The funds that the Trustnet team are backing in 2025

02 January 2025

The members of Trustnet’s editorial team pick the funds that they expect will outperform this year.

By Gary Jackson

Head of editorial, FE fundinfo

Funds managed by the likes of abrdn, Rathbones and Artemis are being backed the journalists in Trustnet’s editorial team for 2025, with the question of how to approach the US stock market being the biggest issue.

US equities had another strong year in 2024, thanks to the artificial intelligence (AI) revolution, the US exceptionalism narrative and Donald Trump’s second presidential win. However, there are questions about if recent US winners will continue their run into 2025 and, if not, how the market rally will broaden out into other areas.

Below, the Trustnet editorial team explain how they are approaching this dilemma and the funds they think will outperform over the coming 12 months.

Head of editorial Gary Jackson: abrdn Global Smaller Companies

Thinking about where to invest in 2025, I find myself focusing on global small-caps for a few reasons. Historically, small-cap companies have shown the potential for higher growth compared to their larger counterparts, particularly during periods of economic recovery. With global economies stabilising and the direction of interest rates likely to remain favourable, smaller companies could stand to benefit.

Additionally, small-caps are currently trading at attractive valuations relative to large-caps following their recent underperformance (see chart below), presenting a reasonable entry point for those willing to accept their higher volatility in exchange for long-term growth potential.

Performance of global large-caps vs small-caps over 3yrs

Source: FE Analytics

My preferred fund in this space is abrdn Global Smaller Companies. It offers a well-researched, diversified approach to small-caps, focusing on businesses with strong fundamentals and growth prospects. By targeting quality companies, the fund mitigates some of the risks inherent in small-cap investing, which adds a layer of confidence to this choice.

Manager Kirsty Desson said: “We’re looking for those rare companies that, we think, have what it takes to be a potential large-cap leader of tomorrow, resulting in a high conviction portfolio of around 50 stocks.”

Its global reach adds another layer of appeal, providing exposure to regions where small businesses may have unique advantages, such as local market expertise or favourable economic conditions. Around half the portfolio is in the US, where small-caps are among the expected beneficiaries of president-elect Donald Trump’s policies, but also offers exposure to Japan, the UK, Australia, Germany and other countries.

While small-caps are not without their challenges – they tend to be more sensitive to market fluctuations and economic downturns – this is precisely why I’m approaching this decision with balance. I see this as a calculated step to diversify my portfolio, which has plenty of exposure to large-caps, and position it for potential upside in a less crowded segment of the market.

Editor Jonathan Jones: Rathbone Global Opportunities

This year has been one of surprising prosperity for investors despite myriad reasons for markets to collapse. Although there is still trepidation heading into 2025, I am taking the glass-half-full approach and picking something that should do well if the good times keep on rolling.

I already own Rathbone Global Opportunities in my ISA and am picking it here. The fund is managed by Alpha Manager James Thomson and is predominantly invested in the US (71.4% of the portfolio).

Performance of fund vs sector and index over 10yrs

Source: FE Analytics

With Donald Trump becoming president in 2025, things could be on the up in the US. The president-elect has promised huge fiscal spending during his tenure and markets performed well during his first term. Indeed, the S&P 500 made a total return of 21.1% in 2017 (in US dollars).

This fund owns some big tech names such as Nvidia and Microsoft that have thrived over the past 18 months but also owns defensive holdings, giving it a more balanced performance trajectory. Although returns are below par over three years due to its lack of Magnificent Seven positions, next year could be a big one for some of its less heralded companies.

News editor Emma Wallis: Brown Advisory Global Leaders

I’ve waded my way through a multitude of fund managers’ outlooks this year and the consensus forecast is that 2025 should be a good year for equities, albeit nowhere near as good as 2024, so I’m going with an equity fund.

US equities are richly valued and while some managers argue there are good reasons for that, such as strong earnings growth, others warn that the slightest disappointment or earnings miss could be severely published when stocks are priced for perfection.

I am still undecided about whether the US will continue outperforming all other regions or if cheaper areas are a safer bet. So I’ve decided to delegate geographic decisions to the experts by choosing Brown Advisory Global Leaders, managed by Mick Dillon and Bertie Thomson.

I don’t know how much longer the current late-stage bull market will last and if next year will be volatile – quite possibly with Donald Trump at the helm of the US, home of the world’s largest market. But wherever markets and economies are headed, the companies within Brown Advisory Global Leaders, which are solving problems for their customers and taking market share, are well placed to weather any storms.

If markets do sell off, the Dillon and Thomson will be taking advantage and buying more shares in great companies at cheaper prices. They have to. Their investment process includes a drawdown rule whereby if a stock falls 20%, they have to buy more or get out. Staying still is not an option.

Whilst Dillon and Thomson aim to buy stocks when they are cheap, their portfolio is nonetheless quite richly valued and that does concern me. In a real world scenario I would pair this fund with a value manager and a small-cap specialist.

