In a year that witnessed 57 all-time highs for the S&P 500 in the midst of an AI frenzy, IA Financials and Financial Innovation emerged as the best-performing sector in 2024 with an average return of 24.4%.
The sector was closely tailed by technology and technology innovation at 24%, and North America with an average 22.2%, with the Magnificent Seven remaining at the top of mind for investors. The five leading sectors were rounded out with India returning 17.7% and China at 14.1%, despite a negative outlook for much of the year before interest rate and policy announcements last autumn. However, challenges for China could remain on the horizon for 2025 as Donald Trump’s plans for tariff policies crystallise.
See also: Analysis: The key questions for asset allocators in the year ahead
Ben Yearsley, director of Fairview Investing Limited, said: “2024 was the year of global democracy with the greatest number of people ever going to the polls – 2025 promises more stability. It was a fascinating year with Donald Trump’s re-election surely the key focus for investors in the next few years. ‘Will he, won’t he’ on tariffs could shape markets for the foreseeable future.
“From a sector perspective Financials & Financial Innovation was arguably the surprise winner. Then again banks, for example, have been throwing off cash like it’s going out of fashion using it to fund dividends and buybacks.”
While the best-performing sectors battled for the top spot, Latin America emerged as the clear underperformer for 2024, losing 25%.
“Argentina’s much derided president Milei has actually put the country’s finances on a much more even keel with his policies leading to a fall in monthly inflation from 25% a year ago to 2.4% now,” Yearsley said.
“Unfortunately, Brazil is now in the eye of the storm with the Bovespa down last year and the Real losing 23% versus the greenback.”
UK Index Linked Gilts was the second-worst performer, at a 9.7% loss, followed by UK Gilts, global EM bonds local currency, and EU government bonds.
“Government bonds had a poor year with four government bond sectors in the bottom five – fiscal rules apply to governments as well as companies,” Yearsley said.
“Interestingly it was the perceived high risk bonds that performed well again in 2024 with the Sterling High Yield sector delivering 8.73% versus a fall of almost 10% for the UK Index Linked Gilt sector.”
By individual fund, three produced returns above 50% for the year, led by Alger Focus Equity at 56.3%. JPM Emerging Europe Equity followed with 53.88% and Alger American Asset Growth returned 52.39%. Almost all of the top 10 performers were US-focused funds.
See also: AJ Bell: Passive funds ‘eating the lunch’ of active managers
“Aside from JPM’s Emerging Europe Equity fund which has had a resurgence in the hope of President Trump forcing a resolution on Ukraine and Russia, the top 10 last year was all about the US; even global funds like Aubrey are 75% US invested,” Yearsley said.
“It wasn’t just AI but clearly that was a key driver of returns last year. Can these companies live up to their valuations and deliver expectation beating earnings this year? As ever L&Gs Technology Index fund outshone all other tech funds as well as beating the Nasdaq – all for an OCF of 0.32%.”
The worst-performing funds were almost entirely made up of renewable energy and Latin America funds, with the exception of SJP Property, which lost 25.1%. Active Solar fell 34.2% in the year, followed by Blackrock GF Latin America and HSBC Brazil Equity.
“It doesn’t pay to be clean and green currently. With President Trump more interested in oil and gas and the Chinese still flooding the solar markets where will the catalyst come from to turn these funds? Maybe these funds need to tap into Ed Millipede’s largess and grab some of the near £40bn he wants to spend on decarbonising the UK power network,” Yearsley said.
“Active Solar propped the tables falling 34% after also featuring in the bottom 10 for 2023. When will the sun shine on this sector?”
This story was written by our sister title, Portfolio Adviser
