The dispersion of returns from a fund level is wider in 2025 than it has ever been. We crunched the numbers from the start of March, and the average difference between the best performing fund and the worst within equity sectors is 24%.
This means it hasn’t just been about getting the right asset allocation or regional call correct this year but also selecting the correct funds. So it’s possible this year, if you had picked the right region but the wrong fund, you would be underperforming, or vice versa.
While as fund selectors, you might expect us to say this, but choosing the right fund has become increasingly critical. This is easier said than done, and one of the reasons we hold multiple funds within a given sector is to avoid needing to pick the single best fund every time. It also helps to reduce the risk of choosing a fund that significantly underperforms.
The most extreme example of this dispersion right now is the IA Global sector. For context, this peer group includes a wide mix of vehicles – housing everything from blockchain ETFs to gold ETFs – so it’s not entirely comparing apples with apples.
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However, so far this year, the best performing fund (a gold ETF) is up about 41%, while the worst performer in the sector, the WisdomTree Blockchain ETF, is down about 25%. That is a circa 60% return dispersion, which is huge by any standard.
Not only does this highlight the dispersion within sectors, but also the dispersion between different sectors. The IA Latin America sector is up around 5% year to date, which starkly contrasts with the North American Smaller Companies sector, which is down approximately 20%. If you are being very specific with your fund picks, while you might come out looking a hero, there’s an equal chance you could end up on the wrong side of that volatility.
Given the considerable difference between those who have called things right and wrong, it feels like one of those times when there are real opportunities for active managers.
While it’s a mantra of the regulator that past performance is not a reliable guide to future performance, investors allocate as though it is. I think when we look back over history, the period between the Global Financial Crisis and Donald Trump’s second election win will be seen as an anomaly. We have had the Covid pandemic, record low interest rates for a sustained period, and all the AI hype all elongated the process, but they appear to be coming to an end to a degree.
We always talk about the benefits of diversification. Looking at gold, which we have liked for some time, the gold price is currently at a record high, hovering about $3,300. Year-to-date, just having a small allocation to the gold mining funds; in our case, the Ninety One Gold Miners fund has added over 40%, while the JPM Natural Resources fund is still positive for the year, which is no mean feat given the backdrop of market chaos.
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For us, the key when building portfolios is to stay humble. No one has all the right answers in any environment. However, it’s especially tricky when the markets are experiencing a regime change such as this one. With market volatility as elevated as it is, the best approach is to remain well-diversified. That way, investors can benefit from the opportunities while being somewhat protected on the downside.
So dispersion is high, and fund selection matters, but so, of course, does risk control; we think spreading exposures to assets with lower correlations and avoiding using the playbook from the last decade remains a sensible way to go forward.
Chris Rush is an investment manager at Iboss
