2025: A Gambler's Delight

• The S&P 500 Low Volatility Index underperformed the broader market by 14% while the High Beta Index nearly doubled market returns, marking a historic anomaly as traditionally defensive strategies failed.
• Equities now constitute a higher percentage of individual net worth than real estate for only the second time in history (first was 1999), raising concerns about wealth effect dependency and market vulnerability.
• AI return on investment skepticism is emerging as investors punish companies with massive capital outlays, with new portfolio themes including biotech, clean energy, and Japan as international momentum builds.

Market Summary: 2025 Performance Review and 2026 Outlook

Key Performance Metrics:

2025 marked a historic shift in global equity markets. International equities delivered their best relative performance since 2009, with the MSCI ACWI ex-U.S. returning over 30% versus the S&P 500's 17%. However, market dynamics favored high-risk strategies: the S&P 500 High Beta Index nearly doubled the market's performance, while the Low Volatility Index underperformed by 14%. The S&P 500 Equal Weighted Index lagged by over 6%, highlighting extreme concentration risk.

Portfolio Performance:

Decathlon's high-risk growth portfolio matched U.S. equity returns despite minimal AI exposure, benefiting from international positioning. Conservative and moderate strategies posted high-single and mid-single-digit returns respectively, underperforming due to anomalously poor low-beta equity performance. Tactical allocation proved beneficial during April's tariff-driven drawdown.

Market Structure Concerns:

Equities now constitute a higher percentage of household net worth than real estate—a condition last seen in 1999. The S&P 500's increasing concentration mirrors late-90s tech bubble dynamics, with AI-driven wealth effects supporting the economy while creating interdependence risks.

2026 Investment Themes:

• AI ROI Scrutiny: Markets increasingly questioning capital expenditure returns, exemplified by Oracle's stock decline post-data center announcement
• International Momentum: Weak dollar and fiscal support driving developed market opportunities; earnings growth accelerating globally
• Emerging Sectors: Biotech (AI-driven drug development, M&A activity), clean energy (improved economics under current policy), and Japan (corporate transformation with excess cash deployment)

Risk Outlook:

Analysts warn that exceptional recent performance historically yields sub-par intermediate results. Mean reversion in high/low-beta performance differential expected, potentially benefiting conservative strategies in 2026.