Despite Liberation Day volatility and persistent geopolitical uncertainty, 2025 has shaped up as a respectable year for diversified investors, though the path was anything but smooth.

The headline story is one of round trips. Both the Aussie dollar and U.S. equities finished November almost exactly where they started October, masking significant mid-month volatility when the Nasdaq briefly fell nearly 8% amid renewed AI bubble concerns.

The year-to-date picture reveals interesting divergences. Emerging markets and global small caps have both delivered over 20% returns, surprising many who expected US large-cap dominance to continue unchallenged. Gold's year-long rally has been remarkable, though punctuated by sharp corrections.

Australian equities have struggled relative to global peers, with the local market only up a few percent in what has been a banner year for most equity markets after a significant rally since Liberation Day. The healthcare sector—dominated by CSL—has fallen approximately 20%, while local IT stocks have marked down 15-20% in recent weeks. Counterintuitively, materials emerged as the year's best-performing sector, rallying 25% despite concerns about China's economic trajectory.

Active managers have faced a challenging environment. Both Australian and global equity managers have largely underperformed their passive counterparts. Overseas  performance dispersion within styles has also been unusually wide but not driven by the value/growth distinction we have seen in prior years. Some value-oriented managers delivered 30%+ returns while others barely broke even, highlighting that style labels are going to tell only part of the story for 2025.

Bond markets exhibited notable divergence, with Australian 10-year yields pushing above 4.6% while U.S. equivalents hovered around 4%, reflecting Australia's stickier inflation dynamics.

For typical balanced portfolios, the year is tracking toward high single-digit returns, a solid outcome given the noise. The key takeaway: diversification has worked, even as individual asset classes and managers experienced wildly different fortunes.