, Dave. If you’re investing in an individual company, it’s a case of looking under the bonnet and then making a judgement call about how much that company is pivoting into AI.

For investors, it’s also about considering how much exposure, overall, you have to technology and by extension to the artificial intelligence theme. You may want to invest in certain funds or areas that have less exposure to the AI theme and technology. One of the ways to reduce concentration risk for the Magnificent Seven names are equally weighted ETFs for the S&P 500.

Two that we have on the interactive investor platform are the Invesco S&P 500 Equal Weight ETF Acc GBP (LSE:SPEX), and Xtrackers S&P 500 EW ETF 1C GBP (LSE:XDWE). Also over the past couple of years, there have been some new fund launches of global trackers that have been stripping out US exposure. Two that we have at interactive investor are Amundi MSCI World Ex USA ETF Acc GBP (LSE:WEXU) and Xtrackers MSCI World ex USA 1C GBP (LSE:XMWX).

A third option is to consider active funds that are just giving you vastly different exposure to the global stock market index. One way that you can judge whether that is the case is to look at the active share ratio, if it’s available. In a nutshell, the higher the percentage, the more different the fund is from the global stock market.

Dave, you wrote an article for your weekly column recently in which you pointed out that you could actually look at more boring funds. So, they give you a blander exposure to different areas, but you’re getting different exposure to areas that are underserved by other fund options.

Dave Baxter: This is my valiant call for people to look beyond the exciting parts of the market and look additionally at the boring parts. So, go for those unloved sectors, go for those sectors that may be performing well, but aren’t really sort of bringing investors in. 

This is admittedly niche, but one that we discussed briefly earlier is India. It’s quite out of favour and it doesn’t have the obvious AI play it seems. A trust I always quite admired was Ashoka India Equity Investment Ord (LSE:AIE). It takes a very active approach. It also has a performance fee system where it doesn’t actually have a regular fee. In theory, the team are quite well incentivised to try and pick those winning shares.

Beyond that, you could just look at areas that are a bit less sexy than the US. Both Europe and the UK in recent years have actually been performing very well. But if you look at fund flows, they’re not really drawing people in.

So, you could look at things like WS Lightman European R Acc (BGPFJN7), the European value funds. I was going to mention Premier Miton European Opports B Acc (BZ2K2M8), which is mid-cap focused, but its performance has been outrageously strong just in the last three months. So, maybe that’s slightly toppy.

For UK funds, you do have strong performers like Temple Bar Ord (LSE:TMPL), but you also have things to offset them like IFSL Marlborough Special Sits P Acc (B907GH2) and so on. Again, it’s just that mantra of diversifying.

Kyle Caldwell: Plenty of food for thought there, Dave. Two other options I consider more sort of blander options for investors are Polar Capital Global Ins F Acc (B61MW55) and Utilico Emerging Markets Ord (LSE:UEM).

The Polar Capital fund is investing in, obviously, a specialist area of the market, but I don’t think it’s really got many competitors, if any, that are fishing in that same pool.

The Utilico Emerging Markets Investment Trust is a way to gain different exposure to emerging markets, and it’s more of a defensive way to own a higher-risk area, which is what emerging markets [are offering] investors and why you should always consider investing over the long term, at least five years, and ideally more than 10 years, typically.

Let’s now move on to another thing for investors to watch out for during the rest of 2026, and that’s interest rates. At the start of the year, the expectation was that we would see at least one interest rate cut in the UK, if not two, or maybe even three. However, the Middle East conflict has postponed any potential UK interest rate cut. 

At the moment, the consensus is that the next move might actually be an increase rather than a decrease, and this has also postponed the potential recovery for certain areas of the market. I’m thinking here of UK smaller companies. They were out of favour [while] UK interest rates [were rising], and also renewable energy infrastructure investment trusts. Again, those rises in UK interest rates have been a real headwind for that sector. 

Dave, what are your thoughts? Are we waiting here for interest rates to be cut to act as a potential catalyst for those two sectors?

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Dave Baxter: I guess it doesn’t help if it takes longer for them to get cut. There’s an interesting argument that, as you arguably saw with some of the growth portfolios globally like Scottish Mortgage, perhaps some companies have become a bit more used to higher rates, and they have toughened up in the face of that challenge. So, things might not be as bad as they were in, say, 2022. 

But, yes, it removes one of the obvious triggers for a strong recovery for those sectors. You mentioned some of those areas that were affected. I was going to put some numbers on the damage.

So, the last five years in aggregate have been good for lots of markets, but if you look at the average UK smaller companies fund over five years to early July, it’s down by around 12%. And if you look at the average renewable energy infrastructure trust over that period, that’s down by around 16%. You’re stripping out a lot of trusts that have just disappeared because they’ve gotten so cheap and been bought out or merged away. So, it definitely means that if you’re focusing on those areas, you might need to be more patient, but perhaps it also offers you a cheap way in again if you’re the kind of very patient, adventurous contrarian.

Kyle Caldwell: If you are a patient and contrarian investor, the yields on offer for renewable energy infrastructure are typically 10%-plus, so I can see why some people own them as those yields, in theory, are paying you to wait.

But as you said, Dave, you do need to be patient because over three and five years overall total returns for some of those investment trusts have been negative. So, yes, you may have been getting the dividends come in, but if you look at the overall total returns, capital plus income, it’s actually not worked out that well over those periods.

Dave Baxter: Yeah. Also, with the paid-to-wait thesis, over time, some of these trusts have started to kind of wind up. And if you’re a renewable energy infrastructure trust, then you hold a load of private assets like wind farms, and those are not easy to sell if you want to suddenly wind up your portfolio and hand the cash back to investors. So, you’re going to have to wait a much longer time potentially than you would expect.

Kyle Caldwell: And it’s not just been those increases in interest rates from rock-bottom levels to peak at 5.25% that have been a headwind for that sector. There have been some political interventions that have hurt that sector.

Dave Baxter: Yeah, and there’s also the prospects of further, I suppose, bits of bad political sentiment. There’s this argument that if you do, at some point, have something like a Reform government, then that’s going to become even more hostile to that space.

Kyle Caldwell: That moves me on to the final point I wanted to make in terms of what investors should watch out for and be mindful of, which is political risk. 

Of course, at some point, we will have a new UK prime minister, and that does create uncertainty for stock markets as we don’t know how then person will put their stamp on the role and what policies will be introduced. 

Beyond that, geopolitical risks haven’t disappeared. I think, ultimately, Dave, the message for investors is to have as much of a resilient portfolio as possible to be diversified and to ultimately stick to your long-term plan.

Dave Baxter: Yeah, and also just monitor, particularly if it’s active funds, what you hold. We’ve spoken about global funds in the Mag Seven, but say, the UK, UK equity funds. Some have been digging a lot more into mid-cap shares because they’ve been beaten up, so you might have more exposures to the UK consumer, and you need to balance out these different exposures that you have within those funds.

Kyle Caldwell: Dave, thank you very much for coming on to chat through both the first half of the year and prospects for the second half of the year.

Dave Baxter: Thank you for having me on.

Kyle Caldwell: That’s it for our latest On The Money podcast. We love to hear from listeners, and the best way to get in touch is by emailing us on: otm@ii.co.uk. We have plenty of analysis articles related to funds, investment trusts, and ETFs on the interactive investor website, which is ii.co.uk. Hopefully, I’ll see you again next Thursday.