Today FE fundinfo has released its latest Quarterly Fund Insights report, revealing the best performing funds of 2025, examining strategies, fund flows & wider market trends.
The report revealed Japan & Emerging Market funds led the way with overperformance, beating many developed markets. It also highlighted value and diversified strategies gained ground in 2025, with sustainability and high growth funds seeing significant outflows.
Within this uncertain environment, active managers have continued to underperform market benchmarks. The IA Targeted Absolute Return sector stood out as one of the few areas where active managers most consistently beat their benchmarks and delivered alpha. However, IA Targeted Absolute Return is a notoriously difficult sector to benchmark, which may have contributed to its strong returns.
The data, drawn from trusted fund research and analysis platform FE Analytics, highlights the top-performing funds registered for sales in the UK across Investment Association Sectors in 2025 (YTD).*
Charles Younes, Deputy Chief Investment Officer at FE fundinfo said: “2025 was another year of significant challenges for actively managed funds. The dominance of a small segment of mega-growth tech firms in the S&P 500 narrowed the room for alpha returns for fund managers, a trend borne out in the tilt to growth in the North American market.
“Diversification, therefore, was key, with investors cutting exposure to the US, and navigating the choppy waters of high inflation and interest rate volatility around the world. The most successful active managers proved their worth with judicious approaches, embracing the opportunities to beat benchmarks in fixed income & targeted absolute return strategies.
“A key trend to watch into 2026 will be the evolving way managers hedge risk in markets: how long can the pivot away from the US last, and are there the long-term returns in European & emerging markets to make up for it?”
Some of the key trends from each IA sector include:
IA UK All Companies – challenging environment for active managers with only 11% funds beating benchmarks
· The sector significantly lagged FTSE All Share benchmark: +14.55% vs. +20.91%
· Managers favoured value-led returns amid fiscal uncertainty and sticky inflation in the UK.
IA Global Emerging Markets – diversification strategies supported inflows to funds, with more than 25% beating benchmarks.
· Sector lagged MSCI EM benchmark: +23.29% vs. 26.65%
· There was a balance of growth & value strategies, dominated by positive sentiment as investors diversified from the US.
IA North America – funds dominated by growth bias to capitalise on tech & AI economy
· Sector lagged S&P 500 benchmark: +8.82% vs +11.67%
IA Europe (ex.UK) – fiscal stimulus across EU countries drove returns for value strategies
· Sector just behind MSCI Europe ex. UK benchmark: +20.54% vs +22.47%
· Value dominated, with only approx. 20% active funds outperforming.
IA Global – diversification trends dominated the sector, with funds favouring a tilt to value strategies, and sustainability put under pressure across the board
· Sector delivered 12.6% returns vs. 14.18% for MSCI World benchmark
IA Japan – value strategies supported the most returns for funds, with a shift in sentiment towards passive.
· The sector beat its MSCI Japan benchmark: +19.12% vs. +18.96%
IA Sterling Corporate Bond – Alpha generation was firmly concentrated in long-duration strategies.
· Outperformed its Bloomberg Global Agg Credit Hedge benchmark: +6.55% vs. +6.45%.
IA Sterling Strategic Bond – Strategies focused on flexible mandates exploiting EM & High Yield Exposure.
· Beat Bloomberg Global Agg Hedged benchmark: +6.65% vs. +4.78%.
IA Targeted Absolute Returns – Strong alpha generation across strategies.
· Significantly outperformed BoE Sterling Overnight Index benchmark: +7.11% vs. +3.55%.
· More than 75% funds in the sector beat the benchmark.
