Q3 2025 Investment Update: Market Drivers, Returns and Outlook for Advisers
The latest Timeline Investment Update webinar, hosted by Senior Investment Analyst Alex Crowder and Investment Analyst Ray Va Bala, explored Q3’s macroeconomic backdrop, asset class performance, and key takeaways for financial advisers.
UK Outlook: A Mixed Economic Picture
GDP Growth Falters Despite FTSE Strength
Despite strong FTSE performance, ONS data showed that UK GDP growth slowed for a third consecutive quarter. A resilient services sector could not fully offset the drag from manufacturing.
Sticky Inflation and Monetary Policy
UK inflation stood at 3.84% with pressure from clothing and hospitality. The Bank of England held interest rates at 4%, citing a need for sustained evidence of easing price pressures before any further cuts.
Borrowing Rises Ahead of Autumn Statement
Government borrowing outpaced projections from the Office for Budget Responsibility, and long-dated gilt yields spiked. Market focus is now turning to the upcoming Autumn Statement, where fiscal policy changes are anticipated.
Global View: US Policy, Emerging Markets and Growth
US Tariffs and Talent Migration
A proposed $100,000 H‑1B visa fee has sparked concern among US tech firms. Restrictions on skilled immigration could constrain growth and drive up costs, with companies like Amazon expected to feel the pinch.
Emerging Markets Power Ahead
The OECD Economic Outlook forecasts subdued growth for the UK and Europe, while India and China remain global leaders. This highlights the importance of global diversification for long-term portfolio resilience.
Diverging Inflation Expectations
While UK inflation is forecast to fall towards the Bank of England’s 2 per cent target, the US may face renewed inflationary pressures. Central bank policy divergence, including Federal Reserve caution, remains a key variable.
Market Performance: Q3 Asset Class Returns
Equities
Emerging markets led performance, powered by semiconductors, AI hardware and a softer dollar. Asia ex‑Japan benefitted from strong exports and banking sectors, while Japan saw gains from corporate reforms and currency effects. UK equities advanced, with strength in healthcare and industrials. US and European equities also rose, though with more muted breadth.
Bonds
Global bond markets were mixed. UK gilts experienced yield spikes, US Treasuries benefited from curve steepening and dovish signals, and Japanese bonds underperformed amid inflation concerns. Tight credit spreads limited compensation for risk.
Value, Growth and Small Caps
Value and small caps outperformed in Q3 as investors rotated away from high-valuation growth stocks. While growth has led over longer timeframes, this rotation illustrates why style diversification remains critical.
Strategic Takeaways for Advisers
- Diversification Still Works: Geopolitical risk, policy uncertainty, and valuation differences continue to reinforce the benefits of regional, sector and style diversification.
- Fixed Income: A Core Component: Despite lower popularity in investor polls, fixed income remains essential for portfolio stability. Diversified duration exposure allows advisers to navigate unpredictable rate environments.
- Global Equity Funds Self-Balance: Concerns about US equity valuations and AI concentration are common. However, global index funds within Timeline Portfolios naturally adjust allocations as market caps evolve, reducing the need for tactical shifts.
- Prepare for Policy Impacts: Advisers should stay alert ahead of the Autumn Statement, with potential changes to tax and pension policy under review.
