Market commentary equities: Systematic investing rewarded by broader market differentiation
In the third quarter of 2025, market breadth returned – creating a favourable environment for systematic investors. In her market commentary, Andjelka Bannes, CFA, Portfolio Manager Equities, explains how our global and European strategies benefited from value, quality and sentiment factors, while emerging markets proved more challenging for defensive approaches.
Andjelka Bannes, CFA
Executive Director Equities
Key takeaways
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Market breadth returned as equity dispersion increased — a fertile environment for systematic investors in Europe and global markets.
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Value, quality and sentiment factors reinforced each other, reflecting the strength of our multifactor model across styles and regions.
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Over 85% of alpha stemmed mainly from systematic factor exposures validating the repeatability and design of our approach.
Broader market participation supports systematic approaches
The third quarter of 2025 rewarded disciplined, evidence-based investing across most major markets. Global equities advanced strongly, with the MSCI World gaining +7.3% supported by a broadening rally beyond the large-cap technology segment. European equities also delivered positive returns (+3.5%), reflecting improving sentiment and sectoral rotation towards cyclicals.
In contrast, emerging markets showed strong headline performance (=10.5%) but were driven by a narrow cohort of large growth stocks, particularly in China and Taiwan. This concentration limited breadth compared to developed markets.
Sector and style data from the MSCI indices confirm this regional divergence: while global and European markets saw broader participation across cyclical and growth sectors, emerging markets were dominated by technology and a handful of large-cap growth names. Overall, the quarter marked a period of widening dispersion and renewed differentiation at the factor level – a constructive backdrop for systematic, research-driven investing.
Systematic strategies in focus
In Europe and globally, the quarter was defined by broad factor dispersion, which our systematic models captured effectively through disciplined exposure to value, quality, and sentiment dimensions. Our global and European strategies outperformed their respective benchmarks, benefiting from the balanced interaction of these factors and their alignment with prevailing market dynamics. Accounting-based value exposures combined effectively with sentiment indicators such as price momentum and analyst revisions, reinforcing the robustness of our multifactor framework.
In contrast, our emerging markets strategy lagged, as market leadership was concentrated in a few growth stocks from China and Taiwan. The defensive tilt of our multifactor process — typically an advantage in balanced markets — proved less favourable in an environment dominated by a narrow set of high-beta growth names.
Factors aligned and consistent
Style dynamics shifted notably over the quarter. Until late August, value and small caps led performance, driven by attractive valuations and early-cycle optimism. By September, growth and momentum took the lead, particularly in developed markets, as investors priced in continued resilience in earnings and technological innovation.
The MSCI Style Indices confirm this pattern: growth and momentum factors outperformed strongly, while minimum volatility and quality styles lagged. This combination benefited our global and European strategies, which are designed with a beta around 1 and therefore fully participate in market rallies when cyclicality and sentiment improve.
Because the rally was broad-based, several themes played out across our global and European portfolios. In Europe, exposures to banks and luxury goods contributed positively, while precious metals and utilities also supported returns. These themes were likewise reflected in our global strategy, where European banks, precious metals, and US utilities were notable positive contributors. In the US, our models captured opportunities among smaller information technology names, outside the large-cap “mega-cap” space, which added further value.
By contrast, our emerging markets strategy is positioned more defensively, with a lower beta and a stronger bias toward quality and low volatility factors. This defensive stance, typically advantageous in risk-off phases, created additional headwinds in a quarter when emerging markets were the strongest-performing region. The high-beta, growth-driven rally made it a particularly difficult environment for defensive strategies to keep pace.
Adaptive resilience
As we enter the final quarter of 2025, factor exposures of our strategies remain balanced. Valuations across our strategies are compelling versus their respective indices. Sentiment indicators are higher relative to their index — with analyst revisions trending upward and price momentum confirming underlying earnings potential. Combined with stable balance sheet quality and disciplined diversification, this positions our strategies to navigate an environment where fundamentals matter but volatility may resurface.
Conclusion
Q3 2025 demonstrated that systematic investing thrives when markets reward fundamentals and diversification. Our global and European strategies outperformed, driven by disciplined exposure to value, quality, and sentiment factors.
In emerging markets, however, performance was more challenging: while the region was the strongest globally, the narrow and high-beta nature of the rally weighed on our more defensive, multifactor approach.
