AIC fund manager poll: healthcare tipped for the top in 2025

According to the annual fund manager poll conducted by the Association of Investment Companies (AIC), the best performing sector in 2025 is expected to be healthcare, with a fifth (20%) of respondents tipping it to perform strongly.

On a five-year view, 28% of respondents believe information technology presents the most attractive opportunity, followed by energy (20%). The poll was carried out among investment trust managers between 15 and 27 November 2024.

Best performing regions and assets

Fund managers predict the US to be the best performing region next year, selected by more than a quarter of respondents (28%), followed by the UK (24%) and Emerging Markets (16%). For the previous three years, fund managers have tipped the UK as the region most likely to perform well over the coming year.

Over the next five years, a quarter of investment trust managers (28%) think Emerging Markets is the most attractive region, followed by the UK (24%) and Asia Pacific excluding Japan (16%).

Investment trust managers tip small cap equities as the asset class likely to top the charts in 2025 with 32% of all votes cast, followed by mid cap equities (28%) and large cap equities (12%).

Where will the FTSE close at the end of 2025?

Around two thirds (64%) of investment trust managers believe global stock markets will rise in 2025, with 28% saying they will fall and the rest unsure. Nearly half (44%) of investment trust managers believe the FTSE 100 index will climb above 8,500 compared to 20% who believe it will stay between 8,000 and 8,500. A more pessimistic 36% think the index will fall below 8,000.

Inflation and interest rates

Despite worries about trade wars and geopolitical instability, inflation is considered to be the single biggest threat to equities over the next 12 months with nearly a quarter of respondents (24%) finding it a cause for concern. Most investment trust managers (84%) think UK inflation (CPI) will remain above the Bank of England’s target of 2%.

More than nine-tenths (92%) of respondents to the AIC’s poll believe the Bank of England base rate will fall below 4.5% by the end of 2025. A majority (56%) expect it to settle between 3% and 4%, while only 8% expect it to fall below 3%.

Annabel Brodie-Smith, Communications Director at the Association of Investment Companies (AIC), said: “With ageing populations, the rising demand for cancer cures, Alzheimer’s treatments and weight loss wonder drugs, it is no surprise that investment trust managers have tipped healthcare to be the best performing sector of 2025. Further advances in technology via AI and robotics are likely to continue to drive rapid transformations across this sector.

“After a turbulent year of elections, it’s encouraging to hear managers are optimistic about the prospects for global stock markets in 2025 with nearly two-thirds expecting them to rise despite persistent worries about inflation. As always, it’s important for investors to focus on creating a balanced long-term portfolio which meets their needs – with the help of a financial adviser if necessary.”

Please find below comments from investment trust managers on navigating the markets in 2024, their outlook for 2025 and the biggest risks in 2025. If you would like to put your own questions to any of these managers, please contact our communications team.

Navigating “a boomerang year” and what’s in store for 2025?

UK equities

Thomas Moore, Fund Manager of abrdn Equity Income Trust, said: “Wild macro gyrations have made 2024 a boomerang year. We have remained alert to opportunities through the year. Most recently, we have identified beneficiaries of the ‘higher for longer’ rates environment in the form of financial companies whose interest income will remain elevated.

“Trump's victory should drive an acceleration in US economic growth as businesses respond positively to deregulation and the reduced cost of energy resulting from a policy of ‘drill, baby, drill’. This could shift the debate in Europe, as it becomes more apparent that a more pro-business approach will be necessary to allow European companies to compete.”

Iain Pyle, Portfolio Manager of Shires Income, said: “We're definitely past the worst, but it won't be a relaxing ride. Tariffs and higher taxes for example are inflationary, so expect interest rates to fall but at a modest pace.”

Richard Knight, Co-Portfolio Manager of Merchants Trust, said: “The path may be bumpy but the direction of travel for interest rates is at least relatively clear with inflation now significantly fallen from recent peaks and nearing target levels in many countries. Low inflation and lower rates are particularly helpful for consumer sentiment and the housing market in the UK.”

