We all know the saying: asset allocation drives the majority of portfolio returns. But 2025 has so far been a stark reminder that fund selection can make or break outcomes too.
The chart below shows the best and worst funds in each IA sector versus the average. The spread is huge. Investors could have nailed the asset allocation call and still ended up, in many cases, with negative returns.
On the other hand, choosing the right fund has added significant upside. Many active managers have outshone their passive peers this year, but with such a wide gap between winners and laggards, it is vitally important to stay on top of your fund choices.
Fund Spread – Year to date (18/09/2025)
Dispersion has been off the charts
Our latest analysis shows that from the start of the year to today, the average gap between the strongest and weakest fund in an equity sector is around 36 percent. That means one client could be celebrating double-digit gains while another, holding a different fund in the same area, is facing a significant loss.
The IA Global sector is the most extreme example. While we have removed anomalies for clarity in the chart above, the sector contains everything from gold ETFs to blockchain vehicles. Including these more concentrated funds makes the spread particularly striking. One Gold ETF is up 88 percent this year, while the worst fund is down more than 10 percent – a swing of nearly 100 percent.
But isn’t this always the case?
We have looked at the data over several years, and the difference between the best- and worst-performing funds has consistently been wide. However, there are two factors that make this year particularly noteworthy.
1.Regional dispersion of returns is also very high
Much like in the fund space, the dispersion between the best-performing regions this year and the worst is substantial. The US, long a favourite among investors under the banner of US exceptionalism, has become the worst-performing developed economy this year amid a weaker dollar, dragging down many investment portfolios. As the chart below shows, the gap between US performance and the rest of the world is around 10 percent.
US vs the rest of the world to 18/09/2025
2.Many of the worst performing funds are also the more popular funds.
Just as the most popular region has struggled, many of the largest, most widely held funds have underperformed. While we won’t name specific examples, a number of these behemoth funds had historically performed well in conditions where the US excelled. This includes both large passive and active funds.
In summary, fund selection and asset allocation have been exceptionally challenging this year, with many popular funds and regions significantly underperforming. So amongst this uncertainty how should you position your investments?
Hold off the cheeseburgers and eat your vegetables
In recent years, portfolio diversification has been a bit like eating your vegetables. Everyone knows they are good for you, but when the S&P is serving up tasty cheeseburgers, the temptation is to load up and hope the cardiologist never comes calling. Unfortunately, the spread of returns we have seen recently may be an early sign that the cardiologist is picking up their bag and heading over.
On the flip side, our portfolios have had one of their best years ever so far. They have had real diversification baked in across asset class, region, and fund manager for over 16 years. The result is that no single region or fund should dictate the direction of returns.
In short, we are always eating our vegetables. In our experience, this has not only helped reduce risk but also ensured portfolios are exposed to a broader selection of opportunities, something that has been vital this year.
Please get in contact with a member of our team for more information or a detailed rundown of how our fund selection has contributed to performance this year.
This communication is designed for professional financial advisers only and is not approved for direct marketing with individual clients. These investments are not suitable for everyone, and you should obtain expert advice from a professional financial adviser. Please note that the content is based on the author’s opinion and is not intended as investment advice. It remains the responsibility of the financial adviser to verify the accuracy of the information and assess whether the discretionary fund management model portfolio is suitable and appropriate for their customer.
Past performance is not a reliable indicator of future performance. The value of investments and the income derived from them can fall as well as rise, and investors may get back less than they invested.
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IBOSS Asset Management Limited is owned by Kingswood Holdings Limited, incorporated in Guernsey (registered number: 42316).
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