At first glance, one might define the "best fund" as the one with the highest recent return. But this conclusion falls short. Consider the following: An investor chooses the fund that generated the highest gains over the past twelve months or three years. What actually drove this performance? Often, such top performers achieved exceptional results because they ignored basic diversification principles and took on substantial risks. It may be a sector fund heavily concentrated in a recently booming industry (such as technology, defence or energy). Or it could be a fund with a very concentrated portfolio of only ten to fifteen holdings, possibly even using leverage to enhance returns. These strategies can produce outstanding results during favourable market phases. But they typically rely on a combination of supportive conditions and risks that simply did not materialise during the observed period. The key question is therefore: How sustainable is such performance?

To assess funds realistically, focusing solely on past returns is not enough. A more nuanced perspective is essential. Investors should pay particular attention to the following criteria:

• Long-term perspective: A fund’s performance should be evaluated over longer periods — ideally five years or more rather than just one or three. This captures different market environments (expansion, contraction, crises) and reveals how robust the fund truly is over time. A short-term outperformer may look impressive in a bull market or during a thematic rally, but how did it behave in more challenging periods?
• Returns in the context of risk: High returns are meaningful only if they are achieved with an appropriate level of risk. Investors should ask: What risks did the fund take to deliver its performance? Diversification is crucial here. If a fund generated solid returns with a well-diversified portfolio, that is an early indication the result was not merely luck. Equally important: Does this risk level align with my own risk profile? A fund that rises sharply due to concentrated bets may fall disproportionately during the next market correction.
• Personal risk tolerance: Every investor must honestly assess how much interim loss they can endure. Am I prepared to withstand temporary drawdowns of, for example, 40 percent? Or would I panic and sell? This psychological resilience is essential, because the best fund is useless if one exits at the wrong moment during a downturn. 
• Maximum drawdown: Indicates the largest peak-to-trough decline. A low drawdown (e.g. 10 percent) signals reduced downside risk, while a high drawdown (e.g. 40 percent) shows the fund has experienced significant losses in the past. Investors should consider whether they could tolerate such declines.
• Volatility: Measures how much a fund’s value fluctuates. High volatility implies larger swings and higher risk. A fund with five percent volatility (e.g. a conservative or balanced Multi Asset fund) behaves very differently from one with 20 percent (e.g. an equity fund). Volatility indicates how smooth or bumpy a journey the fund offers — and whether that aligns with one’s own risk capacity.
• Sharpe ratio: Shows the excess return per unit of risk. Put simply: How much return does the fund deliver for each percentage point of volatility? A higher ratio reflects more efficient return generation relative to risk.
• Portfolio transparency: Annual and semi-annual reports provide insight into the fund’s full portfolio. They help investors understand how diversified (or concentrated) the strategy is. Is the fund focused on a single region or sector? Do the top ten positions make up 40, 50 or even 60 percent of the fund?

When comparing funds, context matters. One must understand what happened during the comparison period (e.g. a rate-hiking cycle, an equity sell-off). Stress periods are particularly revealing: How did the fund perform in actual crises, such as the COVID-19 shock in 2020 or the financial crisis of 2008/09? A resilient fund tends to hold up better than more aggressive peers.

Equally important: Always compare funds with an appropriate peer group or benchmark. A global equity fund belongs alongside the MSCI World or similar global strategies. A money market fund serves a completely different purpose — it may appear to be the “best fund” in a market crash simply because it avoided losses, but it is not designed for long-term growth.

In short: The quality of a fund becomes clear not through isolated numbers but through the relationship between return and risk — and through its role within an investor’s overall portfolio across different market environments.

Fund costs have a direct impact on the returns investors ultimately achieve. Management fees, transaction costs and initial charges reduce the gross performance — and over longer periods, even small differences in cost levels can meaningfully influence the final outcome (the compounding effect).

However, the lowest-cost fund is not automatically the best choice. This is especially true in more complex asset classes where flexibility and selective positioning can add significant value — such as Multi Asset or fixed income strategies. Funds that compete primarily on exceptionally low fees often compromise on diversification depth or avoid labour-intensive but return-enhancing market segments. The result is so-called benchmark hugging: Portfolios that simply replicate standard indices without meaningful active risk management or strategic opportunity-seeking.

The key takeaway: Investors should always consider net performance after costs, but cost alone should not drive the investment decision. The right balance between efficiency (costs) and the quality of the investment approach is what ultimately matters.

