Should you invest in last year’s best-performing funds?

By Staci West on 28 September 2026 in Basics, Best performing funds

Would you invest in last year’s best funds? It’s tempting to back portfolios that topped the performance tables, but is that sensible? Will that high-flying portfolio keep delivering bumper returns, or are there inherent dangers in not revisiting your fund choices?

Here we explain what influences investment returns, how to understand performance tables, and the clues you can spot in a manager’s track record.

Early warning

In 2025, Elite Rated portfolios at the top of the performance tables delivered returns of more than 160%*. This year, many have struggled to reach double figures. Conversely, some funds were in negative territory last year but posted a positive return of almost 15% by the same stage in 2026*. Other portfolios have yo-yoed between the two over the past decade, making it even harder for would-be investors to make the right call.

So, what should you do?

Understanding fund returns

Let’s start with some basics. By return, we mean how the value of an investment fund has changed over a particular period, expressed as a percentage.

For example, if you invest £5,000 and it grows to £5,200, the fund has generated a 4% return. If it grows to £5,400, that’s an 8% return. Of course, investments don’t always go up. If your £5,000 falls in value to £4,800, you’ve made a 4% loss.

Simple enough so far. But the headline percentage only tells you part of the story.

You also need to know the period it covers and how the return has been calculated. Longer-term performance, for example, might be shown as a cumulative return (the total change over the whole period) or annualised, showing the average rate of return per year.

The timeframe matters too. An 8% return over one year tells a very different story from 8% over 10 years. Whether that return meets your expectations will also depend on your investment goals and how much risk was taken to achieve it.

Assessing the performance

So, is the return actually any good? For that, you need context. How did the fund compare with its benchmark or similar funds? How volatile was it along the way? And what was happening in markets at the time? In other words, don’t just look at the number, understand what sits behind it.

The key is understanding why the fund performed as it did. Was it down to the manager’s investment decisions, their particular style falling in or out of favour, or wider market conditions? Understanding what drove the return tells you far more than the headline number alone.

The impact of outside influences

Returns generated by an entire sector can be affected by global factors such as war, economic uncertainty, political upheavals or even positive trends. Such events can carry all funds on a tidal wave of optimism or smash them to pieces, depending on how the stock market expects companies to be affected. Tech firms involved in artificial intelligence, for example, have seen their valuations soar in recent years. Some of these stocks will have benefitted, regardless of their business models.

To illustrate the point, let’s consider some recent winners and losers.

We’ll start with sectors to see whether returns rose, fell or were maintained over consecutive 12-month periods. The best-performing sectors in 2025 were IA Latin America and IA Commodity/Natural Resources, with returns of 38.73% and 29.47%, respectively*. However, this year IA Latin America has only made a modest 14.38%, while IA Commodity/Natural Resources has achieved 20.74%*.

This year’s top sector is IA Technology & Technology Innovation with 29.02%, whereas its 16.15% return in 2025 pushed it down to 12th place in the sector rankings*.

However, a disappointing performance from an individual fund doesn’t automatically mean it should be cut from the portfolio. A deeper analysis is needed before making that call. You may find, for example, that a fund’s fall may have been even more devastating had it not been for its manager’s skills at the helm.

Importantly, these shifts don’t happen in isolation. Changes in commodity prices, interest rates, economic growth and geopolitical events – such as conflict in Iran – can change the outlook for entire industries and regions, helping explain why one sector can lead the market one year and fall down the rankings the next.

That’s why understanding the environment in which a return was achieved matters. A fund may have enjoyed a strong year partly because its investment style or sector was in favour – just as a difficult year may reflect wider forces rather than something going fundamentally wrong with the fund itself.

Performance analysis

This is the point where you can home in on the manager’s decision-making. Have they made the correct asset allocation calls? Were they in decent stocks? Did they sell at the right time?

Most funds publish regular updates in which the manager discusses what went wrong or addresses the reasons behind poor performance. These make useful reading. These can highlight points at which returns have suddenly increased – or fallen – and the investment decisions that were behind them.

Even if your investments have disappointed, the returns generated may have done comparatively well, all things considered. Therefore, don’t sell investments without understanding why they haven’t done as well as you expected and considering how likely that is to change in the future. Conversely, are there positions in the portfolio that have had a fantastic year because of factors largely outside their control? If so, you need to decide whether such returns are repeatable.

Taking a diversified approach

Never put your money into a sector or fund purely due to it having topped the performance table last year. You must assess a fund as if you know nothing about it.

It can reveal how they cope with market bull runs and downturns, and whether they’re contrarian in nature or prefer to follow the crowd.

All of this is useful when building a portfolio or reassessing your existing fund choices. But it also highlights something else: getting the right mix of funds, sectors, regions and asset classes (and deciding when that mix needs to change) can involve quite a few moving parts.

If making all those individual asset allocation, geographic and sector decisions yourself doesn’t appeal, another option is a multi-asset fund. Here, the manager takes responsibility for deciding how the portfolio is spread across different investments and adjusting those allocations as market conditions change. There are plenty of options available, including portfolios designed for different levels of risk.

There are multi-asset portfolios available to suit different risk appetites. For example, Aegon Diversified Monthly Income is well diversified and targets an attractive 5% yield. Its managers, Vincent McEntegart and Debbie King, decide how much to allocate to equities, fixed income, property, and specialist income sectors such as infrastructure. This approach gives them a variety of income sources, and we like that they’re well-resourced within the group.

For investors wanting even more diversification, the IFSL Wise Multi-Asset Growth fund invests in around 30-60 underlying funds and investment trusts. The fact that it can be 100% invested in equities gives the management team of Vincent Ropers and Philip Matthews plenty of scope to find out-of-favour areas to invest in. We believe this fund has a straightforward process, and its focus on managers with simple, yet disciplined investment processes has served it well.

If you’re a particularly cautious investor, Schroder Global Multi-Asset Cautious Portfolio is an interesting choice. The fund aims to provide capital growth and income by investing in a diversified range of assets and markets worldwide, with a target average volatility (a measure of how much the fund’s returns may vary over a year) over a rolling five-year period of 4% per annum. This makes it a strong consideration for any investor looking for a cost-competitive active solution, with a strong focus on risk.

*Source: FE Analytics, total returns in pounds sterling, discrete calendar performance