Investing in UK investment funds: A guide for 2025

Discover the best UK investment funds for 2025: performance analysis, strategies, and tips to choose the ideal fund for your goals.

By: Thais On 5 de February de 2025 Last updated on: 10 de February de 2025

What are investment funds?

Investment funds pool money from multiple investors to buy a diversified portfolio of assets, such as stocks, bonds, real estate, or commodities. These funds are managed by professional fund managers who allocate assets to achieve specific investment objectives. The main types of investment funds include:

Equity Funds – Invest primarily in stocks and aim for capital growth.
Bond Funds – Focus on fixed-income securities, providing stable returns with lower risk.
Index Funds – Track a market index, such as the FTSE 100, to mirror market performance.
Mutual Funds – Offer actively managed portfolios with various asset allocations.
Exchange-Traded Funds (ETFs) – Trade like stocks on the market, offering liquidity and diversification.

Key factors to consider when choosing an investment fund

Before diving into the top-performing funds, it’s essential to understand what makes a good investment fund. Here are the main factors to consider:

Performance History: Reviewing a fund’s historical returns over 5 to 10 years helps gauge consistency. However, past performance does not guarantee future success. It’s crucial to remember that past performance is not indicative of future results.
Risk Profile: Different funds have varying risk levels. Investors should align their fund choices with their risk tolerance. It’s important to note that all investments carry risk, and the choice of fund should be aligned with the investor’s risk profile.
Fees and Charges: Management fees, expense ratios, and performance fees can impact overall returns. Lower fees generally translate to better long-term performance. It’s crucial to analyze all fees involved in investing in a fund, as they can significantly impact final profitability.
Fund Manager’s Track Record: A skilled and experienced fund manager can make a significant difference in returns. The manager’s experience and track record are important factors to consider, as their skill in making investment decisions can influence the fund’s performance.
Sector and Market Focus: Some funds specialize in specific industries (e.g., technology, healthcare) or regions (UK, global, emerging markets). Choosing the right sector aligns your investment with growth trends. It’s essential for the investor to assess whether the fund’s focus is aligned with their investment objectives and their market vision.
Liquidity Considerations: Some funds are more liquid than others, meaning they can be easily bought or sold on the market. ETFs, for instance, trade like stocks and offer daily liquidity, whereas mutual funds may have specific redemption periods. The fund’s liquidity is an important factor to consider, especially for investors who may need to access their funds in the short term.
Dividend Reinvestment Options: For income-focused investors, selecting a fund that allows for automatic dividend reinvestment can enhance compounding and long-term gains. Dividend reinvestment is an interesting strategy for long-term investors, as it allows dividends to be reinvested in the fund, generating a snowball effect on returns.

Top UK investment funds for 2025

Based on performance analysis, market trends, and investor interest, here are some of the best UK investment funds to consider in 2025:

Fundsmith Equity Fund

Type: Equity Fund
Focus: Global stocks with long-term growth potential
5-Year Performance: +85%
Key Holdings: Microsoft, Unilever, Novo Nordisk
Why Invest? This fund follows a buy-and-hold strategy, focusing on quality companies with strong earnings potential.

Lindsell Train Global Equity Fund

Type: Equity Fund
Focus: High-quality, durable businesses
5-Year Performance: +78%
Key Holdings: Diageo, Unilever, London Stock Exchange Group
Why Invest? This fund avoids frequent trading and focuses on long-term value growth.

Baillie Gifford Positive Change Fund

Type: Impact Fund
Focus: Companies driving positive social and environmental change
5-Year Performance: +90%
Key Holdings: Tesla, Shopify, ASML
Why Invest? Investors looking for ethical and sustainable investment opportunities will find this fund appealing.

Vanguard FTSE UK All Share Index Fund

Type: Index Fund
Focus: Entire UK stock market
5-Year Performance: +50%
Key Holdings: HSBC, BP, AstraZeneca
Why Invest? Ideal for passive investors seeking diversified UK exposure with minimal fees.

