December 2025 Newsletter

Highlights of this month’s newsletter:

“If you take $500 from a worker and give $100 to five lazy people, you lose one vote but gain five… It’s the biggest pyramid scheme in history, and it’s called SOCIALISM .”

— Elon Musk

Market overview: performance figures (%)

Source: Edmond de Rothschild, 30.11.2025

Source: Edmond de Rothschild

Markets are currently navigating a period of uncertainty, primarily driven by questions surrounding the valuations of AI-related companies and the future monetary policy strategy of the Federal Reserve. While the earnings season has delivered positive results, macroeconomic friction, specifically the recent US government shutdown and ambiguity regarding interest rates, have weighed on sentiment.

Macroeconomic Developments

1 – The Federal Reserve and interest rates

The path forward for interest rates remains opaque. Several Federal Reserve members have voiced opposition to lowering key interest rates at the upcoming December meeting. Consequently, the market has drastically recalibrated its expectations: just two weeks ago, investors priced in a 100% probability of a rate cut in December; that probability has now fallen to approximately 40%.

Chart 1: The probability of a 25-basis point rate cut in December

Source: Edmond De Rothschild

This hesitation stems partly from a lack of visibility. The Fed’s decision-making ability has been hampered by a lack of statistical data following the historic 43-day US government shutdown. This shutdown caused delays and distortions in economic data, as statistical agencies only recently resumed operations. Without clear data, particularly regarding inflation and employment, the Fed faces a difficult decision that will likely depend heavily on imminent statistical releases.

2 – Inflation and trade

While inflation remains a primary concern, recent policy shifts may offer relief. President Donald Trump’s decision to reduce reciprocal tariffs on food products, specifically coffee, bananas, and beef, under framework agreements with Guatemala, Argentina, El Salvador, and Ecuador is expected to mitigate inflationary shocks and ease price pressures.

3 – Global focus

The UK’s 2026 budget, presented on 26 November, is now at the centre of attention as a critical fiscal event. Chancellor Rachel Reeves is navigating the difficult task of maintaining fiscal credibility, addressing a public deficit of -5.2% in 2024, while supporting growth in a stagnant macroeconomic environment, with 0% growth recorded in Q3 2025.

While fiscal consolidation could reach £35 billion, originally intended to be funded by income tax hikes, Reeves is reportedly considering alternative options to avoid undermining the UK’s tax attractiveness. This uncertainty has reignited concerns over British finances, driving 10-year Gilt yields up by 13 basis points.

4 – Market sentiment and volatility

We have observed a significant spike in market volatility, largely attributed to the extended US shutdown and its economic repercussions. The CNN Fear & Greed Index, a compilation of seven indicators measuring market behavior, currently reads at 13, signaling “Extreme Fear”.

Chart 2: Sentiment indicator on 25 November 2025

Source: CNN

This index highlights the market’s tendency to overreact and the rapidity of sentiment shifts this year: we moved from extreme fear in April to extreme greed by July, only to reverse back to fear in November. Historically, extreme fear is often a contrarian indicator, suggesting that the market may be oversold.

Chart 3: Sentiment indicator year to date

Source: CNN

5 – Market breadth and divergence

A notable dispersion in returns has emerged within the S&P 500 since late August. While the headline index rose by 2.8%, the median share return within the index actually fell by 3.4%. This divergence confirms that market performance has been carried by a narrow group of companies, primarily in the technology sector, while the broader market has struggled.

Chart 4: S&P 500 performance since the end of August in %

Source: Edmond De Rothschild

6 – Corporate fundamentals and the AI theme

Despite sentiment headwinds, corporate fundamentals remain robust. The earnings season is largely behind us, with most US and European companies having reported results.

• US performance: US companies reported very strong results, reported earnings were double the consensus estimate.
• European performance: European companies, facing lower expectations, also managed to outperform forecasts.

Chart 5: S&P 500 (US) and BE500 (Europe) earnings and revenue growth

Source: Stonehage Fleming

7 – The Artificial Intelligence investment cycle

Questions have arisen regarding the scale of capital expenditure on AI, with some investors worrying that companies are overspending. However, when placed in historical context, the current cycle appears rational.

AI adoption is in its infancy; a US Census Bureau study indicates only 9% of US companies have adopted AI. The current US AI investment cycle equates to approximately 1% of GDP. This is modest compared to previous major cycles, such as the railway boom (3-5% of GDP) or the tech/telecom cycle of the 1990s (2% of GDP).

Chart 6: Comparison of historical major investment cycles as a % of GDP vs AI in 2020

Source: Goldman Sachs

Chart 7: Investments made by technology companies as a % of US GDP, since 1965

Source: UBS IB

We remain positive on the monetization potential of AI across industries. While technology shares are more volatile and carry higher valuations, the robust earnings growth in the sector helps justify the premium at which these shares trade.

