Investment fund commentary – fourth quarter 2025

The final three months of 2025 were choppy for global equities as investors weighed up geopolitical tensions and mounting worries about public debt. Against that backdrop, markets ultimately drew support from central bank easing rates and a broadly solid corporate earnings season. 

The US Federal Reserve cut rates again in December – its third reduction since September. Meanwhile, the Bank of England (BoE) lowered the bank rate to 3.75% at its last meeting of the year, and the European Central Bank (ECB) kept policy easy after a rapid cutting cycle through mid‑2025.

Strong earnings have helped too, with 83% of US companies third quarter earnings beating estimates. However, following the robust reporting season, mega‑cap technology shares became more volatile in November as investors booked profits and questioned rich AI‑related valuations. That wobble briefly dragged the broader US indices lower mid‑month before stabilising into December. 

One important change beneath the surface was a broadening market leadership. US smaller companies reached record highs in December as hopes of further rate cuts and cheaper valuations lured buyers – a sign perhaps that investors are increasingly looking beyond the “Magnificent Seven”. 

UK: fresh FTSE 100 highs but smaller companies lag

Closer to home, the FTSE 100 delivered steady gains over the quarter and set new record milestones into December – nudging towards the 10,000 points mark – helped by its global defensive tilt and a strong year for precious metals and aerospace names. 

By contrast, UK mid‑ and small‑caps continued to trail. The FTSE 250’s performance was well behind the large‑cap benchmark last year as investors fretted about the domestic growth and the fiscal outlook despite December’s BoE cut. 

The quarter’s key policy event was Chancellor Rachel Reeves’s Autumn Budget on 26 November. After leaks and fiscal gap headlines rattled UK government bonds mid‑month, the final package – higher taxes on dividends and savings income from 2026/27, extended income tax threshold freezes, a high‑value council tax surcharge from 2028, and targeted innovation incentives was broadly seen as credible by markets for the time being. 

Meanwhile, the BoE lowered the bank rate to 3.75% in a five to four vote, signalling that while the direction of travel is down, further cuts will be “a closer call.” That helped risk appetite, but didn’t fully offset concerns about tepid growth.

Eurozone: respectable returns, low valuations and rising fiscal noise

Continental equities eked out mixed, but positive quarterly returns. Valuations remain undemanding, though the economic picture remains uninspiring overall. The ECB cut rates eight times from mid‑2024 to mid‑2025 before pivoting to a pause. Officials now point to a step-by-step stance in 2026.

France epitomised Europe’s fiscal strains. Ratings agency, Fitch, downgraded its sovereign debt to A+ in September – citing persistent deficits and political fragmentation and gridlock that complicate addressing the issue. Borrowing costs moved higher on the news. Meanwhile, Germany remains stuck near stall speed with only marginal growth expected this year amid weak external demand and trade frictions.

Sectors: healthcare led, gold shone and energy sagged

Healthcare was a standout equity sector in the quarter. A combination of defensive earnings, obesity drug tailwinds, and solid third quarter earnings helped the area post strong returns as investors rotated away from richly-valued tech.

Meanwhile, commodities produced broad‑based strength outside of the energy complex. Gold revisited and then broke to new all‑time highs in December thanks to central‑bank buying and a weaker US dollar on interest rate cut expectations. Likewise, silver hit new records following a superb year for precious metals. By contrast, crude oil fell for a fourth consecutive month heading into year‑end, reflecting ample supply and growth worries. Energy stocks were therefore typically among the laggards.

Emerging markets: a two‑speed story

The three-month period delivered an uneven result for emerging markets. A weaker US dollar and easier global policy settings supported the asset class, but China’s momentum softened after a strong mid‑year rebound on policy support. 

Sentiment was held back by property‑sector fragility and a resurge in tariff uncertainty. Even so, the longer‑term backdrop of cheaper valuations versus the US and an improving economic picture remain intact. Other areas including Korea and Latin America fared better, the former fuelled by the tailwind of AI and long-awaited shareholder reforms, and the latter by the metals boom.

Top performing funds 

Gold was a strong performer for another quarter. The precious metal has surged this year, and gold mining equities have ridden the trend.

Bottom performing funds

Chinese shares were under pressure, held back by ongoing property sector fragility and tariff uncertainty.

Top performing sectors

Healthcare was a standout equity sector thanks to a combination of defensive earnings, obesity drug tailwinds, and solid third quarter earnings.

Bottom performing sectors

Mega cap technology shares became more volatile as investors booked profits and questioned rich AI related valuations.

Source for data: FE Analytics, 30/09/25 to 31/12/25, total returns with income reinvested. Performance is Past performance is not a reliable guide to future returns.