Funds and trusts tied to AI continued to surge in May, FE fundinfo data shows, with most of the month's highest-returning portfolios being a direct or indirect play on the theme.
Equity markets were positive in May, with the MSCI AC World index rising 6% in sterling terms, even though markets were volatile as the US and Iran held a fragile ceasefire and economic indicators pointed to the risk of stagflation.
Ben Yearsley, director at Fairview Investing, said: "Despite the geopolitical headwinds, slowing growth and potential tightening of monetary policies across the globe, why do investors remain in a bullish mood? Investment in AI is the key reason, as the huge spending cycle is far-reaching across countries and sectors.
"Companies are still spending and corporate earnings are supportive. But we appear to be in a self-fulfilling, momentum-driven rally – put simply, the market is going up because people are buying it. Why are they buying it? Because it's going up. The question is how long fundamentals can support such exuberance."
Global equity performance in May 2026
Source: Finxl. Total return in sterling between 1 and 31 May 2026
The chart above shows this: most equity sectors were up last month, although tech stocks were the clear winners with the MSCI AC World Information Technology index gaining more than 18%.
This can also be seen among the sectors in the Investment Association and Association of Investment Companies universes. In both, the highest returns in May came from tech strategies: the average IA Technology & Technology Innovation fund made 16% while the average IT Technology & Technology Innovation trust was up 14.3%.
AI has been the defining investment theme of the mid-2020s. What began as enthusiasm for large language models (LLMs) has broadened into a structural build-out of chips, data centres, power infrastructure and security systems.
Sceptics have periodically warned that lofty valuations among AI names mean markets are pricing in perfection and isolated corrections in 2024 and early 2025 briefly appeared to vindicate those concerns. But the earnings have broadly arrived in the companies supplying the build-out and markets are awaiting the IPOs of AI leaders such as OpenAI and Anthropic.
Source: FE Analytics. Average return in sterling between 1 and 31 May 2026
Emerging markets were another area of strong returns last month, albeit owing to the AI theme. Korea and Taiwan were the strongest equity markets in May thanks to stocks such as SK Hynix, Samsung and Taiwan Semiconductor Manufacturing Company, which are supplying components critical to the AI build-out.
Few fund sectors made a loss in May. Yearsley pointed to the relatively low returns among fixed income funds, saying: "In contrast to buoyant stock markets, bond markets have remained volatile as they continue to be spooked by inflationary pressures leading to a higher for longer interest rate environment. In the US, yields continued to climb and the 10-year treasury now pays 4.44% after offering 4.37% a month ago."
IA Latin America was the only Investment Association peer group to lose money, suffering from the strengthening dollar and falling energy prices. Nine trust sectors were down, including IT Property Debt, IT China/Greater China and IT Property UK Logistics.
Source: Finxl. Total return in sterling between 1 and 31 May 2026
When it comes to the best performing individual funds and trusts of May, the AI theme and the various ways in which it can be expressed are very much apparent.
Many of the funds in the above list reside in the IA Technology & Technology Innovation sector and have an explicit remit to invest in AI stocks. These include Invesco Artificial Intelligence Enablers UCITS ETF, L&G Artificial Intelligence UCITS ETF and Xtrackers Artificial Intelligence and Big Data UCITS ETF.
Broader tech strategies (which will be invested in AI as well as other areas of the space) include T. Rowe Price Global Technology Equity and Liontrust Global Technology. Allianz Technology and Polar Capital Technology are some of the investment trusts making high returns last month.
WisdomTree Cybersecurity UCITS ETF made the Investment Association's highest return last month, with Nasdaq Cybersecurity UCITS ETF, L&G Cyber Security UCITS ETF and Invesco Cybersecurity UCITS ETF being in the top 10.
Like many software companies, cybersecurity was seen to be at risk from AI but has surged more recently as businesses recognise that AI-driven attacks and tightening regulatory requirements around data protection mean they will need to invest more in cybersecurity.
Korean equity funds continue to be a major theme, with Franklin FTSE Korea UCITS ETF, HSBC MSCI Korea Capped UCITS ETF, Barings Korea Trust, Xtrackers MSCI Korea UCITS ETF and iShares MSCI Korea UCITS ETF all near the top of the Investment Association leaderboard.
The South Korean KOSPI benchmark is up over 95% so far this year as investors continue to bet on the country's dominance of the memory chip market, with Samsung Electronics and SK Hynix being responsible for the majority of the market's gain.
US Solar was the top-performing investment trust with a return of 26.3% and Invesco Solar Energy UCITS ETF posted 25.6% on the open-ended side. Again, this can be linked to AI: AI data centres demand a lot of energy.
Data centre operators are adopting a diverse array of power solutions, including solar, and renewables currently supply around one-quarter of the electricity consumed by data centres globally.
Source: Finxl. Total return in sterling between 1 and 31 May 2026
Among the worst funds of May are several that focus on Brazilian equities. As an oil exporter, Brazil had benefited from the higher oil prices caused by the war in Iran but suffered when they fell last month. The central bank is also forecasting higher inflation while the country is preparing for a general election later in the year.
Indonesian stocks are suffering after MSCI warned in January that the country could be downgraded from emerging market to frontier market status because of a lack of transparency in ownership and high shareholding concentration. The index provider will decide in June.