HL Growth Fund Performance Update – Fourth Quarter of 2025

Nick Clough, DC Investment Specialist

31 January 2026

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

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Quarter review - 1 October to 31 December 2025

The final quarter of 2025 rounded out a strong year for global markets, with both shares and bonds marching steadily higher, albeit with less momentum than we enjoyed earlier in the year. Many major markets finished the year close to record price levels, underscoring the potential rewards for patient investors willing to ignore the noise and invest for the long-term.

There were some early signs of a potential shift in the growth-focused, tech dominated market narrative which has dominated the headlines for several years now. Concerned about the lofty valuations attached to “big tech” companies, investors began looking elsewhere for pockets of fresh opportunity in previously unloved markets. Combined with a weaker US Dollar, this meant that for only the third time in the last decade, the US stock market underperformed the rest of the world over the full calendar year.

Over the period, the HL Growth Fund rose in value by 3.9%. Since the fund launched on 15 December 2021, the fund has grown by 31.6%.

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”. Funds in this sector delivered an average return of 3.4% during the fourth quarter, and 19.4% since the HL Growth Fund launched.

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

In the last three months of the year, European shares were the strongest performers within the fund, growing by over 7%. UK shares also performed strongly – growing over 6%. Both markets were beneficiaries of the trend away from the USA, tempting investors with more attractive company valuations. Despite not growing as much as their European or British counterparts, American companies once again contributed the most to the fund’s overall return. The USA remains the largest allocation within the fund, so it tends to have an outsized effect on the fund’s overall performance. Following a clean sweep of positive returns for all sixteen of the fund’s holdings in Q3, the trend was sadly broken in Q4, if only as a result of very modest losses from the inflation-linked bond holding and Asia Pacific shares – mostly due to weakness in the Australian tech sector.

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.

This quarter, the US government endured the longest shut-down in modern history as Democrats and Republicans in Congress failed to reach consensus on Governmental spending plans. Consequently, markets were starved of the constant flow of new data which they feed off. Rather than indulge in noisy speculation over the health of the broader economy, investors focused instead on the corporate news flow, carefully considering the performance of listed companies. This was positive overall for markets, with no notable deterioration in the health of USA Plc. By mid-November the shut-down was over, and an interest rate cut from the Federal Reserve in December helped the market deliver a positive return for Q4, and a return of nearly 10% for the year as a whole. The performance was even stronger for US-based investors, although the weaker US Dollar dampened the returns for UK investors.

European and UK markets enjoyed especially strong returns over the fourth quarter. Companies in the Financial sector across the continent enjoyed strong growth, bolstered by falling interest rates improving the outlook for future borrowing. Perhaps also as a result of falling interest rates, there was renewed investor interest in higher dividend paying sectors: miners, utilities and healthcare companies, all of which can be found in abundance in the UK and European markets. Larger, international companies listed on the UK stock market led the advance, while smaller companies with a greater domestic business focus lagged (but still grew). This is down to the persistent challenge of higher UK inflation, which dampened economic growth in the UK.

Turning to Emerging Markets – those with less developed economies – performance was also strong over the fourth quarter. Emerging Markets outperformed their Developed counterparts over the fourth quarter, aided by a weaker US Dollar. This has several benefits to Emerging Market countries: it helps reduce the cost of paying any debt they may have raised in US Dollar terms, as well as making commodities cheaper to buy, as they are generally priced in Dollars. As major consumers of raw materials – owed to heavy manufacturing economies – this is a real boost to the profitability of EM companies. Several countries in the EM universe also have well developed Technology sectors – Korea and Taiwan especially. Performance of companies in the burgeoning EM Tech space also performed very well, helping to lift the market overall.

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.

Bond prices tend to move in the opposite direction to interest rates. So when interest rates go down, bond prices go up. This is because bonds usually pay fixed interest rates to their investors, which look comparably more attractive as interest rates fall.

The fourth quarter saw further rate cuts in many countries, as central banks gradually aim to make financial conditions easier as the threat of inflation subsides. While this general trend has been well anticipated and overall market movements were muted, the UK government’s bonds – “Gilts”. – were a stand-out performer. Following a period of weak Gilt performance due to investor concerns around weak UK Growth prospects and unsustainable levels of debt, the November budget was well received by markets, and further rate cuts have helped to steady the ship. Some areas of the UK Gilt market rose sharply over the period – in excess of 5% for the most interest rate sensitive Gilts in issue.

In a trend which is becoming the norm of late, High yield bonds – those which give potentially higher returns, with less certainty of future performance – performed the strongest of other key bond types over the fourth quarter. This is typical during periods of investor confidence, as investors are signalling optimism over the future prospects of the companies they lend to, and are willing to accept the potential risks.

Looking Ahead

With 2025 now behind us, investors are asking a slightly different question: not whether markets can finish the year strongly, but whether this momentum can carry into 2026, and for how long.

There are reasons for optimism. Company earnings have generally remained resilient; inflation has continued to ease in many major economies and central banks are getting closer to “normalising” interest rates, at which point conditions to support growth are at their most favourable. In the early stages of 2026, gains have started to broaden beyond sectors linked to the “Magnificent 7” who have been responsible for so much of the growth we’ve enjoyed in recent years. This could suggest that the market fundamentals are in a healthier position than at the start of last year.

However, risks haven’t disappeared. Tech sector share prices are very high relative to earnings versus historical standards, leaving little room for disappointment in future earnings. Investors are also carefully watching how much money is being spent in the development of AI and beginning to question when they can expect to see these investments translate into profit. They won’t remain patient forever. Geopolitics continues to offer a source of uncertainty on several fronts too. Trade tensions, especially between the US and China, could re-escalate. The future of the war in Ukraine and the implications for European security hang on a knife edge. And key elections in the UK and the USA this year could trigger periods of volatility as investors grapple with what that might mean for the prospects of the two countries on either side of the Atlantic.

For long-term investors, staying diversified across regions and sectors remains key to capture market growth wherever it may occur, and to reduce overreliance on a single country or area of the market. The HL Growth Fund remains diversified geographically and across different asset types, to navigate the months ahead.

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

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