Top-Performing Fund Sectors in 2025 Amid Ongoing Outflows

In 2025, investors continued to exercise caution when committing capital to financial markets, as industry statistics revealed yet another year marked by net outflows from funds. However, the pace of these withdrawals has noticeably slowed compared to previous periods.

The prior year proved to be a turbulent time for individuals seeking investment opportunities, overshadowed by concerns over potential tariffs associated with Trump policies, escalating geopolitical conflicts, apprehensions regarding a burgeoning technology bubble in the United States, and the implications of the UK’s Autumn Budget.

According to data released by the Investment Association (IA), net retail outflows from funds amounted to £2.3 billion throughout 2025, mirroring the figure from 2024. This came after a positive influx of £2.0 billion in December, which helped offset some of the annual losses.

Miranda Seath, who serves as the director of market insight and fund sectors at the IA, commented: “The year 2025 witnessed modest outflows from UK retail funds. Amid prolonged episodes of geopolitical instability and market volatility, investors adopted a prudent stance. During this period, there was a clear shift away from US and global equity strategies toward more diversified and lower-risk options, including money market funds, mixed asset funds, and mixed bond funds.”

Equity Funds

A substantial £16.8 billion was withdrawn from equity funds over the course of 2025. This trend was largely attributed to investor wariness concerning heavy allocations to large-cap US technology stocks, fueled by growing speculation that an artificial intelligence (AI) bubble might lead to a significant valuation correction.

North American equity funds experienced £2 billion in redemptions during the latter half of the year. Similarly, global equity funds—which often carry substantial exposure to the biggest US tech firms—saw outflows totaling £4.8 billion for the full year.

This cautious sentiment provided a slight boost to European equity funds, which managed to attract inflows of £761 million. On the UK front, equity outflows reached £11.1 billion, though this represented the strongest showing for these funds since 2021.

Laith Khalaf, head of investment analysis at AJ Bell, explained that part of the UK’s relative underperformance could be due to the allure of Silicon Valley’s high-profile opportunities drawing capital across the Atlantic. He further noted that do-it-yourself investors often prefer selecting individual stocks within their home market, reducing the demand for professional fund management in this space.

These outflows persisted even as the UK stock market, particularly the FTSE 100 index, achieved record-high levels during 2025.

Khalaf elaborated: “The robust performance of the UK stock market in 2025 failed to reverse the outflow trend. The £11.1 billion in withdrawals is a stark indicator, implying that the domestic market rally was predominantly driven by international buyers rather than UK-based fund investors.

“When outflows of this magnitude occur even in a year of solid gains, it discourages new investment professionals from pursuing roles in UK equity management and reduces fund providers’ interest in hiring them. This dynamic only reinforces the ongoing decline in popularity of UK equity funds.”

Money Market Funds

Money market and mixed asset funds stood out as the top-performing categories of the year, drawing in £6.9 billion and £4.5 billion in inflows, respectively, according to IA figures. This shift underscores how investors emphasized portfolio diversification and stability in response to intensified geopolitical risks and policy ambiguities.

Short-term money market funds claimed the title of the year’s best-selling sector, with impressive inflows of £6.1 billion.

The IA highlighted: “While investors monitored market reactions to newly imposed tariffs, money market funds offered a practical short-term, highly liquid choice for adjusting asset allocations. Moreover, inflows were recorded in 10 out of 12 months during 2025, reflecting how persistent uncertainty propelled greater adoption of defensive strategies.”

Fixed Income Funds

Fixed income funds also gained traction as investors sought safer havens, recording £1.1 billion in net inflows for the year. This marked a decline from the £3.6 billion seen in 2024, however.

Mixed bond funds led the pack in this category, securing £1.2 billion in net inflows specifically during the second half of the year.

Active Versus Passive Funds

2025 posed challenges for active funds, as the dominance of technology and AI stocks propelled major global indices higher. Investors capitalized on this momentum, directing £12.8 billion into tracker funds—though this was lower than the record £27.6 billion inflow of 2024.

In contrast, outflows from actively managed funds moderated to £15.1 billion, an improvement from the £29.9 billion recorded the previous year.

Khalaf provided additional insight: “Passive funds offer simplicity, lower costs, and superior recent performance. As evidenced by our most recent Manager versus Machine analysis, only 24% of active managers outperformed passive benchmarks over the last decade.

“Index trackers are particularly attractive for those managing investments for clients, such as pension fund operators and financial advisors. Defending an underperforming active fund choice is rarely straightforward, whereas a dip in a tracker can be chalked up to broader market forces. Thus, passive investing mitigates professional risks while delivering cost savings.”

Where to Invest in 2026

Seath expressed optimism regarding a rebound in retail fund flows during 2026. She stated: “Interest in diversified, lower-risk investments is likely to persist amid ongoing geopolitical tensions, shifting monetary policies in the UK and US, and lingering worries about elevated US equity valuations.

“Nevertheless, investing remains a marathon, not a sprint. The Leeds Reforms establish a groundbreaking structure to encourage broader participation in investing among UK adults, paving the way for heightened retail investment activity nationwide.”