Value back in vogue: Kepler's top picks for a 2026 'regime change'
A ‘regime change’ is underway in the trust sector as long-shunned value trusts are finally having their day in the sun, says Kepler.
Value investors could be forgiven for giving up on the strategy after a decade-long bear market which saw growth-focused funds pull far ahead, underpinned by substantial gains in the technology sector.
However, 2025 broadened out returns as concerns over an artificial intelligence (AI) bubble and high tech valuations crept in, shifting which kinds of trusts are leading the pack.
Value back in style
Kepler pinpointed which trusts are best at capturing returns in rising markets while limiting losses in falling ones, highlighting those that are best poised to be winners in 2026.
Unlike previous years, there were a number of investment trusts ‘with a strong value tilt’ among their top picks.
Four value trusts made the 2026 list, including £1.1bn UK equity income giant Temple Bar (TMPL).
The trust has enjoyed a strong showing over the five years since Redwheel duo Ian Lance and Nick Purves took over management, and the past year has been a particularly buoyant period.
Shares in the trust rose 42.5% over the past 12 months, while its net asset value (NAV) climbed 30.2%. This is in comparison to a 20.2% share price increase and 16.7% NAV gain from its average peer in the AIC UK Equity Income sector.
Lance and Purves’ strategy of purchasing undervalued UK stocks has paid off for investors, with top holdings including well-known names such as Johnson Matthey, Shell and BT.
The smaller end of the UK equity market may be decidedly out of favour with investors, but Aberforth Smaller Companies (ASL) also made the list.
Shares in the £1.4bn trust managed by Aberforth Partners are up 16.8% over the past year against a 12.8% gain by its peers in AIC UK Smaller Companies sector.
It isn’t just UK value that should be of interest to investors this year. Kepler also highlighted Fidelity Asian Values (FAV) as one to watch, alongside stablemate Murray International (MYI).
Kepler analyst Thomas McMahon said the rise of value-tilted funds is ‘evidence that a regime change is underway’, with ‘some very pronounced value strategies’ positioned for strong gains in 2026.
There are relatively few trusts with distinct value strategies left after many tilted towards growth in recent years, according to McMahon, but there is ‘always a possibility that the pendulum may swing back again’.
‘We think persistent inflation, geopolitical tensions, and ahigh need for infrastructure spending for AI and green energy are all factors that suggest finding a good value managers could be the way to go for 2026,’ he added.
Overseas income
It isn’t just domestic value stock-pickers that look promising for 2026 − trusts that hunt overseas for income are also proving their mettle.
McMahon said that while investors ‘might tend to have a home bias’ when picking an income-producing trust, they should not ignore trusts picking up international dividends.
‘In particular, the Asia equity income funds have scored very well, and as the dividend culture continues to grow in Asia, we see the argument for allocating more here,’ he said.
McMahon highlighted CC Japan Income & Growth (CCJI), the £404m portfolio run by Chikara Investments. It has moved in tandem with its peers in the Japan AIC sector over the past year, with a share price total return of 31.5% against the average 32% gain.
However, its five years returns are more impressive, with shares rising 96.9% versus an average gain of 17.3% from the sector. Its NAV growth has been similarly strong, up 82% compared to 24% as it takes advantage of Japan’s extensive corporate reforms.
Also in line with peers in terms of performance were Aberdeen Asian Income (AAIF) and JPMorgan Asia Growth & Income (JAGI), both of which were flagged by McMahon’s as ones to watch for the year ahead.
