A dozen funds tipped to bounce back in 2025

They say beauty is in the eye of the beholder and when it comes to investing it often pays to love the unloved. All investment strategies move out of favour or suffer setbacks from time to time – and holding your nerve means catching the rebound.

We asked a range of fund analysts and wealth managers to name funds they hold or recommend despite them underperforming in recent years. Why are they confident this beleaguered bunch will return to their former glories?

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Fundsmith Equity

Terry Smith’s previously stellar track record in running Fundsmith Equity has waned in recent years due to a weak 2022 and failure to keep pace with the MSCI World index’s “exceptional” performance since 2023, says Alex Watts, a fund analyst at interactive investor.

One good reason to own the fund is Smith’s focus on quality, which makes for substantial differentiation from the index.

“With quality being a factor that tended to outperform over the long term, and market returns beginning to broaden away from narrow tech leaders, there’s scope for Smith’s stock picking to be rewarded and the fund’s relative performance to pick up,” adds Watts.

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Stonehage Fleming Global Best Ideas

At the end of 2021, Stonehage Fleming Global Best Ideas had a consistent record of market and peer-beating performance. Today, its three and five-year relative performance is less remarkable.

The portfolio is focused on quality growth with significant weightings to the theme of the fourth industrial revolution through holdings in Microsoft Corp (NASDAQ:MSFT), Alphabet Inc Class A (NASDAQ:GOOGL) and ASML Holding NV (EURONEXT:ASML), as well as the more defensive healthcare sector.

“While it has been AI that supercharged the index of late, the fund’s strength lies in the team’s potential and record as differentiated stock pickers,” says Watts.

Long-term winners include animal drug producer Zoetis Inc Class A (NYSE:ZTS) and a (now trimmed) position in payment provider Visa Inc Class A (NYSE:V).

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Artemis UK Smaller Companies

Fairview Investing director Ben Yearsley decides to “cheat slightly” and pick a favourite fund from an underperforming asset class in the form of Artemis UK Smaller Companies.

The UK market has been unloved since the Brexit referendum and the small-cap market, being “a tiny pimple on the side of global markets”, is even more under-owned, making it a “very cheap place to invest regardless of long-term prospects”.

“The last few years has been all about mega-cap tech meaning there’s a great opportunity to buy small-cap now,” says Yearsley. “Add in some political stability regardless of the recent horror Budget and now might be the time to enter.”

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Slater Growth

At a time when wealth managers and retail investors are shunning UK assets and shifting vast sums of money into international passive vehicles, Canaccord Wealth is tipping Slater Growth for a revival of fortunes.

The UK multi-cap fund has a bias towards smaller and medium companies, which has resulted in weaker returns in recent years, but head of fund research Kamal Warraich believes the “smart money is already in the UK”.

“Record levels of M&A activity, record levels of share buybacks and renewed interest from international institutions implies there is considerable value to be had here.”

Investors would be “wise not to underestimate Mark Slater” and his focus on mispriced growth opportunities, he added.

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Baillie Gifford European Growth

Kepler Trust Intelligence likes Baillie Gifford European Growth Ord (LSE:BGEU) despite recent underperformance.

Head of investment companies research Thomas McMahon attributes that to losses in unlisted companies and reckons the listed holdings will continue to drive performance. For example, shares in Spotify Technology SA (NYSE:SPOT) have soared more than 151% so far this year.

“As well as the online economy, the trust has high exposure to the hard technology sectors, including ASML and many other companies across the industrials and logistics sectors,” he says. “There are strong secular growth drivers behind lots of the portfolio’s key themes, and its holdings may be easily overlooked by investors seeking access to them via the more expensive US market.”

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Comgest Growth Japan

For FundCalibre managing director Darius McDermott the investment style of a fund is always crucial, but perhaps nowhere more so than in Japan.

“The market frequently oscillates between growth and value, creating unique challenges and opportunities for investors,” he says.

