Q4 2025 Investment Commentary

Happy New Year and welcome to our latest Investment Commentary.

As we begin 2026, this edition will start with a round up of 2025, before moving on to our review of the fourth quarter and our outlook for the year ahead.

2025 ROUND UP 

2025 turned out to be a great year for asset classes, although there was some uncertainty along the way, which was expected given the return of Trump to the White House. Despite the optimism for US exceptionalism at the start of the year, it was the rest of the world that began to steal the show. China asserted itself as a leader in AI, bringing some competition to the US tech powerhouses, which caused declines in US mega cap names early in the year. After a poor Q1 for US assets, Trump’s Liberation Day created widespread panic around ownership of US assets, before he shortly reversed his policy as the bond market got ‘yippy’. This sharp decline, driven by policy changes, presented significant opportunities as markets feared the worst.

At the start of the year, we had been reducing our US tech exposure and leaning more toward value stocks over growth stocks, as indexes had become saturated with growth names. As a result, we were able to limit downside capture during these volatile periods. In April, we added to areas of the market that had suffered large losses. We introduced small caps, topped up S&P 500 exposure, and removed our dollar hedge. As the Trump put came into force, markets rebounded aggressively after the sell off, leading to strong gains for investors who rode out the volatility.

Despite Trump’s reversal, 2025 consisted of capital reallocation out of the US into other regions that had been neglected during the last few years of US dominance. In US dollar terms, the S&P 500 closed up 16%, which sounds positive but is somewhat concerning beneath the surface. Relative to the rest of the world, 2025 was the worst year for US stocks since 2009. Trump continues to say the US has the best stock market in the world, but in reality the weaker dollar benefited ex US countries far more. This largely escaped the attention of many market participants. Our underweight to the US and overweight positions in the UK, Europe, and Asia contributed significantly to our outperformance this year.

One benefactor of this reallocation was Frontier Markets. This was the best performing region of the year, with the MSCI Frontier Markets Index delivering a 37% gain. At the start of the year, we introduced a Redwheel fund with a blend of Frontier and Emerging Markets, which was able to benefit from the frontier market bull run. Furthermore, the weaker dollar supported growth in emerging markets. Our Asia funds cover a large portion of emerging markets and performed very well. Federated Hermes Asia ex Japan was a top performer, with a large weighting to Chinese and South Korean equities, both of which had standout years.

Our best performing asset class within the portfolio was precious metals. We have held gold and gold miners for a number of years, and they delivered an exceptional year in 2025, fuelled by falling interest rates, geopolitical tensions, and inflation expectations. Our gold mining ETF finished the year up 138%, while our physical gold ETC gained 65%. We also added to our precious metals exposure in March with the introduction of the Kopernik fund, which focuses on mining companies. Kopernik finished the year up 52%.

Value investing made a comeback in 2025, and our tilt toward active value managers, combined with passive growth exposure, provided a good balance between momentum and anti momentum strategies. Areas that offered particularly attractive value included the UK. The FTSE 100 finished the year with a 26% (GBP) gain, while value opportunities also remained in the Chinese equity market, with the Hang Seng closing up 33% (HK). With a large amount of global capital concentrated in market weighted indexes, the environment remains highly supportive for active value managers.

Q4 Review

Q4 was relatively quiet after an aggressive rally in Q3. Markets were broadly stable, but headlines were increasingly dominated by concerns around a potential AI bubble. Despite this, US tech stocks rallied into year end and started off 2026 strongly. Fears intensified after large spending commitments were announced from Nvidia, with plans to invest significant sums into its customers, effectively boosting its own revenue by giving customers more capacity to buy additional Nvidia chips. This highlights the growing interdependence between large US technology companies. Microsoft, Amazon, Meta, and other hyperscalers remain on track to spend more than $500bn annually on AI infrastructure by the early 2030s, even though AI applications have yet to generate consistent profits. It often appears that the mere use of the term AI is enough to boost stock prices. Ultimately, this level of CapEx will have to slow, but these companies view the risk of being too late as far greater than the risk of overspending.