However, I can sleep soundly at night knowing that Dillon and Thomson will do their utmost to perform because they could not be better incentivised. “Bertie and I have only two investments,” Dillion told me earlier this year. “We are partners and shareholders at Brown Advisory and we invest in Brown Advisory Global Leaders and that’s it. We’re all in. I’m a big believer in people who eat their own cooking.”

Senior reporter Matteo Anelli: Premier Miton US Opportunities

I am often the annoying anti-consensus person in the room and that shows when I’m picking investments too, although probably (hopefully) looking beyond the Magnificent Seven isn’t anti-consensus anymore.

My pick is Premier Miton US Opportunities, an unconstrained fund concentrated on 40 multi-cap companies that have demonstrated their strength across market cycles. It is a very flexible fund that can target more defensive or cyclical businesses depending on the market environment and, most importantly, isn’t invested in the same US companies that everyone already owns.

Performance of fund vs sector and index over 10yrs

Source: FE Analytics

Experts are now expecting returns to move away from the US mega-caps into the lower capitalisation companies, which might also benefit from new domestically-focused policies in the US. The fund doesn’t include any of the Magnificent Seven, so has underperformed its peers and market in recent years, but I’d hope this would turn around if and when market leadership in the US shifts.

Reporter Patrick Sanders: Artemis Global Income

As the latest addition to the Trustnet team, I went back and forth on the ‘safe choice’ of picking an index tracker, banking on another year of spectacular US performance. But ultimately, I thought I would go with a fund that stuck out to me over my opening months on the team – Artemis Global Income.

This fund appeals to me for a few reasons. Firstly, after talking with managers Jacob de Tusch-Lec and James Davidson I have a good understanding of their approach to equity income investing. The managers have an interesting and well-diversified stock-picking strategy.

While there is a major US allocation, the high-conviction portfolio also has exposure to Europe, Japan and has even recently pivoted more towards China. Since I’m picking a single fund rather than building a full portfolio, this broad exposure appeals to me and might serve me well if the market broadens out next year as some investors have suggested.

Performance of fund vs sector and index over 10yrs

Source: FE Analytics

De Tusch-Lec and Davidson’s approach has also worked recently and put the fund in the top quartile of the IA Global Equity Income sector over the one, three and five years. With a 4.21% dividend yield placing it within the top five yielding funds in the sector, it matches all the criteria I would look for in equity income.

From wealth management firm Bespoke Investment Group, there have been 27 bear market declines in the S&P 500 since 1929. It should be noted that Bespoke has a very clear definition of what it believes constitutes a bull and bear market. A 20% (or greater) bounce from recent lows that was preceded by a 20% (or greater) decline represents the start of a bull market. Meanwhile, a 20%+ drop from recent highs, which was preceded by a 20%+ rally, signals the beginning of a bear market.

Data from the 27 bear markets the S&P 500 has endured over the past 94 years shows the index has averaged a 35.1% loss. More importantly, bear markets have lasted an average of just 282 calendar days (about 9.5 months).

On the other hand, the 27 bull markets the S&P 500 has enjoyed over the past 94 years have led to an average — I repeat, average — gain of 114.4% !

Furthermore, bull markets have gone on for an average of 1,011 calendar days, or close to three months shy of three years. Put another way, the average bull market has lasted slightly more than 3.5 times longer than the typical bear market since 1929.

££££££££££

Using good ole hindsight the current S&P bull market started in Oct 2022.

Using the statistical average it could have further to run, although the later you board the train the higher the risk.

One certainty is the current bull market will be followed by a bear market but as always the timing is the unknown.

The 2025 fcast is £9,120.00 and the target is £10,000.

The target may be a bridge too far but the fcast should be met, which will be ahead of the plan.

A reminder of the rules for the Snowball, there are only 3.

1. Buy Investment Trusts that pay a dividend and use those dividends to buy more Investment Trusts that pay a dividend.
2. Any Trust that drastically alters their dividend payments must be sold, even at a loss.
3. Remember the rules.

Investment Trusts are the favoured investment as most have reserves to pay the dividend in times of panic as during the Covid market melt down.

Snowball Effect Investing | Compound Your Wealth Like Warren Buffett

August 29th, 2024 by Bob Ciura

The snowball effect shows the power of compounding.

When you push a small snowball down a hill, it continuously picks up snow. When it reaches the bottom of the hill it is a giant snow boulder.

The snowball compounds during its travel down the hill. The bigger it gets, the more snow it packs on with each revolution. The snowball effect explains how small actions carried out over time can lead to big results.

Source: Calvin & Hobbes

In the same way, investing in high-quality dividend growth stocks can generate large amounts of dividend income over long periods of time. That’s because dividend growth stocks tend to pay rising dividends every year. And then you can reinvest those rising dividends to purchase more shares each year. This results in an increase in the total number of shares you own, as well as an increase in the dividend per share, for a powerful wealth compounding effect.