At present, while global markets question whether growth stocks have been stretched too far, the reverse is being asked in Japan.

“Value managers currently dominate performance tables, while many growth-focused managers, like Comgest Growth Japan, have faced headwinds. However, with a well-defined process that has delivered for investors over three decades, we believe this fund is well-positioned to rebound strongly when growth eventually returns to favour.”

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Caledonia Investments

Anthony Leatham, head of investment trust research at Peel Hunt, highlights the discount opportunity in Caledonia Investments Ord (LSE:CLDN), which boasts a well-balanced mix of public companies, private capital and funds.

“The fund sits in the flexible sector and currently trades on a wider-than-average -36.9% discount, which is surprising given that it’s delivered the best five-year annualised net asset value total return in the peer group of 11% (as at early December),” he says.

Its discount is statistically significant. “The trust’s 15-year average discount is -21%,” says Leatham. “The last time it got close to the current level was in June 2012 at -34%, and over the course of the following nine months the discount narrowed to -19%.”

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International Biotechnology

Another fund tipped for turnaround due to the potential for discount narrowing is International Biotechnology Ord (LSE:IBT).

“It is the biotech sector’s best performer over the past 12 months, has an active buyback policy, pays a 4% dividend but still trades on what we believe is an unjustified -10.5% discount,” says Charlotte Cuthbertson, co-manager of MIGO Opportunities Trust Ord (LSE:MIGO), which has owned the trust for around three years.

“IBT’s managers adopt a nimble approach, with relatively high portfolio turnover, switching recently into small and mid-caps to capture upside as the sector moved into favour. They place a strong emphasis on capital preservation, aiming to reduce what they term ‘binary event risk’.”

Gresham House Energy Storage

Peel Hunt analyst Markuz Jaffe is sticking with Gresham House Energy Storage Ord (LSE:GRID) despite its shares slumping almost 70% in the past 18 months against a backdrop of declining revenues for battery storage assets in the UK market.

“Despite having outlined the pathway to dividend resumption, which we think is a key catalyst to a re-rating, GRID continues to have the worst one-, three- and five-year share price total returns of its battery storage specialist peer group,” says Jaffe.

“We see scope for the GRID share price to recover further during 2025 as the company executes on the various milestones laid out at as part of its three-year plan.”

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Greencoat UK Wind

EQ Investors investment manager Andrew Rees first bought shares in Greencoat UK Wind (LSE:UKW) when it launched in 2013.

“The benefit for shareholders is that the expected return is uncorrelated to equity markets while providing a high and rising income,” he says.

Since inception, its shares have generally traded at a premium to net asset value, but today stand at a discount of -20.4%.

“With the volatility in gilt yields and uncertain outlook for inflation, the current share price makes this a compelling investment case,” he says.

Chrysalis Investments

One trust whose share price has been recovering but still has some way to go is Chrysalis Investments Limited Ord (LSE:CHRY).

“From its launch in April 2018, the growth capital trust had a spectacular start, but a wide discount emerged as interest rates rose and investors turned against unprofitable and cash-consumptive companies,” says James Carthew, head of investment companies at QuotedData.

With the portfolio increasingly mature, realisations are happening. Carthew points to “impressive gains” on Graphcore and Featurespace.

One of its largest holdings, Klarna, recently filed for an IPO in the US. Carthew notes: “The proceeds from this should allow Chrysalis to meet its goal of returning £100 million to shareholders and free up sufficient capital to fund new investments.”

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BH Macro

Hassan Raza, portfolio manager at CG Asset Management, continues to back BH Macro GBP Ord (LSE:BHMG), the global macro hedge fund strategy that has been a holding in Capital Gearing Ord (LSE:CGT) since around March.

Raza says: “It faced a one-two punch in 2023: disappointing NAV performance [-2%] and the discount blowing out to -18%.

“However, it has an excellent track record as a diversifier. We share a similar macroeconomic perspective as BH Macro’s management team and value its ability to land a solid counterpunch when volatility rises.”