Review – Technology Under Pressure, Quality on the Rise
October was a month of contrasts. At first glance, the well-known global indices barely moved: the SPDR MSCI ACWI ETF (O1.1-I) ended the month virtually unchanged at -0.41%, and the Vanguard FTSE All-World ETF (O2-I) at -0.52%. Both are still up around 11% year-to-date. Beneath the surface, however, a powerful rotation took place. Precisely those stocks that had dominated the year so far, semiconductor and AI stocks, as well as the markets most exposed to them, Taiwan and South Korea, suffered significant losses. The winners were the neglected segments: healthcare, dividend strategies, small caps, European and Swiss equities, and bonds.
The main trigger was growing doubt as to whether the enormous investments in artificial intelligence will actually translate into corresponding profits. Weak guidance from several technology companies, above all Intel’s sales warning for the fourth quarter, which sent its shares down by almost 30% at one point, fuelled these concerns. The Philadelphia Semiconductor Index lost around 15% in October, one of its weakest months in years.
On 28 October, the Fed kept its target range unchanged at 3.75–4.00%, as expected. It is noteworthy, though, that two members of the Federal Open Market Committee voted for a further rate hike. Kevin Warsh refrained from giving clear signals and kept markets guessing, evidently a deliberate tool.
Focus Global Equity Markets
The rotation is particularly evident in the US equity market: whilst the Xtrackers S&P 500 ETF (R9-I) was flat at +0.15% and the iShares NASDAQ 100 ETF (R11-I) lost 5.52%, the equal-weighted version of the S&P 500, the Xtrackers S&P 500 Equal Weight ETF (R84-I), gained +4.46%. We have added this building block to our DFO advisory universe, as it is also available in USD. In September, it had been exactly the other way round.
US small and mid caps also had a good month: the S&P 400 U.S. Mid Cap (R10-I) gained +2.54%, the S&P 600 Small Cap (R13-I) +4.45% and the MSCI USA Small Cap Value Weighted (R56-I) as much as +6.23%. Defensive dividend payers were in strong demand: the S&P US Dividend Aristocrats (R31-I) rose by 10.31%.
At the other end of the spectrum were the Asian and emerging markets, which had been driven this year by chipmakers such as TSMC, Samsung and Hynix. The Franklin FTSE Korea ETF (R76-I) lost 15.35% and the Xtrackers MSCI Taiwan ETF (R78-I) 10.09%. The broad emerging markets building blocks were correspondingly weak: the Vanguard Emerging Markets Stock Index Fund (R1-I) fell by 6.61% and the iShares Core MSCI Emerging Markets ETF (R2-I) by 7.62%. Japanese equities (R77-I: -2.75%) and Latin American equities (R62-I: -4.52%) could not escape the downtrend either. This should not unsettle anyone: despite the correction, the Korean building block is still up 63% year-to-date, the Taiwanese one 58% and the Topix building block 20%. The correction has only removed a small part of the exaggeration.
India was a welcome exception in Asia. After a disappointing year, the iShares MSCI India ETF (R82-I) gained +1.99%, the FSSA Indian Subcontinent Fund (R38-A) +1.55% and Jupiter India Select (R70-A) +1.16%. Indian equities are still clearly in the red year-to-date, but the bottoming process we had hoped for in the summer appears to be continuing.
Europe had a solid month. The Vanguard European Stock Index Fund (R7-I) gained +2.80%, the Xtrackers DAX ETF (R15-I) +3.11% and the Vanguard FTSE 100 ETF (R16-I) +4.77%. Switzerland stood out: thanks to its heavy weighting in pharmaceutical and food stocks, the Xtrackers Switzerland ETF (R57-I) rose by 9.78%. A “boring”, defensively oriented market provides stability in a portfolio at the right moment.
The healthcare sector was the clear winner at sector level. The Xtrackers MSCI World Health Care ETF (R83-I) gained +11.87% and our AB International Health Care Portfolio (R47-A) +10.61%. The rotation from technology into healthcare, which we had already flagged in the summer, accelerated markedly in October.
Technology building blocks, by contrast, lost ground. The Franklin Templeton Technology Fund (R30-A) fell by 7.75%, the SPDR MSCI World Technology ETF (R29-I) by 5.88% and CT Lux Global Technology (R45-A) by 5.04%. The latter is nonetheless still up more than 48% year-to-date and has clearly outperformed the Nasdaq 100 again this year.
Focus Factor Investing
October was a mirror image of September. The momentum factor, which had risen sharply in September, experienced a genuine reversal: the iShares Edge MSCI World Momentum Factor ETF (O17-F) lost 7.27%. This shows how quickly a trend can turn when it is carried by a small number of stocks. The value factor also suffered a small setback after its very strong run (iShares Edge MSCI World Value Factor ETF, O18-F: -1.85%). This is due to the high weighting of semiconductor stocks in global value indices, which I had already pointed out in the last quarterly report. The effect was even more pronounced for the iShares Edge MSCI EM Value Factor ETF (R68-A) at -7.26%. Year-to-date, both building blocks still lead our advisory universe with +30% and +31%, respectively.
The real winner of the month was the quality factor. The World Quality Factor (O19-F) gained +1.77%, and the MSCI Europe Quality Factor (R61-F) gained as much as +5.46%. At +12.67% year-to-date, the global quality building block is now ahead of the broad market again, having been slightly behind in the third quarter.
I have frequently highlighted the quality factor in the past, as shares of profitable, soundly financed companies have outperformed the broad market over the long term. By 2021, the factor had become rather expensive, and several disappointing years followed in which quality stocks lagged the market, most recently as one of our “losers of 2025”. Now it is coming back! With an expected earnings yield of 5.30%, the MSCI World Quality Index is again in line with its historical average of 5.23% and therefore fairly valued. Our quality-oriented active managers also benefited from this comeback: Fundsmith (O14-A) gained +4.52% and GMO (O26-A) +2.40%.
