A bear in a bull market – how did that pan out in 2025?

At first glance, 2025 looked like an easy year to be an equity investor. Global equities delivered strong returns, with the MSCI AC World Index posting gains of over 14% in GBP terms. Risk appetite remained healthy, innovation-led growth themes dominated headlines, and equity markets proved resilient despite a noisy geopolitical backdrop.

But beneath the surface, the journey was far from smooth. Volatility flared at several points during the year, leadership was narrow for long stretches, and market sentiment shifted rapidly as macro and political risks came in and out of focus. Against this backdrop, it is worth asking: how did a more defensive, low-volatility strategy fare in such a strong equity market – and what role can it play going forward?

Low-volatility equity – what do we mean?

A defensive low-volatility strategy, such as Quoniam’s Global AC MinRisk, is constructed with a clear focus on the absolute volatility of individual stocks. The objective is to build a diversified global equity portfolio with around 25% lower volatility than the market index, while remaining fully invested in equities.

The philosophy is straightforward but powerful:

• Capture the long-term equity risk premium
• Provide meaningful protection in market drawdowns
• Accept that some upside may be forgone during sharp, momentum-driven rallies
• Deliver a smoother return profile over time

Crucially, at Quoniam this risk-aware portfolio construction is combined with active alpha drivers, seeking to enhance returns without compromising the defensive nature of the strategy. Taking 2025 as a reference, the MSCI ACWI Minimum Volatility in GBP returned 6.2%, only capturing 40% of the market runup, while the Quoniam MinRisk strategy achieved a participation of 90%. This confirms the benefit of controlling for attractive fundamental and technical characteristics while still remaining in an overall defensive portfolio.

Market dynamics in 2025 – a year of contrasts

Q1: A jolt of reality

The year began with markets on the defensive. Renewed concerns around US trade tariffs and their implications for global growth triggered a sharp pullback, with global equities falling 4.2% over the first quarter.

During this period, the defensive characteristics of the Quoniam Global AC MinRisk strategy were clearly visible. The strategy limited losses to just -1.25%, capturing only around 30% of the market drawdown. This downside protection is precisely what investors seek from a MinRisk allocation during periods of stress.

Q2–Q3: Narrow leadership, strong momentum

As fears subsided, markets rebounded strongly in the second and third quarters. However, this recovery was highly concentrated, driven primarily by AI-related stocks and other high-beta growth names. To put into context, the ‘magnificent 7’ climbed by 37% over that period. By the end of Q3, global equities were up 10.5%, while the MinRisk strategy delivered 7.9%, capturing around 75% of the upside.

This relative underperformance is typical in environments where returns are driven by a narrow set of volatile stocks. Importantly, the strategy remained disciplined, avoiding excessive exposure to crowded trades while maintaining diversification and risk control.

Q4: A broader rally emerges

The final quarter of the year proved particularly interesting. Markets continued to rise, delivering 3.5% over the quarter, but leadership broadened materially. Returns were increasingly driven by a wider range of sectors and companies with strong fundamentals and more stable earnings profiles.

In this environment, the Quoniam Global AC MinRisk strategy outperformed, returning 4.5%. This highlighted an often underappreciated feature of MinRisk strategies: they do not simply defend in downturns, but can also participate fully and sometimes outperform when markets reward diversification and quality.

The outcome – lower risk, better efficiency

Over the full year, the Quoniam Global AC MinRisk strategy delivered returns slightly below the MSCI AC World Index – entirely consistent with expectations in a year of double-digit equity gains. However, it did so with materially lower volatility, resulting in a superior risk-adjusted return.

For investors, this smoother return profile can be just as important as headline performance. Reducing drawdowns and volatility helps investors stay invested, rebalance more effectively, and avoid behavioural mistakes at times of stress.

2026 and beyond – why MinRisk still matters

The early signals for 2026 suggest another year where risk management will matter. Questions around the future of NATO, renewed geopolitical tensions, and ongoing uncertainty stemming from US policy rhetoric all point to a potentially more volatile investment environment.

Investors face a choice: remain fully exposed to market swings, or complement their equity exposure with a diversifying allocation designed to cushion drawdowns without stepping away from equities altogether.

A global MinRisk strategy, delivered through Quoniam’s systematic, research-driven process, offers a compelling solution. It allows investors to stay invested in global equities, while navigating periods of uncertainty with greater resilience – helping protect portfolios when markets become more challenging, without sacrificing long-term objectives.