Jean Roche, Manager of Schroder UK Mid Cap Fund, said: “My outlook for 2025 is positive, based on the 20% plus earnings growth which is anticipated by the market for UK mid caps. One technical factor that they will not need to fight this year is corporation tax (which has muted earnings per share growth this year). Lower interest rates and weaker sterling relative to the dollar should also favour UK mid caps. I’m also looking forward to fewer activity-stifling elections in 2025 after the bumper crop of 2024.”

Imran Sattar, Portfolio Manager of Edinburgh Investment Trust, said: “With Chancellor Reeves’ inaugural budget now in the past, UK consumers can plan their finances with greater certainty and, in any event, they are in better shape compared with a few years ago. Political stability in the UK combined with lower levels of inflation should promote higher levels of corporate investment. We are finding many opportunities to invest in high quality businesses in the UK market at attractive valuations – both more UK-focused companies like Dunelm and Rightmove, and more global UK-listed companies such as Haleon and Compass.”

Alex Wright, Portfolio Manager of Fidelity Special Values, said: “Although the UK market continues to remain largely unloved by domestic investors, its attractive valuations are being recognised by other market participants such as overseas corporates and private equity firms. Underlining this interest has been a sharp spike in M&A activity, which typically benefits us given our focus on attractively valued businesses.

“Other supportive dynamics include a more stable domestic political situation given the new government’s large majority, attractive dividends in a global context and the fact that a record number of UK companies are buying back their own shares. Despite this, and given the relatively robust performance of UK companies, it has been a surprise that we have not started to see the valuation gap between the UK and other global markets close. For us, this demonstrates the strong opportunity for savvy investors willing to invest in the UK market today. It is also worth reiterating that buying UK stocks does not necessarily mean buying the UK economy given many London-listed companies generate a significant portion of their revenues overseas.”

Technology

Michael Seidenberg, Portfolio Manager of Allianz Technology Trust, said: “Fair disclosure here I am talking to our investment mandate but continue to like the technology sector and have since joining the buyside from Oracle in 2001. Technology continues to create competitive advantages for companies who use it as a tool to further their strategy. Technology allows companies to sell more, decrease costs and increase customer satisfaction for those who use it well. Our daily lives usually start and end with a piece of technology, so it is the lingua franca of business – and how it is applied is the differentiation between winners and losers. I think 2025 continues to be a solid environment for technology and the bar for buying has been reset higher following the feeding frenzy we saw during the pandemic but, for relevant technologies, it should be equal if not better.

“In general, the new US administration will be more pro-business with the caveat they will be more likely to use policy in order to shape behaviour of countries like China. China is a big consumer of semiconductor equipment and specialised chips and thus the wild card. Overall, I think it is a more constructive backdrop for M&A and we would expect the new government to be less intrusive than the current administration. The other wild cards are tariffs and how the new administration plans to use them.”

Emerging markets

Carlos Hardenberg, Portfolio Manager of Mobius Investment Trust, said: “Our core convictions remain in India, Taiwan, and South Korea. India’s well educated, youthful population supports long-term growth, while Taiwan and South Korea lead in innovation, particularly in tech sectors such as AI, 5G, and renewable energy, where we favour asset-light, IP based businesses.

“Following research trips to Southeast Asia, we have recently added exposure to Vietnam and Malaysia. Vietnam, in particular, is showing strong signs of recovery, driven by pro-business leadership, advancements in manufacturing, and stable real estate and banking sectors. Additionally, the removal of pre-funding requirements for foreign investors has boosted liquidity as the country progresses toward emerging market status.”

Nick Price, Portfolio Manager of Fidelity Emerging Markets, said: “China is key to the outlook. This year the government has shifted from deleveraging the property market to looking to mark a bottom in property prices, with meaningful stimulus measures announced, and we think that any signs of stabilisation should support consumer confidence. However, excess capacity in industries like steel, cement, and solar will likely persist, while the potential for higher tariffs is also a consideration, making it vital to be incredibly selective when investing in China. Our focus is largely on the consumer-facing space and we see opportunities among internet names and premium sportswear companies that are returning capital to shareholders through buybacks.”

