News & Insight • Market Insights
07 January 2026 | William Buckhurst
2025 A Year in Review - Portfolio Funds
“History has many cunning passages, contrived corridors and issues, deceives with whispering ambitions, guides us by vanities”.
T.S. Eliot, Gerontion (1920)
YFS VP Portfolio Funds – Overview
Over the last year, the Vermeer Partners Growth Portfolio Fund returned +11.10% and the Portfolio Fund returned +11.09%. The estimate for the ARC GBP Equity Risk PCI was +9.48% and the ARC GBP Steady Growth PCI was +9.14%.
Since launch (16th October 2023), the Growth Portfolio Fund has returned +20.69% while the Portfolio Fund returned +20.61%.
Market Review
“History has many cunning passages, contrived corridors and issues, deceives with whispering ambitions, guides us by vanities”.
As 2025 draws to a close, our overarching theme is underappreciated developments. Much has been written – by us and by the wider investment community – about animal spirits in financial markets, the increasing concentration of returns within US equities*, and the relentless rise of artificial intelligence together with both its opportunities and its risks. By contrast, one market that continues to attract relatively little attention is Japan.
In Gerontion, Eliot’s elderly narrator reflects on how events often appear unremarkable at the time, only for their true significance to become clear in hindsight. We believe this perspective is particularly apt for Japan. Over many years, Japan has been quietly implementing a series of corporate governance reforms that are materially changing the investment landscape. These reforms increasingly highlight the attractions of Japan’s cash-rich companies, many of which maintain strong balance sheets and trade at valuations that remain compelling for value-oriented investors.
We have written previously about the triumph of optimism, markets climbing a wall of worry, and the tendency of history to repeat itself [2024 A Year in Review]. It would be easy to follow a similar narrative after a year in which apparent stresses failed to derail markets. So-called “cockroaches” in the credit system did not materially disrupt financials; elevated valuations and technological competition scarcely troubled large-capitalisation US technology stocks; and the extraordinary energy demands associated with AI supported strong performance from global energy and utilities equities. Trade disputes, tariffs, and subsequent reversals proved largely digestible, while markets absorbed sticky inflation, rising unemployment and concerns around central bank independence with notable resilience.
Indeed, relatively few sectors were excluded from what proved to be another strong year for global equity markets. Consumer staples – companies producing everyday household goods – were among the notable laggards. Bond markets were broadly flat, while a weakening US dollar dampened returns for UK-based investors. Outside our investment remit, price falls in prime residential property – particularly in central London – have been striking and, in some cases, reminiscent of conditions last seen in the early 1990s. Against this backdrop, it is increasingly commonplace to assume that a diversified global equity portfolio offers a more resilient long-term retirement vehicle than leveraged residential property, particularly in light of recent legislative changes in the UK.
With US markets somewhat closer to high altitude, Japanese equites are still priced somewhere around base camp. Japan’s equity market famously peaked in December 1989 and required more than three decades to surpass those levels. At its height, Japan accounted for approximately 45% of global equity market capitalisation, with six of the world’s ten largest companies domiciled there. By 1999, not a single Japanese company remained in the global top ten. The subsequent decline was severe – Japanese equities fell by approximately 80% from their peak – and was compounded by a collapse in land and property prices, triggering widespread losses in the banking system as real estate-backed lending deteriorated. What distinguished Japan’s experience was not only the magnitude of the downturn, but its extraordinary duration. The equity bear market persisted for over 30 years, accompanied by an ageing population and entrenched deflation.
The first meaningful signs of change emerged in 2012 with the election of Shinzo Abe. At that time, Japanese equities were at cyclical lows, and the yen had strengthened to record levels against the US dollar. Abe’s economic programme – commonly referred to as the “three arrows” – comprised aggressive monetary easing to re-anchor inflation expectations, expansionary fiscal policy, and structural reforms aimed at improving Japan’s long-term growth potential. While the first two arrows attracted the greatest attention at the time, it is the third – structural reform – that continues to underpin our investment case today.
Japan’s corporate sector has long been characterised by high cash balances, cross-shareholdings, and complex group structures. Recognising the inefficiencies and conflicts this can create, the government introduced a Corporate Governance Code in 2015, strengthening board independence and minority shareholder protections. More recently, the Tokyo Stock Exchange has increased pressure on companies trading below book value to articulate credible capital improvement plans. From 2024 onwards, companies failing to respond adequately have been publicly identified, reinforcing incentives to improve capital discipline and shareholder returns.
The legacy of prolonged deflation discouraged risk-taking and fostered a culture of cash hoarding among both households and corporates. Over time, however, corporate balance sheets have been materially repaired, debt reduced, and operational efficiency improved. Today, Japan remains the world’s third-largest economy, the largest net creditor nation, and – on purchasing power parity measures – home to one of the most undervalued currencies in the developed world. It is also one of the largest global equity markets by capitalisation.
In an environment where many developed markets, most notably the US, trade at premiums to historical valuation averages, Japan stands out as relatively inexpensive. Structural reform has begun to attract renewed institutional interest. Approximately 40% of the TOPIX index trades below book value, and a substantial proportion of listed companies lack meaningful sell-side analyst coverage. With nearly 4,000 publicly listed companies – many operating as conglomerates – Japan presents fertile ground for operational improvement, asset rationalisation, and private equity engagement.
