Fund sectors: the winners and losers in 2024

It has generally been a very strong year for investors. Up until 19 December, the MSCI World index has risen around 20%, while US shares are up about 25% and UK shares up nearly 10%, including the impact of dividends. 

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We’ve already reported on the best and worst funds, investment trusts and exchange-traded funds (ETFs), but there are also some important fund-sector themes from the year.

Using classification by the Investment Association (IA), which categorises funds (active and passive) and ETFs into different sectors, these are the best and worst sectors of the year.  

The best-performing sectors  

Not for the first year, technology was the best fund sector, with the average fund rising 23%. 

The sector was boosted by developments in artificial intelligence (AI), where most of the biggest tech firms are investing heavily, including Amazon.com Inc (NASDAQ:AMZN), Alphabet Inc Class A (NASDAQ:GOOGL) and NVIDIA Corp (NASDAQ:NVDA).

The AI theme also played out in North America and Global funds, where US technology shares feature heavily. They were the third and seventh best sectors this year, with funds rising on average 20.7% (North America) and 12.1% (Global) on average this year.  

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Global funds tend to invest heavily in American shares, which helps them return more than most region-specific funds. For example, the MSCI World index is 70% US companies.  

However, some regions outside North America also performed well this year. This includes India, where the average fund made 19.2%, and China, where funds rose on average 13%. Reflecting strong returns in these markets, Asia-Pacific (ex-Japan) funds also did well.  

China and India are the world’s most important emerging markets, with more than a billion people each and fast-growing economies.  

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But their stock markets can be volatile. India has delivered a decade of strong returns, while China is constantly in and out of favour with investors.  

The other winning sectors in 2024 were Financials and Financial Innovation, where higher interest rates boosted profits; North American Smaller Companies, where hopes for a booming US economy under Trump led to a market rally at the end of the year; and Global Equity Income, where high-quality companies delivered a solid year of returns, rising 10% on average.   

Source: FE FundInfo, total return 1 January to 19 December 2024. Past performance is not a guide to future performance.

The worst-performing sectors  

By far the worst fund sector to be invested in this year has been Latin America, where the average portfolio dropped nearly 25%.  

Part of this drop is due to weaker currencies, but lower commodity prices and the impact on mining and oil companies have also played a role. Moreover, there are fears that Trump’s trade tariffs will impact Latin American exports to the United States.  Commodity and natural resources-focused funds also fell this year. 

However, the funds investing in different types of bonds dominated the worst-performing fund sector list this year. 

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Bond prices are sensitive to interest rates and expectations about where interest rates will go. Generally speaking, rising rates are bad for bonds, while falling rates lead to higher bond prices. 

But while interest rates dropped around the world this year, they fell less than investors expected. This is because inflation began to tick higher towards the end of the year and economies did not slow as much as anticipated. 

The result was that bond yields rose this year, caused by falling prices. For example, the 10-year gilt started the year yielding 3.5% and now yields 4.5%. Bonds do pay coupons, so the total return for bond funds was boosted by the income that bonds generate.  

The worst fixed-income sector was UK Index-Linked Gilts, where bond prices are among the most sensitive to interest rate changes due to their long maturity dates. The average fund in this sector dropped 9.3%. 

Conventional gilts also performed poorly, with the average gilt fund dropping 3.7%. Emerging market bonds, European government bonds and global government bond funds also dropped this year, as did some property funds. 

Source: FE FundInfo, total return 1 January to 19 December 2024. Past performance is not a guide to future performance.