Sudaif Niaz, Co-Manager of BlackRock Frontiers Investment Trust, said: “Looking ahead to 2025, we are positive on the outlook for small emerging and frontier markets. For a lot of this universe, the starting point on interest rates and inflation is supportive for expectations of recovery in domestic activity, the foreign reserves backdrop has broadly improved, while in general fiscal policies remain anchored and we are past the big election cycle year.

“Incoming US president Donald Trump has been clear on his ‘America First’ policy, which in our view is supportive of our ‘World in 3’ narrative where we see a world splitting economically into three groups: those aligned with China, those aligned with the US and the rest (neutrals). We believe that neutral countries, which include ASEAN, Central Europe and Latin America to varying degrees, will continue to benefit from increased geopolitical polarisation through increased foreign direct investment as new alliances are forged.”

Tuan Le, Lead Portfolio Manager of Vietnam Enterprise Investments, said: “Whilst the outcome of the US election may pose short-term challenges for Vietnam, the long-term impact could ultimately present favourable opportunities. China is facing an increasingly uncertain trade outlook, which may result in an accelerated global supply chain shift towards more viable alternatives. Vietnam, strategically located at the heart of Southeast Asia’s manufacturing hub, is well positioned to capture some of this market share, much like it did during the previous Trump administration. This environment could further support Vietnam’s ambitions to rise up the value chain, with the net impact of new opportunities – even with additional scrutiny – remaining in the country’s favour.”

Global equities

Paul Niven, Fund Manager of F&C Investment Trust, said: “I remain relatively constructive on equities. Fundamentals are good, economic and corporate earnings growth remains relatively robust, in many areas, inflation continues to decline and interest rates are falling. Valuations are high, however, though this tends to be concentrated in the US, and in the obvious names, such as the Magnificent Seven. Although the premium levels of growth which are expected from this area look set to diminish, their earnings delivery should still comfortably outstrip that of the wider market. While numerous other areas and markets are trading at lower levels of valuation, growth prospects in these areas typically still appear far more fragile or anaemic.”

Zehrid Osmani, Portfolio Manager of Martin Currie Global Portfolio, said: “The most significant uncertainty for 2025 is likely related to policy actions by the newly elected President Trump, given the potential impact his policies could have, both on US economic momentum and US corporate profit growth, but also indirectly on the inflation outlook and therefore on monetary policies, should he implement tariffs across trading partners. A scenario where tariffs do not get implemented should be supportive for global growth, and should keep central banks on an easing interest rate cycle, which should be supportive for risky assets.

“To a large extent, market direction in 2025 will be determined by whether President-elect Trump walks the talk he has flagged on tariffs during the campaign trail and follows through with blanket tariffs being imposed on trade partners, which would bring a negative cocktail of lower growth, higher inflation and less dovish monetary policies.”

Europe

Sam Morse, Portfolio Manager of Fidelity European Trust, said: “There are ample opportunities in Europe, particularly if you perform a like-for-like comparison with US peers. We see interesting opportunities related to AI, including semiconductor equipment businesses as well as less obvious ‘picks and shovels’ plays on the theme, such as stocks which provide critical infrastructure for data centres.”

Japan

Nicholas Price, Portfolio Manager of Fidelity Japan Trust, said: “In Japan, monetary policy is on the path to normalisation and the annual spring labour negotiations are likely to deliver a further increase in base wages of around 3% next year, a level that the Bank of Japan views as a requisite for sustainable inflation. Despite losing their Parliamentary majority, the Liberal Democratic Party and its junior partner Komeito are likely to cooperate with opposition parties on specific legislation, with a focus on economic stimulus and regional revitalisation ahead of Upper House elections in July 2025. Harsher than anticipated tariffs or some other exogenous shock leading to a sharp deceleration in global growth are potential risk factors ahead.”

Venture capital trusts

James Livingston, Partner and Co-Head of Private Equity at Foresight Group, which manages the Foresight VCTs, said: “We are optimistic that the UK SME market will perform well in 2025, following what has been a challenging environment. The Bank of England has begun to cut interest rates and there appears to be a greater degree of political stability.

