Keep calm and diversify
David Prosser on how a portfolio of active funds can mitigate volatility.
How do financial advisers and wealth managers look after their clients during this period of asset price volatility? Above all, advisers have a key role to play as the cool head in the room – providing reassurance that clients can still achieve their long-term financial goals and urging them to avoid kneejerk reactions to the recent market chaos due to Trump’s tariffs. But once they’ve soothed people’s nerves, it’s important to think about how to protect them on an ongoing basis.
In that regard, two critical imperatives stand out. First, this is one of those times when the value of proper diversification is greater than ever. And second, this doesn’t feel like a sensible period in which to abandon your fate to the markets through a passive investment strategy; actively managed funds can pick a path through the fall out of trade tensions, rather than following the market blindly down.
“Investment trusts have offered a remarkably broad range of options for exposure to different equity markets and asset classes.”
David Prosser
New data on the best performing investment trusts over the first quarter of the year provides food for thought in this context. The figures, based on analysis from Morningstar, show three of the top 10 performers in the first quarter were China specialists, reflecting a strong recovery from Chinese equities over the first three months of the year. But other leaders include two European specialists, two UK equity income funds, a Latin American-focused fund, an emerging markets generalist and a play on natural resources.
In other words, investment trusts have offered a remarkably broad range of options for securing high-quality exposure to different equity markets and asset classes. None of these top performers are index funds that simply track the markets up and down each day; all are actively managed, with investment teams who are mandated to identify the best opportunities in a given area.
Now, in three months’ time, when Morningstar publishes its list of the top-performing investment trusts over the second quarter of 2025, it will no doubt include many different names. But you can expect it to be similarly diverse: the multiplicity of the investment trust universe, combined with the highly active styles of many managers, means you get much more variety.
This is important right now. A rising tide, after all, lifts all boats. As Warren Buffett once said, it’s when the tide goes out that you find out who has been swimming with no trunks on. Now is the time when you need fund managers with clear convictions, independent thinking and strong leadership.
Many advisers and wealth managers have been reluctant to embrace investment trusts over the past couple of years. There are various explanations for that, including the regulatory row over cost disclosures, and concerns about the discounts at which many trusts trade relative to the value of their assets. But now is a good time to focus on the strengths of the sector – and, in particular, the strengths of its individual fund managers.
In the short term, there will be no hiding places from stock market turbulence. But as the dust settles, investors in funds where the manager has a firm hand on the tiller will reap the benefits.
David Prosser
David is former Business Editor of The Independent, Personal Finance Editor of the Daily Express, and Deputy Editor of Money Observer magazine. He writes regularly for the AIC.
