After a year marked by uncertainty and rising trade tensions, financial markets were calmer in December. Market leadership broadened, with value stocks outperforming growth. Meanwhile, international markets once again outperformed US equities, benefiting investors with well-diversified portfolios.
European equities led the advance and ended the year strongly, supported by financial stocks. The sector continues to benefit from increased dealmaking activity and accelerating credit growth. This backdrop supported our allocation to the iShares Edge MSCI European Value ETF, which rose 3.7% over the month. The outperformance of value was not confined to Europe. Our allocation to the iShares Edge MSCI USA Value Factor ETF, which targets companies trading below their fundamental value, gained 2.2%, while broader US equities declined as investors once again looked for opportunities beyond richly valued, growth-oriented AI-related names.
Gold miners performed strongly as higher gold prices and improved capital allocation across the sector supported performance and our holding in the iShares Gold Producers ETF rose 3.1%.
In fixed income markets, yield curves continued to steepen. Short-dated yields fell in both the UK and the US following a 25 basis point rate cut by the Bank of England to 3.75% – its lowest level since 2022 – and continued easing by the US Federal Reserve, which despite a contested meeting, cut rates to a target range of 3.5%–3.75%. In contrast, long-dated yields moved higher amid improving growth expectations, with US Q3 GDP expanding at an annualised rate of 4.3%, underscoring the resilience of the world’s largest economy.
We continue to favour short dated corporate bonds, which are less sensitive to inflation dynamics and government fiscal pressures. The decline in short-term rates supported our allocation to the L&G Short Dated Corporate Bond Fund, which returned 0.4% over the month.
Within our alternatives allocation, gold remained a key contributor as falling interest rates and elevated geopolitical risks continued to drive demand for the safe-haven asset. Diversifying strategies contributed positively to performance, with the AQR Managed Futures Fund – which takes long and short positions across equities, fixed income, currencies, and commodities – gaining 2.7% during the month.
