- The IA Global sector is the largest investment sector with £208 billion in assets under the management. Over the past 10 years this sector has averaged growth of 155.46%.
- Over the past 10 years all investment sectors, excluding the IA UK Gilts sector, averaged positive returns. 13 of the sectors had averaged returns that were in excess of 100%, with 28 sectors averaging in excess of 50%.
- The best performing investment sector over the last 10 years was the IA Technology & Technology Innovation sector with 10 year growth of 365.29%.
- Contains the performance of 54 main IA sectors over the past 1, 5, and 10 years and details the 10 top performing sectors.
In this article, we will provide an in-depth analysis of the top 10 Investment Association (IA) sectors that have delivered the best performance over the past decade. By examining each sector’s returns over the last 1, 5, and 10-year periods, we highlight what has driven their growth and the potential they hold for investors.
We also explore the importance of diversification and the risks of overloading in any single sector, which remains one of the most important aspects of investing that many investors ignore.
Sector Performance: Average Returns Over 1, 5 & 10 Years
There are currently 54 sectors classified by The Investment Association (IA) who are the UK's trade body representing investment managers, overseeing over £9.1 trillion in assets. There are currently 4,084 funds classified within these 54 sectors. The table below shows the average return of the funds within each sector over the past 1, 5 & 10 year periods.
Over the past 10 years all investment sectors, excluding the IA UK Gilts sector, averaged positive returns. 13 of the sectors had averaged returns that were in excess of 100%, with 28 sectors averaging in excess of 50%. Unsurprisingly, it was equity sectors that dominated the top half of the table.
Top 10 IA Sectors Over 10 Years
The chart below identifies the 10 IA investment sectors with the highest 10 year performance averages and shows their performance progression during year.
1. IA Technology & Technology Innovation
The sector with the highest 10 year average was the IA Technology & Technology Innovation sector. This sector has demonstrated significant growth over the past decade delivering a 10 year return of 365.29%. Over the past 5 years, the sector maintained strong momentum with an average growth of 101.19%, and in the last year alone, it achieved growth of 34.02%, which again was the highest average of all other IA sectors.
The sector's success is largely due to its focus on cutting-edge industries such as artificial intelligence (AI), cloud computing, e-commerce, and other transformative technologies. As more industries incorporate digital solutions, demand for technology continues to rise, sustaining growth in this sector.
While the sector's high returns make it attractive, it also carries substantial risks. The tech-heavy nature of this sector makes it particularly sensitive to economic shifts, interest rate changes, and regulatory challenges. For instance, a tech sell-off occurred in early 2022 as rising interest rates impacted technology stock valuations. However, the sector recovered and in 2023 it was the top-performing sector, and its growth trajectory has continued into 2024.
Currently, the IA Technology & Technology Innovation sector has £10.1 billion in funds under management. Although it has outperformed all other sectors and attracts growth-focused investors, it remains less popular than more diversified investment options. This lower popularity may reflect the sector's high volatility, making it best suited for very adventurous investors. However, as part of a suitably balanced asset model, lower risk inclined investors can also benefit from the sectors growth potential.
2. IA North America
The IA North America sector has been one of the top-performing sectors over the past decade, driven by resilient, world-leading U.S. companies, particularly in technology and consumer markets. As a core region for diversification, it boasts a strong track record and ranks as the third-largest sector with £105.9 billion in assets under management.
Over the past 10 years, it has averaged impressive returns of 245.89%, with a 5 year average of 78.53% and strong 1 year average growth of 28.26%. This steady performance is largely thanks to powerhouse companies like Apple, Microsoft, Amazon, Alphabet, and Tesla, which are at the forefront of innovation and have significant global influence.
The sector’s popularity comes from its blend of stability and growth potential, attracting investors looking for exposure to the economic strength of the U.S. However, it does carry risks, as it’s heavily weighted toward large tech stocks. This concentration makes it sensitive to U.S. economic cycles, interest rate changes, and shifts in consumer demand.
This sector is ideal for balanced to moderately adventurous investors seeking stable growth and broad diversification. It offers resilience with innovation-driven returns, providing a way to benefit from North America’s economic power while managing risk. Its large asset base reflects investor confidence in the sector’s performance potential.
