Our Smart funds turn three – how have they performed?

January 2025 marks the three-year anniversary of the launch of the Smart fund range, our passive focused Ready-Made Portfolios which combine active asset-allocation with low-cost implementation to deliver the best of both worlds.

While all the funds have delivered positive returns since launch, and outperformed their relevant Investment Association (IA) Sector Averages, as with most investment timeframes, it’s not all been plain sailing! You should always bear in mind that past performance is not a guide to future performance. The value of investments can go down as well as up and there is always the risk of losing money.

Below we have a look at how the investment landscape has evolved over these three years and how the Smart funds have navigated these challenges. This is not advice to invest in Smart funds or any particular investments mentioned. If you are unsure you should seek professional advice.  

Inflation and rising interest rates

The Smart funds launched against a backdrop of rising inflation caused by supply issues following Covid related lockdowns. This was exacerbated by high demand for goods from consumers who had been cooped up since early 2020 and spikes in energy and food prices as a result of the Russian invasion of Ukraine.

As inflation began to gallop away, central banks were forced to react to gain control over rising prices, and this meant interest rates needed to rise, and fast.

This caused a shock that led to a dramatic sell-off in the equity markets and a significant drop in most fixed-interest investments, something of a perfect storm for multi-asset investors.

However, certain positions within the Smart funds provided some shelter from the storm. The allocation to gold, which has often been a useful hedge against inflation — as well as being uncorrelated with other major assets classes — has been the top performing holding for the Smart funds since launch. A focus on lower-duration fixed interest investments — those which mature sooner and as a result are less sensitive to changes in interest-rates — also limited the damage done to this part of the portfolio.

Smart’s best positions:

• Invesco Physical Gold ETF
• Vanguard Global Short-Term Global Bond Index fund

Recessionary fears

Higher interest rates encourage saving and discourage spending, and as rates began to rise, fears increased that this would cause an economic slowdown and eventually lead to a recession.

The Federal Reserve, the US central bank, announced their interest rate decisions would be increasingly data-driven, resulting in key data points such as employment and economic growth being keenly watched in order to assess what impact this may have on interest rates.

This caused significant volatility, particularly during 2022, where different data points often appeared to contradict one another. In the end, the US avoided a recession in 2022, 2023 and 2024, while the UK only entered a mild recession towards the end of 2023 and returned to moderate growth in 2024.

During this volatile period, it paid to stay disciplined and diversified, and retaining an allocation to global equities was rewarded.

Smart’s best positions:

• iShares Edge MSCI World Quality Factor ETF
• Vanguard Global Stock Index Fund

AI

With inflation still elevated and concerns around an economic slowdown still present, the markets started 2023 in a cautious fashion. However, the emergence of ChatGPT captured investors’ attention early in the year and led to a rally in the big tech names which were deemed to benefit most from the rise in Artificial Intelligence (AI).

This positive momentum continued into 2024 and the US market, which is home to many of these big tech names (now affectionately referred to as the Magnificent Seven), led the way. While the impact of AI on both company profits and our daily lives is yet to be fully known, investors who captured this trend in their portfolios have benefited greatly over the last few years.

Smart’s best positions:

• iShares S&P 500 Swap ETF

Against an uncertain backdrop, an encouraging three years 

As we look back over the three years since the Smart funds launched, there have been many market themes which have required careful attention to portfolio construction. It is pleasing to see the Smart funds have been able to return strong positive returns to investors by sticking to the key principles of staying invested and keeping costs down, combined with smart investment decisions.

No matter what the next three years (and beyond!) may bring, we will be working hard to make the Smart funds a great home for investors in the future.

All figures shown refer to the past and past performance is not a reliable indicator of future results. Tables are intended to show performance since inception. You can find performance over different time periods by selecting the fund from here and navigating to the performance tab. These returns are shown net of investment related charges such as the management fees, admin charges and underlying fund charges. It is assumed interest and dividends are reinvested. They do not take into account any service fee charged by Bestinvest in addition to the investment related charges. The effect of these charges would be to reduce the returns of the portfolios. The source of all performance data is Morningstar Direct unless specified otherwise.