HL Growth Fund Performance Update – First Quarter of 2025

The HL Growth Fund is our default fund for workplace pensions. It’s likely to be where your monthly pension contributions are invested if you haven’t made your own investment decisions.

If you’d like to know more, visit our website.

Remember that investing is for the long term, and your pension is typically invested over many years or even decades. You shouldn’t base your investment decisions on short-term events.

This update will help you understand how the stock markets affect the value of your pension investments. Past performance is not a guide to the future. This is not personal advice, please ask for advice if you are unsure of a course of action for your circumstances.

Quarter Review – 1 January to 31 March 2025

In the opening weeks of 2025, stock markets started as they meant to go on – with high volatility and a turning of fortunes for some countries and sectors. Despite pockets of opportunity, it was a challenging period where investors' nerves were tested.

After a strong run of form in the closing months of 2024, the HL Growth Fund fell by 3.8%* in the first quarter of the year. Over the period since the fund launched on 15 December 2021, the fund has grown by 11.2%.

To assess the fund’s performance, we benchmark it for comparison purposes against a group of funds with a similar investment mix, represented by the IA Mixed Investment 40-85% Shares Sector. The average performance of funds in this sector also fell over the first quarter, down 1.2%. Despite underperforming the peer group over this short time frame, the HL Growth Fund has outperformed since launch – the peer group delivered an average return of 5.6% over this period, significantly trailing our fund’s performance.

The HL Growth Fund invests into a mix of two asset types: shares and bonds. Shares are higher risk but offer greater potential returns over the long term. Bonds tend to experience less ups and downs but generally offer lower long-term returns.

The HL Growth Fund

Over the first quarter, significant falls in the value of US stocks impacted the fund’s overall returns, despite positive gains in the UK and Europe. Investing into bonds provided some shelter from stock market falls, with all bar one of the fund’s bond investments rising in value over the period.

Let’s take a closer look at how different investments within the fund performed.

Stock Markets

To diversify, the HL Growth Fund invests globally, including in higher-risk emerging markets and global smaller companies. So how overseas stock markets perform is significant for the fund. The fund also invests a relatively high amount in the UK market too.

This quarter, investors were rattled by news from China that the tech start-up DeepSeek reportedly managed to develop AI technology to rival that of the major US-based players (think ChatGPT’s parent OpenAI, Alphabet, and Meta). This development stunned markets, as the newcomer claimed to be able to deliver similar performance at a fraction of the cost of the incumbents. In turn, this raised the question as to whether the exuberance placed in “big tech” was misplaced, and whether the big names in the space aren’t so invincible after all. Stocks from across the developed market which are classified as being in the Information Technology sector fell by over 14% in the first three months of the year.

Adding to these concerns: tariffs. Although the first quarter doesn’t capture the real fallout from President Trump’s “Liberation Day” tariff announcements, which took place on 2 April, some segments of the market were beginning to feel the impact. Smaller companies – US ones in particular – were particularly hard hit on the expectation that they’d be more vulnerable than larger companies in the event of supply disruption, an increase in costs or a dip in demand resulting from the imposition of tariffs.

Outside of America, many countries and regions enjoyed strong gains. Emerging market economies overall performed well. Chinese shares were the main driver here, as DeepSeek’s AI announcement built excitement around Chinese tech stocks more widely. European shares also delivered well for investors, boosted by a huge spending increase announced by the newly elected German government, two interest rate cuts from the European Central Bank and inflation continuing to fall.

In the case of the UK, the market rose overall as larger sized companies performed well, despite smaller firms struggling. This was a consequence of investors favouring strong and stable firms in sectors less susceptible to disruption from US tariffs (favouring UK large companies), while the struggling UK economy damaged sentiment towards smaller domestic-focused firms.

In a reverse of the effect which has benefited investors in previous quarters, the size of the US market dragged global returns negative in the first three months of the year. Losses in the US more than offset gains elsewhere.

Bond Markets

Bond returns are generally less volatile than the ups and downs of investing in shares and perform well at different times too. So the HL Growth Fund has an allocation to bonds to dampen some of the risks of investing.

Over the quarter, bonds played their usual role in providing portfolio stability. Most bond holdings rose in value, with inflation-linked bonds performing the strongest and corporate bonds (those issued by companies rather than governments) also delivering positive returns. This strength was likely driven by interest rate cuts in several countries, which boosted bond prices broadly, and by rising concerns over future inflation—particularly due to new US tariffs—which gave inflation-linked bonds an added lift.

UK government bonds were a notable exception, posting losses over the quarter. This was a market response to the UK’s weak economic growth and deeper-than-expected cuts to welfare spending which were aimed at reducing government borrowing. Government bond prices tend to fall when investors see a greater risk that the government may struggle to repay its debt—something that slow growth and controversial tax and spending policies can signal.

Looking Ahead

As the second quarter unfolds, markets are grappling with heightened volatility following the announcement of President Trump’s new reciprocal tariffs. Although the tariffs were initially set to take effect in early April, they have been paused for 90 days—offering a temporary reprieve to otherwise nervous markets. While the US and its key trading partners are bearing the brunt of the disruption, the interconnected nature of the global economy means few countries are shielded from unpredictable policy shifts out of Washington.

Some economies are more exposed than others. China, for instance, is a major exporter to the US and has been hit with particularly punitive tariffs, which have now come into force. The Chinese stock market has fallen sharply in response.

As the second quarter unfolds, investors will be watching closely for any signals from the White House on the direction of tariff policy. They’ll also be monitoring inflation data and broader indicators of economic health. The outlook remains highly uncertain. If tariffs are cancelled and the US economy avoids recession, markets could stage a strong rally. But if current policies take full effect and the US does slip into recession, the rest of the world would likely follow—potentially leading to further challenges for investors.

Unhelpfully perhaps, the probability of a US recession in the next 12 months is around 50% at the time of writing, although forecasts vary widely. In any event, for long-term investors (at least five years), time in the market is more important than timing the market and remaining patient and disciplined through short-term market noise is essential. The HL Growth Fund remains well diversified to spread the risks of investing, and to seize pockets of opportunity as they arise.

Past performance is not a guide to the future. The comparator is the IA Mixed Investment 40-85% Shares TR.

The HL Growth Fund launched on 15 December 2021. N/A means full year figures are unavailable. *Source: Lipper IM, to 31 March 2025.

Unless stated otherwise, figures are expressed in GBP terms, to show the returns experienced from the perspective of a UK investor.

Important notes

Investing for longer increases the likelihood of positive returns. Over a period of five years or more, investments usually give you a higher return compared to cash savings. But investments can go down as well as up in value, so you could get back less than you put in.

Once invested in a pension, your money is usually no longer accessible until at least age 55, rising to 57 in 2028.

The HL Growth Fund is managed by Hargreaves Lansdown Fund Managers Ltd, a subsidiary of Hargreaves Lansdown Ltd.