3. IA North American Smaller Companies
The IA North America Smaller Companies sector differs from the IA North America sector as it solely focuses on funds that primarily have holdings in small-cap companies that are often younger, more agile, and positioned for rapid growth.
Investors in this sector gain exposure to innovative businesses in areas like technology and healthcare that are quick to seize new market opportunities. Although smaller companies are generally more sensitive to economic shifts and can experience greater price volatility, they also offer higher growth potential.
Over the past 10 years, this sector averaged returns of 185.86%, with a 56.55% average over the last 5 years and 24.67% over the past 12 months.
With £5.2 billion of investor assets spread across 31 funds within the sector, it has a moderate level of popularity, appealing especially to moderately to very adventurous investors who are comfortable with higher risk tolerance. In contrast, the broader IA North America sector, with £105.9 billion in assets, attracts more cautious investors who prefer the stability of larger, established companies.
However, smaller companies in this sector are more sensitive to economic fluctuations, making them vulnerable to liquidity challenges and price swings during downturns.
4. IA Financials and Financial Innovation
The IA Financials and Financial Innovation sector stands out for its strong recent performance. Over the past year, it averaged impressive growth of 29.2%, which was the 2nd highest performing sector after IA Technology and Technology Innovation. Over 10 years, it delivered impressive growth of 173.79%, underscoring its steady long-term potential.
This robust performance is driven by innovations in fintech and digital advancements within the financial services industry, which include sectors like banking, insurance, capital markets, and consumer finance. These advancements help financial institutions improve efficiency and attract investors seeking both income and capital appreciation.
While the sector has generated strong returns, it has a relatively low asset base of £2.6 billion. This indicates that some investors may still favour more traditional, stable sectors with larger asset bases.
However, those who are willing to invest in this sector find an exciting growth opportunity supported by evolving financial technologies. In 2023, active fund management has proven particularly effective, with 84.6% of active funds outperforming the MSCI ACWI/Financials index, highlighting the value of a proactive approach in navigating market shifts.
The sector does present certain risks. Its performance can be impacted by interest rate changes, regulatory adjustments, and broader economic cycles. This combination of growth potential and inherent vulnerabilities makes it an appealing choice for balanced to moderately adventurous investors. Those who are comfortable balancing stability with the potential for higher returns from financial technology innovations may find this sector aligns well with their investment goals.
5. IA India/Indian Subcontinent
The IA India/Indian Subcontinent sector offers investors access to one of the most dynamic and rapidly growing regions in the world. This sector primarily focuses on equities within India and its neighbouring countries.
In the past 12 months, the sector averaged a growth of 21.76%. Its five-year growth reached 83.27%, making it the top performer after the IA Technology and Technology Innovation sector. Over 10 years, the sector delivered a strong return of 170.89%, highlighting its capacity for sustained growth.
This growth is fuelled by India’s young and expanding population, urbanisation, and economic reforms. A large, young workforce drives demand for goods and services, boosting sectors like technology, financial services, and healthcare. Additionally, infrastructure projects and business-friendly policies attract foreign investment, which supports further market growth and stability.
With £6.2 billion in assets, this sector appeals moderately to adventurous investors seeking high returns from emerging markets. However, it is not without risks. The sector is sensitive to political changes, currency fluctuations, and its reliance on foreign investment, which can lead to volatility, especially during global downturns.
While it may not hold as much in assets as more established sectors, this region’s consistent growth potential has earned it a niche following among those looking to diversify with emerging market exposure. For those able to tolerate short-term market swings, this sector offers an enticing mix of growth opportunities and exposure to some of the world’s fastest-growing industries.
6. IA Global Sector
The IA Global sector has consistently been among the most loved by investors, standing out as a top sector in 2024 due to its diversified approach. Offering exposure across a broad range of regions and industries, it helps mitigate the impact of any single market’s volatility. With £207.3 billion in assets under management—the largest among all sectors—it plays a significant role in many investment portfolios.
Over the past 12 months, the sector delivered a return of 21.13%. Over 5 years, it achieved 55.56% growth, and over 10 years, it returned 155.46%. This consistent performance highlights its capacity for steady, long-term growth.