When companies announce AI spending plans, for every $1 of AI investment, market capitalisation can expand by $3. However, the source of that spending is now becoming increasingly important. The Mag 7 have led AI investment due to their strong balance sheets and substantial cash reserves, allowing them to fund spending internally rather than relying on debt. In contrast, when Oracle announced significant AI spending plans, its share price surged 40% in a single week and Larry Ellison briefly became the world’s richest man. However, the Q3 earnings report later missed expectations, and because the AI investment was debt funded, the market reaction turned negative. The stock subsequently fell 43% from its peak. This serves as a warning to companies considering large scale AI CapEx that debt funded investment carries heightened risk.

Following a period of public criticism of Fed Chair Powell by Trump, the Fed was active in Q4. The Fed delivered three consecutive rate cuts, which raised some concerns around Fed independence, particularly as inflation appears to be ticking up. The Fed has attributed this to a weakening labour market, although unemployment remains below historical averages. Markets are now anticipating no further cuts from Powell as he approaches the end of his term in May.

Q4 was also quiet on our side, as we made no changes to portfolios. We remain comfortable with current positioning, which we believe offers reasonable upside participation while maintaining resilience should market risks begin to unfold.

2026 OUTLOOK

Geopolitics

Geopolitical tensions continue to dominate the global economic landscape, with Washington at the centre of news flows. Recent events of the US capture of the Venezuelan President has set a precedent for other world leaders to take military action for potential economic gains. Furthermore, Trump has stated that US oil majors will be responsible for expanding Venezuelan oil infrastructure. An oil deal with the US is estimated to add 1.2 million barrels a day of supply over the next 3 years. Oil prices have declined following the news.

Oil remains a difficult area for investment as the long term outlook remains weak, although short term volatility driven by geopoltical tensions can create tactical opportunities. We remain comfortable with limited oil exposure in portfolios but maintain sufficient gold exposure to offset rising geopolitical risk.

Since Trump came to power, oil has fallen from $80 a barrel to the low 60’s. This outcome was a key objective, and the addition of further Venezuelan supply would support this trend despite the continuation of the Russia and Ukraine war. The deescalation of Middle East conflict has also alleviated some price pressure.

UK

The UK stock market had a standout year despite concerns of the Labour government driving wealth out of the country. The deep value on offer has attracted global investors. One interesting trend we observed during 2025 was a clear disconnect between the FTSE 100 and the FTSE 250. The FTSE 100 outperformed the FTSE 250 by nearly 13%. The FTSE 100 is made up largely of international businesses, whereas the FTSE 250 is more exposed to domestically focused companies. This divergence highlighted that challenges within the UK economy still remain.

However, following the November budget, we saw a slight reversal of this trend as investors gained more certainty. Our portfolio exposure is primarily focused on international businesses, which still have room to run as UK equity markets continue to present strong value. After years of neglect, foreign investors are once again looking at the UK more closely.

USA

The US remains at the centre of global market attention given Trump’s aggressive implementation of his agenda. A key part of this agenda has been to lower interest rates, and he has been vocal on this issue. Fed Chair Powell’s term is to end in May this year, and investors are speculating on who Trump will appoint as the next chair. Recent additions under his second term have been notably dovish in their rate stance, and they have a direct incentive to remain extremely dovish in order to secure the top role when May arrives.

This dynamic could damage the credibility of the Fed and steepen the Treasury curve to potentially dangerous levels. We have already seen a broader trend of central banks struggling to issue long dated bonds, as investors view current debt servicing levels as unsustainable. Cutting rates in an environment where inflation is beginning to tick back up could have the opposite effect to what Trump intends.

We remain long US Treasuries in the short term as a recession hedge, but our longer term view on Treasuries remains negative. Throughout 2025, we have seen that when weak economic data is released, Treasuries tend to rally. This negative correlation is what gives us confidence in holding long Treasuries at this stage.