“At Foresight, we invest in growing companies across all sectors and transaction types and continue to see a high volume of exciting companies. Sectors we are seeing frequently are business services, software, tech and healthcare.”

Renewable energy and environmental markets

Ross Driver, Fund Manager of Foresight Solar, said: “The general election in 2024 was a turning point for renewables in the UK. The new government’s goal to transform the country into a clean energy superpower comes with backing for solar and wind and ambitious targets for new installed capacity. Inflation is now mostly under control, and we should see a path to lower interest rates. Add to that stabilising electricity prices and there is a cocktail of positive factors for investors seeking income with a moderate element of growth. The energy transition is one of the biggest opportunities for a generation, and I believe this is one of the best moments to deploy capital into the sector.”

Richard Hulf, Managing Partner of HydrogenOne Capital Growth, said: “2024 has been a challenging year for the renewable energy sector. Despite this, we believe the investment fundamentals for the hydrogen sector remain positive. While at the end of 2023, 1.4GW of green hydrogen was in production worldwide, the International Energy Agency recently updated expectations for global green hydrogen capacity to increase to 5GW this year. They also showed that a further 20GW of green hydrogen production has now reached final investment decision stage. Meanwhile, in the UK, the new Labour government has committed over £6 billion to fund hydrogen and related projects as part of the Autumn Budget. This and other measures give us confidence that 2025 will see a much more supportive policy backdrop in the UK for the renewable energy sector.”

Jon Forster, Co-Portfolio Manager of Impax Environmental Markets, said: “In recent years, market strength has been successively limited to a handful of names and sectors within the mega cap arena. With inflation and consequently interest rates moderating, and with industrial supply chains largely normalised post-Covid related upheaval, the conditions are right for market breadth to return despite lingering uncertainty on geopolitics. For active managers, this presents opportunities in names where earnings delivery has been robust but share prices have failed to keep pace. Environmental markets, as well as mid and small caps, have seen their multiples compress significantly despite compelling long-term drivers.”

The biggest risks in 2025

UK equities

Iain Pyle, Portfolio Manager of Shires Income, said: “Simple cyclical economic recession – there are enough warning signs in employment data that you can't rule it out. In that situation we may find some highly rated growth stocks are more cyclical than is priced in, with a negative outcome for markets. After a record period of capital growth, income is going to return as a much more important component of total return in 2025.”

Richard Knight, Co-Portfolio Manager of Merchants Trust, said: “The biggest risk is that inflationary policies in the US lead to a re-emergence of high levels of inflation elsewhere.”

Europe

Sam Morse, Portfolio Manager of Fidelity European Trust, said: “We remain cautious in the near term. Markets are still expensive, and the pace of rate cuts from central banks could disappoint, with inflation ticking up again and yields also rising. This means that refinancing poses a significant challenge for many companies next year. On top of this exporters face headwinds from higher US tariffs, although we are underweight areas like autos and spirits which could be more heavily affected.”

Global

Paul Niven, Fund Manager of F&C Investment Trust, said: “As always, there are numerous risks. A second term for President Trump is likely to contain surprises and some of the eye-catching election promises would have a significant impact on economies and on markets. There is scope for increasing tensions globally on trade and tariffs which would increase uncertainty levels, regardless of actual implemented policy, and which would hamper growth. Geopolitics are also a clear risk. Markets have generally been sanguine over the conflict in the Middle East and in Ukraine but these two areas do continue to present a source of concern. For markets, an unexpected recession, however, would cause the greatest harm to market pricing.”

Emerging markets

Carlos Hardenberg, Portfolio Manager of Mobius Investment Trust, said: “A Trump presidency poses significant risks for 2025, particularly China, which faces the threat of higher tariffs. An escalation in US-China tensions could contribute to global instability, with countries increasingly pressured to align with one side or the other. However, a strong US economy could also have positive spill over effects for emerging markets, boosting demand for emerging market exports through increased US consumer spending.”

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