2024 was a bit of a mixed bag for investment trusts in the UK, with private equity, private debt and North American funds performing strongly.
By contrast, Renewable Energy and VCT funds disappointed. But what should investors be looking out for in the coming year?
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The Association of Investment Companies gave the subject some thought, recently publishing the results of a survey of its fund manager members. On the top-line, the AIC’s members believed that the best performing sector in 2025 will be the AIC: Biotechnology and Healthcare sector, with around 20% of the managers saying that it will be the strongest sector.
The sector has a lot of ground to recover. Last year the average fund return (on a share price total return basis to 3rd January) in the sector was -0.39% over one-year. Over five-years, average performance was -7%. So, what does the fund manager community see in the Healthcare Sector; should we be preparing for a rerun of the Covid-19 pandemic in 2025?
The other top sectors tipped by managers were Information Technology (AIC: Technology & Technology Innovation) and Energy (AIC: Commodities & Natural Resurces). Interestingly AIC’s communications director, Annabel Brodie-Smith highlighted the crossover between healthcare and IT, with the increased adoption of Artificial Intelligence and Robotics by the Healthcare Sector, possibly leading to significant medical breakthroughs.
Demographic drive for healthcare
The healthcare drive will be from developed markets. Ageing populations are dealing with the diseases of maturity – for example cancer, Alzheimer’s, and weight loss. These increasingly afflict the older demographic on a compounding basis; and this is the demographic that has the biggest purchasing power.
Energy independence – given the ongoing conflicts in the Middle East and Ukraine – might lead to a renaissance in the Renewable Energy Infrastructure sector. As IT innovations advance at a pace faster than most of us can imagine, over five-years the survey suggested this will be the top-performing area.
Making America great again?
On a regional basis, the AIC’s members tipped North America, specifically the US, to be the top-performing region. Over the last year the AIC: North America sector did well, returning on average +22.47%. Over five-years the average investment trust in the sector returned +142.5% and fund managers are tipping the sector to continue its strong performance.
The survey gave honourable mentions to the UK and Emerging Markets; however, managers have been tipping the UK to be the top-performer for the last three-years running, and we’re still waiting for the phoenix to rise.
The same can be said about the smaller companies’ market, which the survey claims should outperform midcap and larger capitalisation companies. This is of course betting on growth coming back to global markets, which by perceived wisdom should benefit smaller companies. That said, there is no guarantee that the world is going into a more positive economic phase, or that the big multinational companies will not continue to dominate. It seems that investment trust managers are an optimistic bunch.
The survey did show a bit of pessimism, with managers saying that the biggest threat to global equites would not come from the Four Horsemen of the Apocalypse: War, Famine, Disease or Death; but from the fifth horseman, Inflation. The managers think that in the UK inflation will remain stubbornly high, but were still holding out the hope that the Bank of England would cut interest rates to between 3% and 4%.
