Political noise is back in town, mainly led by the new US president since he took office.
Examples include suggestions that Gaza will become the riviera of the middle east, Canada will become a US state, there will be 25% blanket tariffs imposed on Canada and Mexico, and India and the US are now best buddies.
Investors are having to digest this constant news flow daily and attempt to work out whether there will be any impact on economies and businesses. Only then can they decide whether there should be any impact on the companies they have invested in.
Investing can be difficult, even at the calmest of times. This constant noise, which is nearly impossible to truly interpret, only makes things harder.
It’s no surprise therefore that things have been a bit volatile recently.
What’s driving stock market volatility?
On the whole, this has been down to economic data rather than political soundbites.
The US economy looks relatively strong, which has given ‘risk’ assets a boost. And regardless of the soundbites, investors are generally bullish on the impact Trump will have on businesses.
However, recent inflation data is a bit of a cause for concern.
In the UK, we’ve had a base interest rate cut, alongside the Bank of England chopping their forecast for growth in half for 2025. Europe continues to expect economic weakness too.
Add a Chinese company claiming they have a genuine competitor to ChatGPT in the mix, and an increased level of market volatility isn’t surprising.
Here’s a look at which markets did best and worst over the quarter and the impact that’s had on mixed asset funds.
This article isn’t personal advice. If you’re not sure whether an investment is right for you, ask for financial advice. Investments and any income they produce can fall as well as rise in value, so you could get back less than you invest. Past performance isn’t a guide to the future.
How have stock markets performed?
Stock market returns over the three months to the end of January have been positive, but still quite varied.
The MSCI All Country World index which reflects performance of global stock markets, has grown by 8.41%* over this period.
This has been driven by the US. While markets there have wobbled a bit more recently, the strong economy compared to much of the rest of the developed world has continued to give investors confidence.
Stock markets in Asia saw smaller gains, with the MSCI Asia Pacific ex Japan index rising just 1.44% over the three months.
How have bonds performed?
Interest rate cuts, sticky inflation, the unknown impact of tariffs and other Trump polices have meant bond markets continue to provide plenty of short-term ups and downs.
The yield on UK 10-year government bonds (gilts) has been volatile over the last few months. At the start of November, it was around 4.45%, it fell to 4.22% in early December, rose to a peak of 4.89% in the middle of January, before falling back to 4.54% at the end of January, ending up back where it started three months ago.
A frustrating journey for bond investors, many of whom invest in bonds as they are happy to accept a lower return compared to shares, on the expectation that the journey is smoother.
Even though prices of bonds have seen ups and downs, the yields available have meant that many bond funds have still provided positive returns overall.
For this reason, it isn’t a surprise to see the IA Sterling High Yield sector as the strongest performer over this short period. This has built on strong performance, meaning it remains the best performer over 12 months, having returned 9.03%.
Index-linked gilts have continued to lag other types of bonds, with losses of 3.38% over the three months, meaning 12 month returns were -2.80%.
How have mixed asset and total return funds performed?
Funds with more invested in shares have seen better returns over the past five years than those that invest more in bonds.
Funds in the IA Flexible Investment and IA Mixed Investment 40-85% Shares sectors performed best over this period because they generally invested more in shares.
This trend kept going over the past year.
The best-performing mixed asset sector over the last 12 months was the IA Flexible sector, which returned 13.21%*.
Funds in this sector tend to have a large amount invested in shares, which has helped them perform more strongly over the last 12 months.
The worst-performing sector was the IA Mixed Investment 0-35% sector. The average fund in this sector returned 6.83%*.
These funds are usually more defensively invested, and we don’t expect them to keep pace in strongly rising markets.
Performance of mixed asset and total return sectors over 12 months
Annual percentage growth
Jan 20 – Jan 21 | Jan 21 – Jan 22 | Jan 22 – Jan 23 | Jan 23 – Jan 24 | Jan 24 – Jan 25 | |
|---|---|---|---|---|---|
IA £ High Yield | 3.60% | 2.21% | -5.53% | 8.27% | 9.03% |
IA Flexible Investment | 7.09% | 6.21% | -1.27% | 3.90% | 13.21% |
IA Mixed Investment 0-35% Shares | 2.61% | 0.73% | -6.14% | 2.70% | 6.83% |
IA Mixed Investment 20-60% Shares | 3.13% | 4.45% | -4.00% | 3.27% | 9.16% |
IA Mixed Investment 40-85% Shares | 5.19% | 6.36% | -2.47% | 4.46% | 12.70% |
IA Targeted Absolute Return | 2.50% | 3.46% | 0.70% | 3.98% | 6.86% |
IA UK Index Linked Gilt | 3.50% | 4.77% | -31.44% | -8.78% | -2.80% |
MSCI Asia Pacific ex Japan | 26.68% | -7.60% | 2.11% | -8.75% | 20.73% |
MSCI AC World | 12.88% | 16.38% | 0.77% | 11.43% | 24.28% |
How have our Wealth Shortlist funds performed?
Our Wealth Shortlist funds have enjoyed a wide range of outcomes over the past 12 months. But with different approaches and objectives, we don’t expect them to perform in the same way.
Remember, 12 months is a short time when looking at investment performance. Investments should be held for the long term – that’s at least five years.
Investing in these funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, including charges, see the links to their factsheets and key investor information.
Baillie Gifford Managed
Baillie Gifford Managed was the strongest-performing Wealth Shortlist fund in this sector over the past 12 months. It returned 16.59%, above its IA Mixed Investment 40-85% peer group average of 12.70%. Past performance isn’t a guide to future returns.
The fund invests in shares, bonds, and cash, but with a focus on shares. The shares part of the fund tends to focus on developed markets like the US, UK, and Europe.
Over the last 12 months, shares added the most value. With the amount invested in shares, it’s expected that this will have the biggest impact on overall fund performance. US shares in particular added a lot of value. Investments in bonds also gained in value over the last 12 months.
The manager can invest in emerging markets, high yield bonds and derivatives, all of which add risk if used. This fund holds shares in HL Plc.
Baillie Gifford Monthly Income
Baillie Gifford Monthly Income was the worst-performing Wealth Shortlist fund in the sector over the last 12 months – it returned 5.34%.
The managers aim to increase the income paid to investors by more than the increase in the consumer prices index (CPI) – a measure of inflation over the long term.
The fund focuses on providing a resilient income over time, meaning that while the income might not be the highest around, it can be expected to be more consistent.
It invests in a diversified set of shares, bonds and real assets (like property). It invests in real assets through company shares though, meaning most of the fund is invested in shares.
While the fund performed positively over the last 12 months, performance struggled towards the end of 2024. This was linked to rising bond yields, which caused investments in infrastructure and property to lose value.
At the same time, the fund doesn’t have as much invested in US shares as many peers, which also hurt relative performance.
The managers can invest in emerging markets, high-yield bonds and use derivatives, all of which add risk. The fund takes charges from capital, which can increase the amount of income paid, but reduces the potential for capital growth.
Annual percentage growth
Jan 20 – Jan 21 | Jan 21 – Jan 22 | Jan 22 – Jan 23 | Jan 23 – Jan 24 | Jan 24 – Jan 25 | |
|---|---|---|---|---|---|
Baillie Gifford Managed | 33.42% | -8.99% | -8.44% | 2.55% | 16.59% |
IA Mixed Investment 40-85% Shares | 5.19% | 6.36% | -2.47% | 4.46% | 12.70% |
Baillie Gifford Monthly Income | 4.97% | 5.48% | -3.07% | 5.04% | 5.34% |
UK CPI | 0.70% | 5.46% | 10.05% | 3.98% | 2.98% |