With markets racing ahead again despite heightened uncertainty, passive funds have made plenty of ‘easy’ money this year.
This is an intimidating backdrop for those seeking to beat the market, be it via an active fund or their own stock picks. Active funds do not have the best record, but there are good reasons to consider such portfolios.
Those that do beat the market tend to build substantial outperformance over time, while the concentration of returns in a handful of stocks means that taking a more nuanced approach might pay off in future.
A problem, of course, is that the world is awash with choice.
There are thousands of active funds available, and scores of active managers claim they know best and have a superior investment process. Sifting through so many choices and picking out the best names seems an impossible task.
Such issues justify our Top 50 Funds list. Each year we assess the market and, with the help of a panel of specialists, compile a concise selection of standout names operating in a range of sectors and asset classes.
We don’t simply pick the best performers at a given moment – we look for funds that differentiate themselves notably from their tracker fund competitors.
To give an obvious example, some names in our list look beyond the companies and sectors that have dominated global and US equity markets in recent years.
These funds can also work well as a complement to trackers and should deliver good long-term returns, even if this can involve spells of underperformance.
In short, our process combines the qualitative and the quantitative.
We have consulted with an eight-strong specialist panel on the state of last year’s list, considered the alternatives and asked which names should stay, exit or enter.
We also look at each fund’s performance and how its portfolio is shaping up. All sorts of factors can determine whether an active fund stands out, from its team and process to the record, investment style and level of risk taken.
It’s also worth asking whether a fund is targeting your desired outcome, be that focusing on a specific theme, generating income, taking big risks for chunky returns or taking a more cautious approach than peers.
The Top 50 Funds list should serve as a source of inspiration for your initial research. A fund’s appearance in the list is no promise of success and the removal of a fund does not necessarily mean it won’t work for you.
It’s also worth noting that we have taken a holistic approach, seeking to cover different investment styles and other preferences within the various categories of the list.
Changes to the list
We only made five changes to the list in 2024, having made 12 in 2023 and 11 the year before. In 2025 we get pretty active again, switching out 12 names from last year’s list.
Overall, we continue to like the fact that our selection covers a variety of regions and sectors, and that it tends to offer funds with very different approaches to one another. But performance issues, among other factors, have prompted a reshuffle.
When it comes to global equity funds, investors rightly have qualms about the presence of US stocks, and ‘tech’ names in particular, in conventional trackers.
There are plenty of active funds that take a different approach here. Lacklustre returns (and in one case a change of personnel) have prompted us to eject a few names from the list, including the widely followed Lindsell Train Global Equity (IE00B644PG05), to make room for some appealing options.
Elsewhere we have switched out one fund making hay from the Japanese corporate reform story for a portfolio that has performed even better, while dropping a couple of funds focused on Asia and emerging markets after a run of weak returns.
We also ditch an underperforming US smaller companies fund, reshuffle our selection of wealth preservation trusts and add another global income fund to the list, as well as dropping a niche property trust.
There’s consistency elsewhere – with caveats. We stick with our current UK equity picks, for example, but note that patience is required with one fund in particular, and leave most of our selections in ‘alternative’ asset classes unchanged.
It’s also worth noting that a few funds, such as Seraphim Space (SSIT), continue to turn the heads of our panellists even if they do not sit in the list.
Other investments, such as UK government bonds, might be better accessed via passive funds. For a selection of the best options on that front read our latest Top 50 ETFs list, published in July.