Chart 8: Earnings per share growth in %

Source: Edmond De Rothschild

Investment outlook

We recognize that the market is currently driven by short-term sentiment and fear. However, long-term performance is ultimately driven by strong company fundamentals.

Our analysis suggests that while valuations are fair rather than “cheap,” the companies in our portfolio are in a healthy and strong position. We view the current “fearful” sentiment as a potential indicator of an overreaction. Consequently, we remain optimistic about the AI opportunity and confident in our holdings, and we intend to add to positions as valuations become more attractive.

Source: Moneyweb, SARB

South Africa’s latest Medium-Term Budget Policy Statement (MTBPS) arrived against a slightly better local backdrop than we saw at the time of the May 2025 National Budget. On the demand side, household spending has been supported by once-off “sugar rush” effects from two-pot retirement withdrawals, as well as six interest rate cuts by the South African Reserve Bank (SARB) since September 2024.

At the same time, inflation has remained relatively contained, terms of trade have been supportive, and South Africa’s removal from the Financial Action Task Force (FATF) grey list has improved sentiment. Together, these factors have been reflected in a firmer rand and better performance from local bonds and equities.

What did the MTBPS say?

The MTBPS paints a picture of an economy that is stabilising, but still growing too slowly and carrying a heavy debt load:

• Growth expectations trimmed: The government now expects 1.2% GDP growth in 2025. This is a downgrade from earlier projections, but the Treasury still sees room for a modest improvement if structural reforms, especially in energy, logistics and public finances, continue to gain traction.
• Tax revenues ahead of plan: Tax collections are running about R19.7 billion ahead of budget. This is mainly driven by stronger VAT, corporate income tax, and dividends tax receipts, suggesting that parts of the economy are performing better than previously expected.
• Spending priorities remain social and developmental: Allocations to education, health, and infrastructure have increased, reflecting the government’s focus on long-term growth and social support. There is no new money for state-owned enterprises (SOEs) in this statement, but the SRD grant has been extended to 2027, which helps support vulnerable households.
• Deficit and debt still high: The budget deficit is now projected at about 4.7% of GDP, and the debt-to-GDP ratio is expected to remain above 77% over the next three years. In other words, although the situation has improved at the margin, public finances are still stretched and vulnerable to shocks.
• Inflation target and wage reforms: The MTBPS reflects the adoption of a 3% inflation target, reinforcing the SARB’s commitment to price stability. The government is also working on wage bill management and payroll reforms to improve efficiency in the public sector; however, further policy reforms will be needed to change the long-term fiscal trajectory materially.

Overall, the MTBPS suggests that while South Africa is not out of the woods, the combination of slightly better growth, more substantial tax revenues and some spending discipline has helped to stabilise the fiscal picture.

S&P upgrades South Africa to BB (positive outlook)

In a significant vote of confidence, S&P Global Ratings upgraded South Africa’s foreign-currency sovereign rating to BB from BB- on 14 November, while maintaining a positive outlook. The timing was earlier than many expected.

Chart 9: South Africa’s credit rating has improved to 2020 levels and marks an important step towards reaching investment grade

Source: RMB Global Markets Research and S&P Global

Company results

Richemont (CFR)

Richemont reported strong results despite a more challenging luxury backdrop. Second-quarter FY26 sales rose 14% in constant currency (5% in euro terms) to €10.6bn, slightly ahead of expectations. The Jewellery Maisons remained the main engine of growth, offsetting weakness in Specialist Watchmakers. Earnings were up 4% and EPS from continuing operations came in ahead of forecasts, while cash generation jumped 48%, lifting net cash to €6.5bn. Overall, the numbers reinforce Richemont’s strong balance sheet and resilient demand for its core jewellery brands.

Prosus (PRX)

Prosus continued to show solid progress, with revenue up 22% year-on-year and free cash flow rising to $1.3bn, the highest in its history, including a rare positive FCF ex-Tencent. Management is maintaining an extensive share buyback programme, expected to total around $6bn in FY26e, funded by cash and selective asset sales, while still preserving roughly $8bn of balance sheet capacity for acquisitions. The results were broadly in line with expectations and support the case for a further narrowing of the discounts to NAV for both Prosus and Naspers. As e-commerce profitability improves and the value of the underlying portfolio continues to grow.

Chart 10: PRX Discount to NAV, 19 Nov 2025

Source: Bloomberg, SBG Securities analysis

In November, the VEGA Global Strategic Fund declined by -1.8%, compared with a -0.1% decrease in the MSCI All Country World Index, our reference benchmark, in USD terms. Since inception, the fund has gained 15.6%, versus the benchmark’s 16.1%. The underperformance was mainly due to short-term weakness in several growth and emerging-market holdings, which lagged as markets rotated toward more defensive sectors.