Asia

Asia experienced a choppier Q4 following a very strong Q3. There was some cooling in November as Asian technology stocks were caught up in US tech concerns around AI spending. However, Asia enjoyed a Santa rally heading into year end. Our outlook for Asia remains very strong. The region is benefiting from a reallocation of capital away from the US, while economic and trade ties between Asian nations continue to strengthen as the US becomes more inward looking.

Performance across Asia has been mixed. India has had a weak year, although our exposure remains limited at under 1%, while China represents around 10% of the portfolio. This contrarian positioning has paid off well over the past year. In addition, an overweight position in South Korea has performed strongly following recent government reforms.

The main concern for China remains its position in the US crosshairs. Tensions have cooled for now, but China has continued to strengthen its economic footing and has increased total exports despite significantly reducing exports to the US. The government remains in a strong position, with room for additional stimulus if required, and inflation remains low. The new China 5 year plan is now underway, focusing on innovation, technological self reliance, and the development of domestic capabilities. Our additions to the Hang Seng Tech Index in Q2 are well positioned to capture this shift, and value remains in the market despite its strong performance over the last 2 years.

Strategy

Some points to note around our thinking moving forwards, which generally follow the comments in our previous updates:

• We remain underweight US equities. We captured the rebound after increasing exposure near the lows but have since trimmed positions. With the S&P 500 reaching new all time highs, valuations once again appear stretched, and we remain vigilant as new economic data emerges.
• Our largest equity exposure remains in the US, but allocations outside the US have been key contributors to performance. Overweight positions in the UK, Europe, and Asia have supported overall returns.
• Government bond yields were volatile over the quarter as rising inflation expectations coincided with recession concerns, leading to a steepening yield curve. However, when weaker labour market data was released, it was encouraging to see treasuries and the dollar rally, providing downside protection through their negative correlation to equities.
• Credit spreads have tightened to historically low levels. We continue to monitor defaults closely, particularly as the full impact of tariffs on company balance sheets remains unclear. Defaults remain a concern, and we trimmed exposure in Q2 with the intention of maintaining current levels.
• We continue to hold strategies with exposure to precious metals miners, which have performed very strongly and retain a positive outlook, while also providing a hedge against geopolitical escalation.
• Our UK exposure remains focused on large international FTSE businesses that typically perform well in a higher rate environment. This is complemented by an active UK small cap fund targeting niche opportunities to enhance returns. We remain overweight the UK which also helps to protect against currency fluctuations.
• We continue to hold a meaningful allocation to Asian equities, where valuations remain attractive and inflation pressures are relatively contained. Many Asian economies have been strengthening regional trade links as the US adopts a more protectionist stance.

Summary

We are pleased with the continued strong performance across all portfolios and remain focused on monitoring the rapidly changing environment. The volatility experienced this year has demonstrated the robustness of the portfolios, with an ability to limit downside risk while capturing meaningful upside during the rallies seen this quarter. The key themes within the portfolios contributed significantly to returns, and we finish 2025 with very strong net performance relative to our peers.

We will continue to seek new opportunities for our portfolios while navigating the current environment as effectively as possible. We hope you find this review informative and welcome any questions you may have.

CHANGES MADE

As mentioned above, there were no changes made in Q4.

MARKET INSIGHTS REMINDER

Lastly, we would like to remind you that we will be hosting our first investment webinar of the year on Monday, 19 January. During the session, we will share an in-depth and informative discussion, reflecting on the developments of the past quarter and exploring the outlook for the year ahead. The Q&A will allow you to ask any questions you may have.

Date: Monday, 19th January 2026
Time: 12h30 – 13h15

To register for the webinar, please click HERE.

We hope you find this review informative, and we look forward to seeing you on Monday. If you have any questions in the meantime, please be in touch.

 

 

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