How did AJ Bell funds perform in the second quarter of 2025?
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The second quarter of 2025 kept investors on their toes with uncertainty around tariff policies and market fluctuations that allowed some regions to have perform well and others to lag.
We spoke to James Flintoff, Head of Investment Solutions at AJ Bell, to get a picture of the market over the past three months and find out how AJ Bell funds performed.
What were the main market influences in the quarter?
It has been all about the US, and uncertainty around tariffs and the trade war situation. Thankfully, we have stepped back from the brink in April. But there has been some impact on growth, and potentially later down the line, inflation. That’s what the market has been trying to assess. It’s very difficult at the minute because there’s lots of noise in the data.
Of course, there’s been other things going on as well, particularly in the Middle East between Iran and Israel. I’m surprise that didn’t have a bigger impact on markets throughout the quarter, but it had calmed down by the end of June.
How did equities perform in Q2?
Equities had a big selloff at the start of the second quarter around the trade war, and then there was a big recovery. The upshot is the dollar was weaker. Investors have started to lose a bit of confidence in the US around the unpredictability and started to allocate a little bit more elsewhere.
That weaker dollar has had an impact on returns for sterling-based investors in the US market, making it not recover as strongly as it has done for US investors.
Other markets have come to the fore. Korea and Taiwan have done well, and Europe continued to push ahead. The UK also had a good quarter.
On the flip side, China was a bit weak after a bump in the first quarter. A lot of the trade war sentiment is weighing on the market in that part of the world.
What about bond markets?
It was another interesting quarter for bonds and another volatile one in many respects. Thankfully, at the start of April when we had falls in equity markets, bonds did protect portfolios. Particularly, UK government bonds performed well.
The challenge for bonds more widely has been that inflation is still a problem, particularly in the UK. The Bank of England is stuck with inflation that’s significantly above target and expected to remain so for the rest of the year. Therefore, it is struggling to cut interest rates, and bonds are struggling to digest that situation.
Some of the other bonds we have in our low-risk portfolios faced a bit of a headwind from the weaker US dollar, particularly in emerging markets, because the bonds we hold are priced in dollars.
How have AJ Bell Funds performed?
It’s been a good three months in terms of returns despite all that’s been going on, particularly for the high-risk funds. That’s because diversification has come to the fore in markets over the last couple of quarters, and the AJ Bell range are diversified funds. We’ve benefited from the gains in areas like emerging markets.
Over a one-year period, it’s been a similar sort of story. At the lower end of the risk spectrum, returns have been a little bit weaker, considering that cash and bonds are generally yielding over 4% at the minute.
What has been the impact of changes made to the portfolio this year
The big one has been the increase in investment to Europe. That’s continued to do well on the back of changing fiscal policy in Germany. We also added to emerging market bonds, which have been a bit negative, particularly for those low-risk portfolios.
Diversification in the portfolios has really come to the fore this year and has been positive for us.
Find the latest quarterly reports for each of the AJ Bell funds