The most (and least) loved sectors this Valentine’s Day

It’s the most romantic time of the year – but which sectors are feeling the love from UK investors as we celebrate St Valentine’s Day?

Falling inflation, rate cuts, and strong equity market performance have helped fuel a cautious return to optimism, according to recent data – but which areas are winning the hearts of investors and where is Cupid avoiding?

February’s most popular

The IA North America sector has enjoyed the highest net retail sales during February for the past three years! It’s now the third most popular sector with £108.6 billion and topped the charts in terms of inflows during December 2024 with £705.1 million being added*.

Our first suggestion in this area is Brown Advisory US Flexible Equity fund. It’s managed to achieve what many funds in this area find impossible: long-term outperformance of the S&P 500. Its manager, Maneesh Bajaj, looks for attractive or improving businesses that are trading at valuations that don’t reflect their fundamentals.

Alphabet, Microsoft and KKR are its largest holdings**, while financials and information technology are the most prominent sector exposures. Maneesh recently said: “We invested in KKR initially in 2018 and added to our position in subsequent years despite investor scepticism about its growth, business quality, and strategy,” highlighting how the investment firm appreciated 80% in 2024 after an 81% gain during the previous year.

Another fund worth a look is JPM US Equity Income. While the US market is naturally lower yielding, it has a long history of dividend payments and an increasing number of companies make payouts. This fund targets an above-average income by investing in a diverse portfolio of 85 to 110 established stocks. These currently include Wells Fargo, Bank of America, UnitedHealth, Chevron and Philip Morris**. We see this portfolio, which is managed by Andrew Brandon and David Silberman, as a core equity income holding in the world’s largest stock market.

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Longer-term love affairs

While IA North America appears to have passionate support every February, it’s the IA Global sector that has managed to seduce most UK investors. There is currently £219.5 billion invested in this sector – substantially more than the £136.2 billion invested in IA UK All Companies, which is the next most popular*.

While there is no shortage of attractive funds in this area, we like the Lazard Global Equity Franchise fund as it looks for companies with an edge in their respective business sectors.

Italian bank Nexi, US media group Omnicom and National Grid in the UK are among the fund’s largest holdings**. We also like CT Global Focus, which is a concentrated portfolio of best ideas that favours high quality, high return on capital businesses that can compound over time. The fund, which aims to achieve investment growth over the long term, is a genuinely global fund that can also invest in emerging markets when it finds businesses fitting its criteria.

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Shunned by Cupid

Although it still has the second highest funds under management, many people fell out of love with the IA UK All Companies sector in 2024. In fact, it was the worst-selling sector in eight of the 12 months as cautious investors favoured other areas such as IA Volatility Managed*.

However, this sector has some tremendous funds. For example, the VT Downing Unique Opportunities fund is a multi-cap UK equity fund that’s run by the experienced Rosemary Banyard. She has been involved in the investment industry for more than three decades and has a well-defined process that focuses on companies with sustained competitive advantages.

Another contender is AXA Framlington UK Mid Cap, managed by Chris St John, who has the flexibility to invest in both the FTSE 100 and the small-cap space. This enables him to run his winners, as well as investing at an early stage in strong growth stories. He also uses thematic long-term ideas to help construct his portfolio.

More broadly, IA Latin America, IA Asia Pacific including Japan, IA Global Emerging Markets Bond – Blended, IA European Smaller Companies and IA China/Greater China are the least popular sectors. However, that doesn’t mean to say these sectors should be completely ignored as there are plenty of portfolios in many of them that are worth considering.

For example, Janus Henderson European Smaller Companies is style agnostic, which means it buys growth companies at a reasonable price and can also consider neglected areas of the market. The managers can also invest in the smallest of companies that enables them to uncover hidden gems that may have been ignored by their rivals.

Elsewhere, the FSSA All China fund aims to achieve capital growth over the medium to long term, which it defines as being at least three years. Unlike many Chinese equity funds, this portfolio can invest across the whole area, including the vast A-share market that’s often shunned by international investors. Long-term, sustainable growth opportunities are favoured, while the most prominent companies in the portfolio currently include Tencent Holdings, China Mengniu Dairy, and JD.com**.

Finally, there’s the M&G Emerging Markets Bond fund, which has the flexibility to invest across the entire emerging market bond spectrum. This includes government and corporate bonds. M&G is one of the industry leaders in fixed income and this fund’s manager, Claudia Calich, has an impressive track record and a flexible strategy. We believe this fund could be suitable for investors wanting exposure to emerging market bonds, as well as those that like the idea of a professional making their asset allocation calls.

*Source: Investment Association, full figures at December 2024

**Source: fund factsheet, 31 December 2024