Chart 11: Total return in USD since inception

Portfolio strategy

In the wake of heightened market volatility following President Trump’s tariff announcements, our stance has been to remain disciplined and avoid reactive portfolio shifts. History consistently shows that impulsive responses to short-term political noise often result in suboptimal investment outcomes.

Instead, we have used this environment to evaluate high-quality businesses that were indiscriminately sold off despite their strong long-term fundamentals. Periods of uncertainty can create attractive entry points into quality companies at compelling valuations, and we continue to focus on identifying these opportunities with a long-term perspective.

The portfolio remains concentrated in leading global businesses with durable competitive advantages, particularly those delivering high returns on capital and robust free cash flow generation. Dividend policies are not a central consideration in our selection process, as we generally favour companies that reinvest earnings to drive future growth.

We also resist the temptation to follow short-lived market trends or fashionable investment narratives, as preserving portfolio quality takes precedence over chasing momentum.

Changes which were made during the month

Alphabet — Increased position

We increased our allocation to Alphabet, which has now become the fund’s largest holding. The company’s strong execution across digital advertising, cloud computing, and artificial intelligence continues to underpin our conviction in its long-term compounding potential. We view Alphabet as a core growth engine within the portfolio.

Intuitive Surgical — Increased position

We added to Intuitive Surgical, reflecting confidence in its dominant position in robotic-assisted surgery and the expanding adoption of its da Vinci system globally. The company’s recurring revenue model and strong innovation pipeline support a long runway for growth.

Meta Platforms — Increased position

We increased our holding in Meta Platforms, underpinned by robust advertising demand and margin recovery. The firm’s disciplined cost management and continued leadership in social platforms and AI integration reinforce our positive outlook.

Siemens — Increased position

We raised our position in Siemens to strengthen exposure to high-quality industrial automation and electrification trends. Siemens’ diversified portfolio and focus on digital transformation make it a key beneficiary of global industrial upgrades.

Novo Nordisk — Removed position

We exited our holding in Novo Nordisk after a sustained drawdown in the share price. While we still recognise the strength of the underlying business, the position had detracted meaningfully from performance, and we chose to reallocate capital to higher-conviction opportunities elsewhere in the portfolio.

Top 10 Holdings

Monthly returns in USD net of fees

Share of the month: Coca-Cola (KO)

Coca-Cola (KO) is our share of the month because it embodies the kind of all-weather, cash-generative business we like to hold through cycles. From a single pharmacy fountain drink in Atlanta in 1886, it has grown into the world’s largest beverage company, with a portfolio that stretches far beyond the classic red can.

Today, Coca-Cola and its bottling partners sell beverages in more than 200 countries and territories, with roughly 1.9 billion servings consumed every day. That global reach, combined with a portfolio of more than 500 brands across sparkling drinks, water, juices, teas, coffees and energy drinks, underpins what we view as a durable long-term franchise rather than a simple “soda stock.”

In our view, Coca-Cola’s core strength lies in its wide economic moat. The company sits at the centre of a robust ecosystem of brands, bottlers and retailers that would be extremely difficult to replicate. Its brands enjoy strong consumer recognition, enabling the company to maintain a price premium across many categories while still growing volumes.

The group has also spent the last decade repositioning itself as a “total beverage” company, leaning into zero-sugar and low-calorie recipes, smaller pack sizes, and new categories in response to shifting consumer preferences and sugar regulation. This ability to innovate and leverage its marketing machine and distribution scale to support new products is, in our view, a key reason the business can continue to earn returns comfortably above its cost of capital for many years.

Financially, Coca-Cola exhibits the kind of profile we favour in a defensive compounder. The company operates an asset-light model after refranchising most of its bottling operations, thereby capturing a high-margin concentrate and brand-ownership profit stream. In contrast, its bottling partners bear most of the capital intensity.

The result is strong operating margins, attractive returns on invested capital and robust free cash flow generation. Leverage is moderate and well-covered by cash flows, giving the company flexibility to keep investing in brands and capabilities while also returning capital to shareholders. We see this balance sheet strength as an essential cushion in an environment where consumer spending and currency volatility can be unpredictable.

Capital allocation is another pillar of the investment case. Management prioritises organic revenue growth and brand investment, while being selective on acquisitions. At the same time, Coca-Cola has a long and evident track record of shareholder distributions. The company has paid an uninterrupted dividend for more than a century and has now increased its dividend for over 60 consecutive years, recently approving its 63rd annual increase in February 2025.

This places KO firmly in the “Dividend King” camp and makes it a core income holding for long-term investors, including Warren Buffett’s Berkshire Hathaway, which remains one of its largest shareholders. For us, this consistency signals both the resilience of the underlying cash flows and a disciplined, shareholder-friendly culture.

