Invest with confidence: discover the best funds for 2024

2023 was a challenging year for fund managers, marked by global conflicts, high interest rates, inflation concerns, and extreme weather conditions. As we step into 2024, many of those challenges have receded. The economic and market landscape has undergone significant changes. Interest rate hikes have concluded, inflationary pressures are easing, and the valuation considerations for investors have evolved.

What industry performed best in 2023?

In 2023, the Technology and Technology Innovation sector emerged as the top performer with an average fund return of 39%*. 

Information technology remains one of the most exciting sectors, packed full of innovative companies whose products will influence the coming decades. Global giants such as Apple and Microsoft sit alongside smaller, growing businesses that are dreaming up the next generation of must-have gadgets.

The sector made a significant comeback from its position as the second worst-performing sector in 2022 (returning -27.5%**), to top of the charts. Performance was almost entirely driven by the so-called ‘Magnificent Seven’ (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla), significant players in global funds and index funds.

Simon Nichols, manager of BNY Mellon Multi-Asset Balanced fund, anticipates reasonable performance from big tech in 2024, given their advantageous position in the evolving technological landscape.

Best performing funds 2023

The best performing Elite Rated fund in 2023 has been T. Rowe Price US Large Cap Growth Equity, which has returned 41.8%*. A concentrated, high-conviction strategy, investing in large US firms that demonstrate innovation and change. It included six of the ‘Magnificent Seven’: Microsoft, Apple, Amazon, Alphabet, Nvidia and Meta account for almost 43%*** of this fund.

In second and third place are Baillie Gifford American and Fidelity Global Technology, further reflecting the dominance of technology stocks with the Baillie Gifford fund currently holding roughly a third of the portfolio in technology****.

Economic outlook in 2024

The global outlook for 2024 presents a mixed scenario. While the US economy is showing resilience, with full employment and strong consumer spending, China grapples with weak growth due to its real estate and consumer confidence crises. The UK and the eurozone teeter on the edge of recession, with persistent inflationary pressures affecting growth. Geopolitical threats, such as conflicts in Russia/Ukraine, Israel/Palestine, and China’s claims over Taiwan, add to the uncertainties.

Alec Cutler, fund manager of Orbis Global Balanced, identifies four negative contributors to the economy: higher inflation, escalating global conflicts, rising indebtedness, and challenging valuations.

Despite challenges in the fixed income markets over the past two years, 2024 may see renewed interest. Yields are at levels not seen in a decade, and both interest rates and inflation appear to have stabilised. Colin Finlayson, co-manager of Aegon Strategic Bond fund, suggests that fixed income markets look poised to benefit in 2024, offering an attractive entry point for investors seeking to reduce risk in their portfolios and lower volatility.

Best funds to invest in 2024

Investors looking beyond technology trends may consider focusing on three sectors:

1. UK Equities: The UK market, currently undervalued, presents a potential opportunity for investors.
2. Healthcare: Anticipated progress in hard-to-abate conditions could redefine healthcare’s growth dynamics.
3. Fixed Income: While many predict a favourable year for fixed income, nuances exist, and skilled strategic bond managers can navigate various factors.

Six funds to watch in 2024

ES R&M UK Recovery

Finding undervalued companies that are yet to deliver on their potential is the aim of this fund. The fund is typically quite diluted with approximately 400 holdings****, this is to spread the exposure across different recovery sectors and their respective cycles, and also to reduce stock-specific risk. The fund returned 10.1% in 2023*.

TM Tellworth UK Smaller Companies

A pure smaller companies fund run by two experienced managers in Paul Marriage and John Warren. This fund focuses on smaller companies, avoiding micro-caps and mid-cap stocks, instead focusing on businesses with £100m to £500m market cap. The managers have an excellent track record and rose 6.9% in 2023*, against very tough conditions.

Polar Capital Global Healthcare Trust

This is a unique trust investing in a specialist part of the stock market, with a final portfolio of 25-60 stocks. The companies will predominantly come from four sub-sectors: pharmaceuticals, biotechnology, medical technology and healthcare services. The portfolio is expected to be diversified by factors such as geography, industry sub-sector and investment size.

Baillie Gifford Global Discovery

This global equity fund looks for innovative companies that are capable of changing the world. The largest weightings in the portfolio are healthcare and technology at 42.2% and 26.9% respectfully****. This fund lends itself well to Baillie Gifford’s strengths, namely rigorous bottom-up research with a long-term perspective. The small-cap and growth focus separate this fund from many others in the global sector.

Nomura Global Dynamic Bond

An unconstrained strategic bond fund, with a focus on total returns, the manager invests in the entire range of bond sectors including government bonds, corporate bonds, emerging market bonds and inflation-linked bonds. The fund currently has roughly a third of the portfolio in UK and US holdings but does have exposure to smaller markets such as Brazil and Bahrain****.

Invesco Tactical Bond

The most flexible fund in Invesco’s fixed income range, this fund is designed to capitalise on all the resources within the team and invest across the whole fixed-income opportunity set. The managers use an active style whereby risk can be continually adjusted according to market conditions. This fund provides investors with a truly differentiated approach and currently yields 4%****.

Closing thoughts

For investors hesitant to move away from technology, a diversified technology fund like AXA Framlington Global Technology provides exposure to big tech names while incorporating key areas like semiconductors and cybersecurity.

It’s crucial to note that unexpected events can disrupt markets, and any predictions should be approached with caution. Despite potential challenges, the broader market breadth in 2024 offers a refreshing change for investors.

*Source: FE Analytics, total returns in sterling, 1 January 2023 to 31 December 2023

**Source: FE Analytics, total returns in sterling, 1 January 2022 to 31 December 2022

***Source: fund factsheet, 31 October 2023

****Source: fund factsheet, 30 November 2023

^Source: World Bank, 9 January 2024