Funds in this sector often invest in high-growth areas like technology and healthcare, driving strong returns. Skilled fund management also contributes by actively identifying and capitalising on global opportunities.
While the sector is exposed to risks like currency fluctuations and geopolitical events, its broad scope appeals to cautious to balanced investors seeking stable growth potential. It’s ideal for those seeking a reliable core holding within their portfolio, offering moderate returns from a mix of international markets.
For long-term investors, the IA Global sector offers an effective balance of growth and risk management. Its substantial asset base underscores its importance as a trusted, stable component in diversified portfolios, especially for those looking to benefit from global market trends.
7. IA Healthcare
The IA Healthcare sector invests in pharmaceuticals, biotechnology, medical devices, and healthcare services. As a defensive sector, it benefits from steady demand due to healthcare's essential nature and an ageing global population. This steady demand makes it more resilient during economic downturns, as people continue to require medical care regardless of the economic climate.
With £4.2 billion in assets under management, the IA Healthcare sector attracts defensive to balanced investors looking for consistent growth with lower volatility. Over the past year, it achieved a return of 15.46%, with 55.45% growth over 5 years and a solid 131.4% over 10 years. This long-term growth underscores its role as a reliable component in diversified portfolios.
The IA Healthcare sector’s strong performance is driven by consistent demand, an ageing global population, and ongoing innovations in medical technology and treatments. However, high R&D costs and regulatory pressures pose challenges that can impact profitability.
Despite certain challenges, it remains a reliable option, supported by ongoing demand for medical services and advancements in treatments. It can be an ideal fit, especially for those prepared to invest in long-term sector trends and prioritise stability over high-risk returns.
8. IA Global Equity Income
The IA Global Equity Income sector is a preferred choice for investors who value regular income combined with global equity exposure. With at least 80% of assets allocated to global equities and aiming for a yield above the MSCI World Index, this sector has proven resilient and reliable.
Managing around £24.3 billion in assets, it ranks among the best-performing sectors, attracting income-focused investors with its steady returns.
Over the past year, the sector delivered an average return of 18.78%, demonstrating its stability amidst recent market fluctuations. Its five-year performance reached 50.6%, and over ten years, it delivered a strong 148.37% return, showcasing its potential for long-term income generation and capital appreciation.
The sector prioritises a steady stream of dividends alongside capital growth, though it may lag during high-growth cycles due to limited exposure to high-growth stocks. This focus on stability rather than aggressive growth may not suit investors with higher risk appetites.
For cautious to balanced investors, particularly those approaching or in retirement, the IA Global Equity Income sector offers consistent income and capital preservation. It aligns well with long-term financial goals focused on stability and income, making it a strategic component within a diversified portfolio.
9. IA Japan
The IA Japan sector, managing £26.8 billion in assets, is an important asset class for many balanced to moderately adventurous portfolios. the funds in this sector provides investors access to a stable, advanced market recognised for innovation and recent corporate reforms, with strong foundations in technology, manufacturing, and governance. Over the last year, the sector achieved a return of 11.63%, a 5 year average of 34.37%, and impressive 10 year average returns of 118.69%, highlighting Japan’s potential for steady, moderate growth.
Japan’s economic resilience is evident despite structural challenges, such as a declining population and dependency on exports, which makes it sensitive to global trade shifts.
While it may not produce the rapid gains seen in emerging markets, it offers steady growth potential for those with a long-term perspective.
10. IA European Smaller Companies
The IA European Smaller Companies sector offers an investment opportunity in Europe’s small and medium-sized enterprises (SMEs), focusing on companies that fall within the smallest 20% by market capitalisation in the European market. Known for higher growth potential than larger firms, this sector offers a unique opportunity within developed European markets.
The IA European Smaller Companies sector has demonstrated impressive performance with 10 year average returns of 131.64%. This competitive performance is largely due to the agility and innovative potential of smaller companies. The EU’s pro-innovation policies support these firms, encouraging growth and stability within SMEs.
Despite these solid returns, the sector remains under-invested, managing a relatively low £1.9 billion in assets. Its lower popularity may be due to the higher risks inherent in smaller companies, including sensitivity to economic and political shifts within Europe and liquidity issues that can become pronounced during downturns. This lower level of investment could present an untapped opportunity for those aiming to diversify within European markets, especially for investors willing to embrace the sector's volatility for long-term gains.
