Unpacking Q3 2025: Resilience in Growth, Dynamics in Returns
Macroeconomic Context: Unforeseen Economic Strength Amidst Labor Deceleration
The third quarter of 2025 unfolded against an unusual economic backdrop. Contrary to widespread expectations of an economic deceleration, activity levels showcased remarkable resilience. This robust performance occurred despite clear indications of a cooling labor market, which typically foreshadows slower growth. The U.S. second-quarter real GDP growth, after several upward revisions, was finalized at an impressive 3.8% annually, significantly surpassing initial projections and underscoring the economy's unexpected vigor.
Asset Class Performance: Equities Lead the Charge
Across various asset classes, returns were predominantly positive, indicating a generally favorable investment climate. A notable trend observed was the superior performance of equities when compared to fixed income investments. This divergence suggests a market sentiment that favored growth-oriented assets, reflecting investor confidence in corporate earnings and future economic expansion.
Fund Performance and Strategic Contributions
During this dynamic quarter, the fund experienced an underperformance relative to its established benchmark. However, a strategic overweight allocation to single-A rated securities proved to be a positive factor, cushioning some of the downside. Conversely, the selection of individual securities within the portfolio had a detrimental effect, detracting from the fund's overall returns and contributing to its relative underperformance.