Global equities overcame an early wobble to deliver another year of strong returns in 2025. The MSCI All Country World Index closed December up 22% in USD – its third consecutive year of double-digit returns – as strong earnings and supportive monetary policy helped ease investor fears over the impact of US tariffs on the global economy and ongoing geopolitical tensions. Unfortunately for Norwegian investors, currency weakness meant that 2025 was less lucrative with the MSCI All Country World Index rising only 6% in NOK.
Unlike previous years, Europe (+35%) and emerging markets (+34%) both led the US, with the S&P 500 index lagging the rest of the world by 10% in USD – its worst underperformance since 2009[1]. This relative weakness occurred despite the continued strength of the MAG 7 and the country’s aggressive new trade policy with President Trump’s Liberation Day tariff announcement in April triggering a market correction and a steep rise in volatility (see figure 1).
2025 also saw greater parity across sectors than previous years with all delivering positive USD returns and only consumer staples failing to post double-digit gains as lower job security and weaker wage growth inevitably reduced spending in the US. More surprising was materials’ recovery from the worst performing sector in 2024 to the best in 2025, boosted by gold and silver producing their best year since 1979. The final score card saw emerging markets outperform developed ones by 13 percentage points and large caps beat small caps by 4 percentage points while value and growth ended the year tied[1].
Solid fund performance
I am pleased to report that 2025 was also a good year for our funds with all except one delivering positive absolute and relative returns[3]. Highlights included SKAGEN Kon-Tiki and SKAGEN Vekst beating their benchmarks by around 10 percentage points with both funds boosted by their exposure to top-performing Korean and Brazilian markets.
Good stock picking also helped SKAGEN Focus and SKAGEN m2 to outperform, despite headwinds for global small caps and real estate markets, while SKAGEN Global was weighed down by weakness among some of its US holdings. You can read more about the funds’ development in the latest reports on the SKAGEN website.
Sky-high sentiment and valuations
Following three successive years of positive stock market performance – a period which has seen the MSCI All Country Index rise over 75% in USD – market sentiment is also sky-high. Bank of America’s latest Global Fund Manager Survey showed investor confidence at its highest level since July 2021 – cash allocations hit a record low of 3.3% – fuelled by macro-optimism also at a five-year high.
The market rally also means that valuations are now at record levels across both developed and emerging markets (see figure 3) and although multiples may be supported by expectations for double-digit earnings growth across most regions in 2026, the market looks vulnerable to any disappointment, particularly from the MAG 7 which now represent over a third (34%) of the US market and a fifth (22%) of the global index[4].
Another feature of 2025 was that countries which began the year with low P/E ratios tended to deliver the best returns, indicating that valuations matter once more. This has positive implications for our funds which are generally valued at discounts to the market and active investors more broadly. Although I expect the US to remain strong and AI to continue providing a key market growth engine, those who look beyond mega-cap tech stocks at less obvious sectors and companies will likely be rewarded in 2026. This was borne out last year with value outperforming growth outside of the US by 14 percentage points[5].
Going into the new year, there are four factors that I believe are positive for the global economy and equity markets more generally. First, expansionary fiscal policy in the US with the One Big Beautiful Bill Act (OBBA), in Europe where we will see increased defence and infrastructure spending, and in China with expectations for more stimulus to boost consumer activity. Second, supportive monetary policy across much of the world – nine of the G10 countries reduced interest rates in 2025 and further cuts are expected in 2026 – which is positive for equities and bonds. Third, a weaker dollar is healthy for the global economy, especially emerging markets that benefit from lower financing costs on dollar-denominated debt. Finally, low energy prices are beneficial for global industry and helpful for the continued fight against inflation. Oil prices have fallen this year following US intervention in Venezuela with President Trump promising to tap into the country’s vast reserves.
My closing advice is to expect volatility (often a necessary condition for the best positive returns) and remain invested if markets fall in 2026 – although painful a correction at some point is normal and recoveries are often swift if economic fundamentals are strong. Think long-term, enjoy the ride and I look forward to keeping you updated throughout the year.
[1] Source: MSCI. MSCI Index returns in USD for Europe and emerging markets
[2] Source: MSCI. MSCI Index returns in USD.
[3] Source: SKAGEN. In EUR, net of fees.
[4] US market based on S&P 500 index, global index based on MSCI All Country World Index.
[5] Source: MSCI. MSCI ACWI ex USA Value +39.5% vs. MSCI ACWI ex USA Growth +25.7% in USD.