This sector is best suited for moderately to very adventurous investors comfortable with the risks tied to smaller, dynamic companies. While it holds potential for high returns, it also requires a tolerance for short-term fluctuations.
The Trap of Overloading
The 10 sectors featured in this report have the highest 10 year average out of all 54 IA investment sectors. However, all sectors have their benefits, with the most successful investment portfolios often those with a suitable mixture that incorporates several funds from different sectors.
However, in the pursuit of growth, many investors are often be tempted to concentrate their portfolios solely in sectors or regions that are currently performing well, but this can lead to a risky practice known as overloading. Overloading occurs when a portfolio becomes heavily weighted toward one asset class, sector, or region, increasing its vulnerability to significant losses if that area experiences a downturn. While investing heavily in high-growth sectors may seem like a smart strategy, it also exposes investors to heightened risks that could undermine their long-term objectives.
For example, over the past 10 years, the IA Technology & Technology Innovation sector has delivered the highest returns, followed closely by the IA North America sector. This impressive performance may tempt investors to allocate more heavily to these areas.
While these sectors have excelled recently, overloading in them can still expose a portfolio to higher risks. Technology, in particular, is sensitive to economic shifts, interest rate changes, and regulatory pressures, while North America, although home to resilient companies, has experienced several bear markets in recent decades.
Furthermore, concentrating in a single region or sector can also mean exposure to just one fund management brand, which is another potential risk. The UK’s Financial Services Compensation Scheme (FSCS) only protects investments up to £85,000 per brand name, so diversifying across funds and managers can add an extra layer of protection.
In short, no single region, sector, or asset type will consistently outperform, which is why diversification is essential for managing risk. A globally diversified portfolio spreads investments across multiple countries, sectors, and currencies, offering better protection against inevitable market fluctuations. By avoiding overloading and maintaining a balanced allocation, investors can achieve a more stable, resilient portfolio that is better positioned for long-term success.
Diversification & Performance of IA Sectors
Efficient investing relies on two key principles: (1) implementing a diverse asset allocation model suited to one’s risk profile, and (2) selecting fund managers who are knowledgeable and efficient within relevant sectors of the chosen asset model. Various global regions and investment sectors form the backbone of well-diversified portfolios. The allocation of these assets is carefully balanced based on an investor’s risk tolerance and specific objectives. This strategic approach is widely acknowledged as the most effective way to achieve growth while managing risk.
At Yodelar, we observe a growing trend where investors and restricted advice firms overlook the importance of diversification. Instead, they often base decisions on recent performance trends. For instance, some may re-adjust portfolios to favour sectors currently performing well, while neglecting those that may be poised for recovery. This reactionary approach may lead to imbalances, especially as sectors emerging from downturns often enter an upturn cycle statistically.
We analysed the performance of 54 of the most popular Investment Association (IA) sectors over the past decade. For most of the past 10 years, the majority of these sectors have shown average annual growth. However, as shown in the table below, there have been several years where many sectors experienced significant losses, with 2022 being the most recent year where sectors were in negative territory. Some sectors, once unpopular with investors, are now showing improved results.
A key example is the IA UK All Companies sector, which holds £142.7 billion in assets under management. This sector has historically underperformed and was among the least favoured by investors. Despite this, it has shown resilience, achieving nearly 20% growth over the past year. This highlights that even sectors with a track record of underperformance can deliver strong returns, especially when they recover from downturns.
Summary
Investing, like many things in life, can be challenging. However, those who follow a defined, long-term strategy and maintain a disciplined, realistic approach are often the most successful in achieving their goals. A commitment to this approach can lead to better results over time.
Investors can strengthen their portfolios and improve outcomes by recognising the costly mistakes outlined in this article and taking steps to avoid them. It is essential to assess individual fund strategies, evaluate management quality, and align investments with personal risk tolerance and financial goals. By selecting sectors that match their risk profile, investors can build a portfolio that balances growth potential with their appetite for risk.
Remember, no single sector consistently outperforms, which is why diversifying across various asset classes and regions can help stabilise and grow investments over time.
Identifying the best performing funds within each sector will also contribute to achieving optimal returns and safeguarding your financial future.
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