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Innovative companies and small cap opportunity equities delivered mixed performance over Q4; following a weak October and November markets rallied into year end.
The fourth quarter of 2025 demonstrated robust consumer resilience despite persistent macroeconomic uncertainty, particularly with respect to U.S. fiscal and trade policies. Retail spending remained solid, supported by a relatively strong labor market and continued wage growth. Companies with high consumer exposure reported better-than-expected earnings for Q3, with many citing sustained demand, improved inventory management, and easing input costs as key margin drivers.
The quarter was characterised by increased caution; after a 5% brief drawdown in November driven by ‘AI fatigue’ and valuation concerns, markets recovered toward year end. Sentiment was bolstered by the Federal Reserve’s move to lower the benchmark rate to a range of 3.50%–3.75%, reinforcing a ‘soft landing’ narrative.
Market breadth showed signs of improvement towards year end with the equal-weighted S&P 500 index outperforming the market-weighted index in November and December. However, due to the strong lead of mega-caps in October, the market-weighted index still outperformed for the full quarter (2.65% vs. 1.38%). Sector performance was positive in 9 out of 11 GICS groups, led by Healthcare (+11.68%) and Communication Services (+7.26%). Conversely, Real estate (-2.87%) and Utilities (-1.40%) were the laggards, primarily due to their sensitivity to sticky long-term interest rates.
Within the Innovation Fund, the top-performing industry group was Semiconductors, contributing 2.85% to total quarterly performance following record earnings. Conversely, the Software group detracted -0.76%, as investors weighed the impact of high capital expenditures against slower than expected AI monetization.
Small value cap stocks, as measured by the Russell 2000 Value index rose 3.25% while the Innovation-centric NASDAQ 100 index rose 2.47% during the period. The widely follow ARKK Innovation Fund declined -10.87% during the period, reflecting broader volatility in high-beta growth names.
We continue to favor innovative companies offering attractive growth prospects, specifically within AI deployment, cybersecurity, and cloud migration. Simultaneously, our small cap value selection process continues to find overlooked and underappreciated opportunities across several key market sectors.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