Rathbone Global Opportunities Fund

Type: Growth Fund
Focus: High-growth global companies
5-Year Performance: +88%
Key Holdings: Amazon, Nvidia, Mastercard
Why Invest? Suitable for investors seeking exposure to global market leaders with high upside potential.

How to invest in these funds?

Choosing a platform

Investors can access these funds through investment platforms such as Hargreaves Lansdown, Interactive Investor, AJ Bell, and Vanguard UK. It is essential to research and compare the different platforms available, analyzing the fees, services offered, and ease of use of each.

Investment strategy

Lump-Sum Investment: Invest a fixed amount upfront.
Regular Contributions: Set up a monthly investment plan for long-term benefits.
Reinvest Dividends: Maximize returns through compounding.

Tax efficiency

Consider investing through Stocks and Shares ISAs for tax-free growth and withdrawals. ISA accounts offer significant tax benefits for investors in the UK, and it is important to understand how they work and how they can optimize your investments.

How to assess an investment fund’s performance

When evaluating an investment fund, it’s essential to look beyond just the numbers and understand what they truly mean for your financial goals. Here’s a straightforward guide to help you assess a fund’s performance effectively.

Understanding fund returns

Fund returns are one of the first things investors look at, but it’s important to understand what they represent. Returns show how much the fund has gained or lost over a specific period, usually expressed as a percentage.

However, past performance doesn’t guarantee future results. Instead of focusing solely on high returns, consider how consistent the fund has been over time. A fund with steady, moderate returns might be more reliable than one with sporadic, high returns.

Key Performance Metrics (Alpha, Beta, Sharpe Ratio)

To dig deeper into a fund’s performance, you’ll want to explore some key metrics:

Alpha: This measures how well the fund has performed compared to its benchmark. A positive alpha means the fund has outperformed the market, while a negative alpha indicates underperformance.
Beta: This shows the fund’s sensitivity to market movements. A beta greater than 1 means the fund is more volatile than the market, while a beta less than 1 suggests it’s more stable.
Sharpe Ratio: This helps you understand if the fund’s returns are worth the risk taken. A higher Sharpe Ratio indicates better risk-adjusted performance.

These metrics give you a clearer picture of how the fund behaves and whether it aligns with your risk tolerance and investment goals.

Comparing Active vs. Passive Management Strategies

Investment funds can be actively or passively managed, and each approach has its pros and cons:

Active Management: Fund managers actively buy and sell investments to outperform the market. This can lead to higher returns but often comes with higher fees and greater risk.
Passive Management: These funds track a specific index, like the S&P 500, and aim to match its performance. They typically have lower fees and are less risky but may not deliver extraordinary returns.

Your choice between active and passive funds depends on your investment style. If you prefer a hands-off approach with lower costs, passive funds might be better. If you’re willing to take on more risk for the chance of higher returns, active funds could be worth considering.

Importance of Asset Allocation in Fund Selection

Asset allocation refers to how a fund distributes its investments across different asset classes, such as stocks, bonds, and cash. A well-diversified fund can help reduce risk and smooth out returns over time.

When selecting a fund, consider whether its asset allocation matches your risk tolerance and investment horizon. For example, a fund heavily weighted in stocks might be suitable for long-term growth but could be too volatile for short-term goals.

Managed by the Infrastructure and Projects Authority (IPA), these funds focus on catalyzing private sector investment in emerging UK infrastructure sectors, like digital and charging infrastructure. More comprehensive information can be found here.

Risks and Considerations

While investing in funds provides diversification and professional management, investors should be aware of:

Market Fluctuations: Stock market funds can be volatile.
Currency Risk: Global funds may be affected by currency exchange rates.
Management Risk: Actively managed funds depend on fund managers’ expertise.

Choosing the right investment fund can significantly impact long-term financial success. The funds listed above offer diverse investment strategies, from ethical investing to high-growth equities, catering to different investor preferences. Before investing, always evaluate your risk tolerance, investment goals, and fund performance to make informed decisions.

By leveraging tax-efficient investment strategies and selecting well-performing funds, UK investors can build a strong portfolio in 2025 and beyond.