It is also notable that similar reform agendas are now being adopted elsewhere. South Korea’s “Value-Up” programme, explicitly modelled on Japanese reforms, has coincided with a marked re-rating of Korean equities. Other Asian markets are exploring comparable initiatives, reinforcing the broader relevance of Japan’s experience.
While many global equity (particularly “growth”) strategies remain underweight Japan which makes up 5% of global indices, at Vermeer Partners we maintain a healthy overweight with exposure to both direct Japanese companies and specialist Japanese funds.
2025 Summary
We noted in last year’s report the relative underperformance of both our Funds, particularly during the final months of the year when a small number of large-cap technology stocks, which we did not own, dominated index returns. Against that backdrop, we are pleased that performance this year has been materially stronger, both in absolute terms and relative to benchmark indices. This outcome is notable given that many of those same large technology companies – while not to the same extent as in late 2024 – continued to exert a disproportionate influence on market returns.
We also suggested previously that market leadership was likely to broaden across a wider range of sectors. That expectation has been partially realised. In sterling terms, the S&P 500 Index returned approximately +9.8%, while the technology-heavy NASDAQ returned +13.5%. By contrast, the Dow Jones Industrial Average returned +5.9%. These figures also reflect an unusually weak year for the US dollar, which depreciated by approximately 8% against sterling; in local currency terms, US equity returns were therefore materially higher.
Against this backdrop of continued concentration in US market leadership, we are content with the returns achieved by the Funds, particularly as these were delivered without, in our view, assuming excessive concentration risk in a narrow group of index-dominant stocks. As discussed earlier, our Japanese equity holdings contributed meaningfully to performance and provided portfolio balance. Additional contributors to returns included the following:
- Balfour Beatty
Balfour Beatty, a UK-listed infrastructure and construction group operating in an unfashionable sector, ended the year with a significantly strengthened order book and net cash position. Strong demand linked to energy and infrastructure investment in both the UK and the US has driven the order pipeline to record levels. Revenues are expected to exceed prior-year levels by more than 5%, and the company returned approximately £189 million to shareholders during the year through a combination of dividends and share buybacks. Initially acquired for the Funds in late 2024 at approximately 10x forward earnings with a dividend yield of around 3%, the shares now trade closer to 14.5x forward earnings, with a dividend yield of approximately 2%, alongside expectations of further capital returns.
- Prudential
Prudential is a UK-listed insurer with operations focused almost entirely outside the UK, predominantly across Asia. The group provides life and health insurance, savings, and investment products, with a significant proportion of new business originating from Chinese customers purchasing policies in Hong Kong. Activity recovered meaningfully following border reopening in 2023, supporting earnings momentum and reinforcing the long-term structural growth opportunity in Asian insurance and savings markets. The shares trade on a forward price to earnings ratio of 14x.
- Alphabet
For an extended period, Alphabet faced concerns that advances in artificial intelligence—particularly conversational AI and specialised agents—could disrupt traditional search and, by extension, advertising revenues. During the year, sentiment improved markedly as the company responded through the integration of “AI Overviews” into search, continued investment in proprietary AI infrastructure including Tensor Processing Units, and sustained growth in its cloud business. Trading at approximately 16x forward earnings at the start of the year, Alphabet was, in our view, attractively valued relative to its long-term record of innovation and cash generation. The shares now trade at closer to 27x forward earnings. Regulatory risks have also receded, with antitrust concerns less acute than previously feared.
- KLA Corporation
Many companies at the forefront of AI development trade on demanding valuations. As with historical technology cycles, we continue to favour exposure to the enabling infrastructure rather than reliance on individual end-product winners. KLA provides advanced process control, inspection, and metrology systems that are essential to semiconductor manufacturing. Its tools effectively serve as the “measurement and inspection layer” without which leading-edge chips cannot be produced. This offers a way to participate in the structural growth of semiconductors and AI without direct exposure to any single chip designer or manufacturer. The shares currently trade at approximately 33x forward earnings but for low double-digit expected revenue growth.
- Electrification and Power Infrastructure
The rapid expansion of AI and data centre capacity has significantly increased demand for reliable electricity infrastructure. Our investments in Siemens and Schneider Electric provide exposure to this theme, as both companies are positioned to benefit from rising investment in grid modernisation, electrification, and energy efficiency. We view the race for AI leadership as being equally a race for power availability and transmission capacity.
- Gold
After a prolonged period of subdued performance, gold delivered strong returns during the year, reaffirming its role within a diversified portfolio. Having traded around US$2,000 per ounce for an extended period despite geopolitical instability, inflation shocks, and unconventional monetary policy, gold prices moved materially higher. We continue to view gold as a form of portfolio insurance against elevated public debt levels, currency debasement, and ongoing challenges to central bank independence.
Looking ahead, uncertainty remains elevated across markets. We continue to favour a balanced portfolio approach, combining exposure to structural growth opportunities with investments where valuation support does not depend on aggressive revenue or margin expansion. Our portfolios remain diversified across geographies and sectors and, in aggregate, do not trade at a valuation premium to the broader market.
We wish all of our clients, friends and readers a healthy and prosperous 2026
*Although the US underperformed Europe, Japan and China this year, the top ten companies by market capitalisation – nine of which are American technology companies (including both classes of Alphabet) – make up an even larger part of global equity indices than they did this time last year. This has had the effect of continuing to amplify the benchmark risk of not owning, or being underweight, the so called “mega-caps”.