The question of the best fund can ultimately only be answered individually. Every investor has different goals, risk tolerances and financial circumstances — which means the "best fund" must always fit the person, not the other way around. A key first step is defining the investment objective: Is the focus on long-term wealth accumulation, retirement planning, capital preservation or something else entirely? A fund that is ideal for one investor — for example, a return-oriented equity fund for a 30-year-old with a long investment horizon — may be entirely unsuitable for someone who needs liquidity for a property purchase in two years.

Closely linked to this is the investment horizon. The longer the time frame, the more short-term volatility an investor can absorb and the more appropriate a more dynamic, higher-return strategy may be. Conversely, investors who will need their capital in the near future should take a more cautious approach — in such cases, the "best fund" is generally one with lower volatility, even if that comes with more modest return potential.

Just as important is the alignment between the fund and the investor’s risk profile. In other words: Do I know my own risk tolerance? Some investors remain calm even when their investment is temporarily down 20 percent, because they trust in long-term recovery. Others become uneasy at losses of only 5 percent. There is no right or wrong here — the key is choosing a fund whose risk characteristics one can genuinely tolerate. Investors who tend to react nervously in turbulent markets may struggle with an equity-heavy strategy, even if the long-term return prospects are strong. Conversely, an overly conservative fund may feel disappointing for someone with higher risk capacity who could make more effective use of higher return potential. And it is important to remember: Keeping money in a current or savings account is also an investment strategy — but one with its own risks, such as missing out on market opportunities or the steady erosion of purchasing power through inflation.

Another crucial consideration is the role a fund should play within the overall portfolio. Does it serve as a defensive stabiliser (such as a bond, volatility or money market fund), as a growth engine (e.g. a global equity fund), or as a core portfolio holding (such as a Multi Asset strategy)? Each role comes with different expectations of what "best" means: A defensive fund should provide stability, a growth fund should capture opportunities and a core strategy should add value consistently over time. There is no one-size-fits-all answer — what matters is that the fund’s characteristics match the role it is intended to play.

In short: The best fund is the one that fits you. That means it aligns with your financial goal, your time horizon and your risk tolerance. This fit matters far more than any past performance ranking.

Diversification — the practice of spreading investments across different assets — is a core principle of any resilient investment strategy. Instead of putting all capital into one supposedly "best" fund, thoughtful investors allocate across several funds or asset classes (such as equities, bonds, Multi Asset, volatility strategies or commodities). The reason is simple: Diversification can significantly reduce overall portfolio risk. Losses in one area may be offset by gains in another. A broadly diversified portfolio therefore tends to be less volatile and more stable over time than a single, concentrated investment.

However, diversification is not just about the number of holdings — what truly matters is the quality of diversification. Holding many funds does not automatically create real diversification if they are all exposed to similar markets or sectors. For example, owning ten different technology funds offers hardly any better diversification than owning just one, because all depend on the same sector’s performance. It is also important to avoid concentration risks: Portfolios that place too much weight on a small number of positions or one single sector are more vulnerable. True diversification requires investments that behave differently — in other words, low correlation — and ensuring that no single position dominates the portfolio.

Another factor is how portfolios behave in broad market downturns. During global crises — such as the financial crisis of 2008 or a broad-based market correction — correlations between asset classes often rise, and even diversified portfolios may lose value. Yet diversification still pays off: A combination of different assets can help cushion extreme losses better than a concentrated position. Additionally, diversified portfolios can be complemented with stabilising components, such as strategies that tend to benefit in stress periods (for example, certain long-volatility approaches). This combination can help maintain portfolio resilience even in challenging market environments.

Ultimately, diversification is not a cure-all, but it is an indispensable tool for improving an investment’s risk–return profile. For fund investors, this means shifting the focus away from finding a single "best" fund and instead building a balanced, well-structured portfolio. A strong equity fund, for example, can be meaningfully complemented by a high-quality bond fund and perhaps an alternative strategy (such as commodities or volatility). These components can offset each other and lead to a more attractive risk–return balance than any single fund could achieve alone.

There is no single "best fund" that works for every investor. What is "best" always depends on an individual’s situation. The optimal fund is the result of a tailored assessment — aligned with personal investment goals, time horizon and risk tolerance. Investors who rely solely on past performance run the risk of chasing short-term outliers and overlooking the truly durable opportunities. Instead of focusing on yesterday’s winners, investors should ask: Does this fund align with my objectives and my portfolio?

The best fund in 2025 is the one that fits your strategy and your needs — not necessarily the one that topped the rankings last year. To see how we apply these principles in practice across different investment solutions, you can explore our Multi Asset investment approach.