Market Update 8th December 2025

I touched the moon

It’s coming up to Christmas, and I went to a couple of fund events last week. The first was at the Natural History Museum and featured a panel discussion where the participants were asked about the outlook for next year, what themes they were seeing in the market and how they were positioned.

One of them talked about a big debate around the tension between value and growth in markets. He said growth had done very well recently while value was quite beaten up, and the outlook for 2026 was partly dependent on how this played out and he thought it might lead to opportunities outside the US.

I was surprised to hear this. I see that the mag 7 still tends to dominate headlines and in the US growth as a factor (up about 15% year to date in pounds) has continued to considerably outperform value (up about 5%). I’m not sure everyone realises in 2025 this has been the exception rather than the rule but doesn’t always feel that way because of the prominence of the US in indices and headlines.

I went to a second event which featured a presentation about UK equities. We heard about continued negative fund flows, particularly in small and mid-caps. “Poor performance” in the UK was mentioned. You may have heard this before. The government was brought up and is considered generally unhelpful for the equity market. I hear people talk endlessly about “catalysts” in the UK. They will say something along the lines that the UK looks interesting, but they are waiting for a catalyst, without saying what that catalyst might be.

While everyone stares at the fund flow data and agonises about these catalysts the UK has considerably outperformed the US so far in 2025 and is up nearly 19%. If Donald Trump was in charge, we would never hear the end of it.

But you might say something like yes, but UK equity performance has been concentrated in relatively few names. What about unloved UK small caps? Admittedly I have to stop rounding slightly here but MSCI has them up 9.8% vs the US up 9.4%.

What if we go back to “beaten up” value? The iShares MSCI World Value Factor ETF is up nearly 28% year to date, stretching the definition of “beaten up”. Outside of gold and some of the other metals this is one of the best performing assets I can think of this year. A lithium and battery technology ETF is up 43%.

The MSCI World is up about 12%, the NASDAQ is up about 15%, you can buy a mag 7 ETF which is up about 16% – all decent enough but all underperforming the UK. Quality – a previously reliable factor is also lagging at about 7%, Momentum is up about 11%.

What is in the World Value Factor ETF? It’s a basket of value stocks but it still has a big weighting to technology stocks – nearly 28%, which is exactly in line with the broader MSCI World Index. But by region the Value Factor has only around 42% in the US compared with 72% in the broader MSCI World Index – a huge underweight.

The p/e of the Value factor is 14.1x vs 26.2x for the MSCI World – a similarly large discount of around 46% – despite the Value Factor outperformance this year. But don’t forget you’re still getting the same weighting in tech.

You might wonder what “value tech” looks like.  The top four holdings of the Value Factor ETF are all US listed tech stocks. Micron Technology is the largest holding on a p/e of around 12x next year’s earnings. It is up – I’m rounding again – about 150% year to date.

Anyway, after the Natural History Museum presentations we were taken around a space exhibition. On display was a piece of the moon and unusually for a museum we were encouraged to touch it, so I did.

I don’t know what you think the moon looks and feels like up close. I grew up watching space shuttle launches in short trousers until the Challenger disaster in 1986. Neil Armstrong had landed on the moon in 1969 which seemed like ancient black and white history to me but was just 17 years earlier at the time.

In the familiar Neil Armstrong pictures, the moon (or the studio they filmed in depending on your point of view) looks grey and dusty. The bit of the moon that has somehow ended up in West London is hard, smooth and black, like a kitchen work surface.

One of the themes of the second event was that much has changed in the world over the last few years but in many cases fund positioning has not. Collectively we appear surprisingly reliant on received wisdom, perception and extrapolating the recent past when many of these things are quite easily measurable and knowable.

Robert Fullerton – Senior Research Analyst

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