Strategy & Outlook – Fourth Quarter 2025

Consensus Builds, Resilience Assumed 
The quarter saw an improvement in market breadth, with more names participating in gains than in prior periods. AI-related equities remained a key driver of returns, particularly among large-cap companies, though volatility increased across several stocks toward quarter-end. These moves highlight the concentration risk within the theme, even as it continued to dominate performance, potentially setting the stage for greater dispersion as the market looks beyond a narrow set of winners.

Alongside these developments, less liquid credit markets drew increased attention. Private credit and other structurally constrained strategies were closely scrutinized following notable corporate challenges, changing interest rate expectations, and liquidity considerations. As investor appetite softened, private credit funds saw more than $7 billion in redemption requests, reflecting a reassessment of refinancing assumptions, recovery prospects, and liquidity profiles.¹

Beyond these themes, performance was more balanced across the market. Most sectors posted modest results, supported by earnings that broadly met expectations. As a result, markets remained steady, with limited repricing around potential risks. Short-lived spikes in volatility faded, reinforcing confidence in a market very familiar with buying the dip. These conditions reduce the appearance of risk while increasing sensitivity to disruptions in liquidity or market functioning.

Signals and Positioning
Companies with solid financial positions remained adaptable, particularly in industrials, energy infrastructure, and certain technology businesses. Consumer spending was steady but selective, with discretionary areas showing more pressure. Overall, markets appear comfortable with this balance, suggesting that current pricing reflects moderation rather than strong momentum.

Credit markets echoed this cautious optimism. Spreads in lower-quality corporate debt remained tight, reflecting confidence in refinancing conditions, moderate rate expectations, and default outcomes. While this confidence may be justified, it provides little cushion if conditions worsen, as yield alone does not offer protection.

Gold continued to play a unique role. Central banks increased purchases, and official reserves now exceed foreign-held U.S. Treasuries, making gold the largest foreign reserve asset. This shift highlights gold’s increasingly strategic importance as a store of value and a hedge against monetary and geopolitical uncertainty, rather than just a protection against inflation.²

Strategy and Outlook
Within public markets, risk has been recalibrated across portfolios. Positions in segments that outperformed or appear fully valued, particularly concentrated equities, have been trimmed in favor of exposures that provide diversification and resilience across scenarios. This process has been incremental, allowing selective participation while managing the risks of concentrated exposures. 

In credit, we remain opportunistic and have used the quarter’s volatility to adjust both credit risk and duration exposure. Less liquid strategies can offer diversification benefits and unique market access; however, we continue to prioritize liquidity and remain mindful of market valuations and broader structural risks.

Market yields appear mispriced relative to potential developments not only around tariffs, growth, and inflation, but also around broader external factors and market technicals, including cross-border flows and demand for gold. Interest rates have consistently deviated from market expectations, and yield alone is insufficient compensation for duration or liquidity risk. As such, we remain active in our asset allocation framework, increasing diversification and applying hedges to provide incremental protection in client portfolios.