When the Nobel Prize-winning scientist Albert Einstein was asked to identify the most powerful force in the universe, he is said to have replied: “compound interest”. It’s no joke to say that the mathematical phenomenon of compounding – or the ability for gains to grow on gains and income to arise from income – provides a powerful tool for anyone seeking to accumulate wealth. However, you will need time to make it work.

Dividends earned £10,976 beating both the fcast and the target.

An update tomorrow on the 2025 fcast.

A healthy New Year to all.

Goldman Sachs analysts, for example, project the S&P 500 may only generate an average annual return of 3% over the next 10 years due to high valuations and the resulting concentration of value in the index’s biggest holdings.

JPMorgan analysts believe the index will deliver an annual return of just 6% over the next decade.

U have 100k to invest for your retirement in ten years time.

If u buy a S&P tracker and let’s be optimistic and use the 6% growth figure, your 100k could be worth
£179k, could be more could be less.

If u use the 4% rule that would give u income of £7,160 pa, u would need a cash buffer but at the present time u could earn 4% on that cash buffer.

If u buy an annuity, lets be generous again and use a 6% figure, income of £10,174 pa

Canada Life figures show the 65-year-old with a £100,000 pension pot could buy an annuity linked to the retail price index (RPI) that would generate a starting annual income of £3,896. That’s up from £2,195 in the New Year following a 77% spike in rates this year.
Oct 22

It could be less and u have to surrender all your capital but it’s only your retirement u are gambling with.

If u invest in a portfolio of income producing Trusts u could earn 8% and if u compound the dividends at 7% u would have income of 16k pa.
If u leave the funds uncrystallized 25% of that would be tax free and all future dividends would also be 25% tax free. U could pass on your fund to your nearest and dearest but remember those wee cats and dogs.

It’s only your retirement u are gambling with so it depends if u are a gambler or an investor. GL

Dividend Wealth Journal:

The Power of Dividends in Bear Markets
Investing in dividend stocks is a favourite strategy of mine and it might be even more important if we see a Bear Market.

A lot of famous people are telling us a major correction is coming soon.
Are they right?

Not necessarily. They’ve been predicting a huge crash for two years now.

But if we do see a crash, wouldn’t it be great if we didn’t care?

How do we do that?

Dividends.

Here’s why dividends are great during Bear Markets.

1. Consistent Income in Uncertain Times

When stock prices decline, dividend-paying companies still give us regular cash payouts. This income stream can help us deal with the blow of falling portfolio values, offering a tangible return even in a declining market.

For long-term investors, dividends provide a source of steady income that can be reinvested to buy more shares at lower prices. This compounding effect enhances returns over time, helping to offset the losses incurred during a bear market.

2. Lower Volatility

Historically, dividend-paying stocks have less volatility than non-dividend-paying stocks or the market. During bear markets, this reduced volatility translates to smaller declines, helping us preserve more of capital.

For example, during the financial crisis of 2008, high-quality dividend-paying stocks declined far less than the broader market. This stability, relatively speaking, makes them a valuable addition to our portfolios during periods of high market uncertainty.

3. Outperformance in Historical Bear Markets

Looking back at past bear markets, dividend-paying stocks have consistently outperformed market indexes. For example:

During the 2000–2002 dot-com bust, high-dividend-paying stocks declined far less than the tech-heavy NASDAQ index.

In the 2008 financial crisis, dividend-paying stocks provided more stability and a quicker recovery compared to non-dividend payers.

These patterns show us the resilience of dividend stocks during market downturns.

4. Psychological Benefits of Dividends

In a bear market, fear and panic often drive investors to sell, locking in losses. Dividend stocks provide a psychological advantage by giving out consistent income, which can help us stay calm and maintain a long-term perspective.

Knowing that we’re earning a return, even as prices fall, makes it easier to avoid emotional decisions and stick to your investment strategy.

Final Thoughts

Bear markets are challenging, but dividend stocks offer a way to weather the storm. Their consistent income, defensive nature, and lower volatility make them a great choice for preserving wealth and generating returns in down times.

The Snowball will be back before the end of this year with a look forward to 2025 and a wrap for 2024.

VPC Specialty Lending Investments PLC

(the “Company”)

UPDATE

As noted in the Company’s half-yearly results announcement, the Company has now completed the process of removing its currency hedges.  Net cash released as a result which was being held against the potential for margin calls on the hedges will be applied to reduce the Company’s gearing.  

In the September quarterly report the Company noted work being undertaken in regard to the Razor Group following their business combination with Perch.  More details on this will be included in the December quarterly report, but business performance over the last quarter has been poorer than anticipated and it is currently expected that the year-end valuation of Razor will be materially lower than at the last valuation point