Of course, the investment is not without risk. Consumer tastes continue to shift towards healthier options, and governments around the world have been introducing sugar taxes and stricter labelling requirements. These trends could pressure volumes in traditional carbonated soft drinks over time.

However, we believe Coca-Cola’s broad portfolio, active innovation in zero-sugar and “better-for-you” products, and ability to flex price, packaging and mix across many markets partly mitigate these headwinds. The company is also exposed to emerging markets, which bring currency and political risks but also offer a long runway for per-capita consumption growth as incomes rise.

Overall, we see Coca-Cola as a high-quality, defensive growth company that can serve as a stabilising anchor in global equity portfolios, particularly for clients who value dependable income and lower volatility. At current levels, the shares are broadly fairly valued for such a resilient franchise: future returns are likely to be driven less by multiple expansion and more by a combination of steady mid-single-digit earnings growth and a growing dividend stream.

For investors comfortable with a long-term, five-year-plus horizon, we think Coca-Cola offers an attractive way to participate in global consumer spending through a business that has proved its ability to adapt while still “refreshing” cash flows year after year.

Chart 12: Coca-Cola 5-year total return

Source: LSEG

Chart 13: Coca-Cola’s forward dividend yield = 2,9%

Source: LSEG

Chart 14: Peer analysis

Source: LSEG

In Chapter 4, Morgan Housel explores a fascinating and often misunderstood reality of human performance: the same traits that produce extraordinary brilliance often come packaged with the traits that create extraordinary problems. He argues that “wild minds”, the people who push boundaries, think differently, innovate boldly, and reshape industries, rarely come with the neat, balanced personalities we expect from stable leadership. Their strengths and weaknesses are inseparable.

Housel explains that we tend to admire the upside of these individuals: their creativity, boldness, risk tolerance, and unconventional thinking. But we forget that these qualities almost always coexist with volatility, stubbornness, emotional intensity, and blind spots. The world’s exceptional thinkers do not simply operate differently, they are different, and those differences come with trade-offs.

He illustrates this with examples throughout history:

• Great artists and inventors often produced their most important work while also struggling with impracticality, social conflict, or instability.
• Some of the most successful investors carried temperaments that helped them withstand pressure, but those same temperaments sometimes made them abrasive, overly confident, or prone to extreme decisions.
• Visionary founders and CEOs built transformative companies through single-minded focus and relentless conviction, but those same qualities sometimes led to poor risk management or spectacular collapses.

Housel’s central insight is that you cannot cherry-pick the good without accepting the difficult. The world’s wild minds do not come “a la carte”,  their genius and their flaws are part of the same personality. When you admire their breakthroughs, you are also admiring the temperament that created their missteps.

The trade-off of uniqueness

Housel encourages readers to understand this dynamic before choosing who to learn from or emulate. It is easy to say you want the courage of a great investor or the originality of a great thinker. It is harder to accept the cost: the eccentricity, the emotional burden, the obsession, or the unconventional behaviour that produced their success. This chapter becomes a broader reminder about human nature: we often want the benefits of someone’s strengths without absorbing the full picture. But reality is messier, strengths and weaknesses grow from the same root.

“People who think about the world in unique ways you like also think about the world in unique ways you won’t like.” — Morgan Housel

 How this applies to investing

In markets, this theme matters deeply. Investors often hero-worship high-performing fund managers or legendary stock pickers without recognising the temperament behind their results. A manager who produces extraordinary upside through high-conviction, concentrated bets may also be capable of extreme drawdowns. A visionary founder who drives fast growth may also take reckless risks that destabilise the business.

Housel suggests that investors must look beyond results and study temperament. The question is not only “How much did they make?” but also “What did it cost them? What trade-offs did they accept? Would I be willing to accept the same?”

This chapter ultimately highlights a timeless truth: genius is rarely balanced, and extraordinary results usually come from personalities that defy the ordinary. Understanding this helps us admire exceptional people while staying realistic about emulating them  and cautious about putting all our faith in them.

Source: Visual Capitalist

Sources

Alpine Macro, Anchor, Bloomberg, BNY Mellon, Charlie Bilello, Compound Advisors, Edmond De Rothschild, ETFMG, FactSet, Haver Analytics,  JP Morgan, Julius Baer, LSEG, Morningstar, Morgan Stanley, Refinitive, RMB, Statista, Sygnia, Strategas, The Intelligent Investor, UBS.

Disclaimer

VEGA Asset Management has taken care that all information provided in this document is true and correct. VEGA Asset Management does not accept responsibility for any claim, liability, loss, expense, or damage. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. VEGA Asset Management is an authorised Financial Service Provider with FSP number 776. Past performance is not necessarily an indication of future performance.