Dividend strategies also performed well, such as the VanEck Morningstar Developed Markets Dividend Leaders ETF (O30-F: +4.01%) and the iShares MSCI World Quality Dividend Advanced ETF (O15-F: +2.86%). The multi-factor strategy (O22-F) was virtually unchanged at -0.44%, which illustrates its balancing effect.
Small caps performed well globally: the Vanguard Global Small-Cap Index Fund (R4-I) gained +1.65% and our new building block, the Avantis Global Small Cap Value ETF (R79-F), +3.62%. The latter is up almost 21% year-to-date.
Focus Global Bond Markets Investing
After a very difficult third quarter, bond markets recovered noticeably in October. The Vanguard Global Bond Index Fund (B1-I) gained +1.54%, the PIMCO GIS Income Fund (B15-A) +2.01% and the Vanguard Emerging Markets Bond Fund (G3-A) +1.98%.
As expected when interest rates fall, long-dated government bonds with high duration made the biggest leap: the iShares USD Treasury Bond 20+yr ETF (G1-I) gained +5.57%. It is still down 3.91% year-to-date, and most other bond building blocks also show slight losses for 2026. The Vanguard Emerging Markets Bond Fund (G3-A) is a notable exception and is in positive territory.
The yield on 10-year US Treasuries fell by around 0.35 percentage points to approximately 4.93% p.a. in October, back below the important 5% mark. Some investors used the losses in technology stocks to lock in high yields for the long term. The market also seems to have taken the September inflation rate of 3.7% p.a. in its stride. The uncertainty is not over, though: around the Fed meeting, the 10-year yield briefly rose above 5% p.a. again, and futures markets are pricing in a high probability of a further rate hike in December.
From a technical perspective, the 5% p.a. mark, which was breached as significant resistance in the third quarter, is now the decisive line. If the 10-year yield can sustainably hold below it, this would be a first sign that the rise in interest rates has peaked. A renewed rise above the late-September highs of around 5.25% p.a., on the other hand, would bring the resistance levels at 5.50% p.a. and 5.75% p.a. back into focus. Current yields remain attractive despite the recovery: the US Aggregate Index yields 5.29% p.a. and the Global Aggregate Index 4.28% p.a. Yields are even higher for high-yield bonds, US dollar-denominated emerging markets bonds and Asian high-yield bonds.
Our building blocks from specialised segments delivered mixed results. The GAM Swiss Re Cat Bond Fund (Y12-A) gained +0.87%, the PIMCO GIS Capital Securities Fund (Y5-A) +0.66% and the Algebris Financial Credit Fund (Y6-A) +0.35%. High-yield building blocks such as Man High Yield Opportunities (Y11-A: -0.74%) and the PineBridge Asian High Yield Total Return Bond Fund (Y8-A: -0.68%) slipped slightly as credit spreads widened modestly. As announced in the quarterly report, we will provide more detailed information on CAT bonds in the coming weeks.
As usual, our money market building blocks made a reliable contribution, e.g., iShares USD Floating Rate Bond ETF (P5-I) +0.25%.
Focus Commodity Markets & Bitcoin
Shares of gold and copper producers had a very weak October. The VanEck Gold Miners ETF (R71-I) lost 9.22%, the VanEck Junior Gold Miners ETF (R72-I) 13.14% and the Global Copper Miners ETF (R75-I) 11.22%. The mining stocks have thus given back almost the entire rally of August. The gold price itself fell by around 6.6% in October and temporarily dropped to around USD 3,890 per ounce, its lowest level in a year. Xetra Gold (R69-A) lost 4.68% in USD terms and is now down around 10% year-to-date. Evidently, some market participants had to take profits on precious metals after the losses in the technology sector. High real interest rates and a stable dollar have also made non-yielding gold less attractive.
Technically, gold now looks very damaged. With the break of the psychologically important USD 4,000 per ounce mark, a significant support level has fallen away, which is likely to act as resistance from now on. We therefore cannot rule out the possibility that the gold price could fall back towards USD 3,500 before a solid bottom forms. As mentioned several times, these building blocks are highly volatile and should only be held as portfolio diversifiers. After the correction, entry prices for those wishing to top up are considerably more attractive.
Broadly diversified commodities, by contrast, performed positively: the iShares Bloomberg Enhanced Roll Yield Commodity Swap ETF (R65-I) gained +2.00% and is up almost 40% year-to-date. High oil and gas prices are likely to have played a role here. The price of US crude remained around USD 100 per barrel due to the ongoing crisis in Iran.
Bitcoin could not escape the downtrend either and lost around 7.6% in October to roughly USD 77,000, its weakest October since 2014. Besides general risk aversion, a hacker attack on the crypto exchange Binance, in which coins and tokens worth more than USD 6 billion were stolen, weighed on sentiment. This shows that Bitcoin and gold do not always prove to be “safe havens” in times of stress, but can also come under selling pressure. Technically, the picture for Bitcoin has also deteriorated: the USD 80,000 mark has been broken and is likely to act as resistance now. On the downside, the round marks of USD 75,000 and USD 70,000 provide initial orientation.
Focus Property & Private Markets
After a weak September, shares in interest-rate-sensitive sectors recovered in October. The Amundi FTSE EPRA NAREIT Global ETF (R28-I) gained +4.43% and the Cohen & Steers Global Real Estate Securities Fund (R26-A) +3.81%. Both remain in positive territory year-to-date.
Shares in private equity and private credit firms also recovered strongly. The iShares Listed Private Equity ETF (R48-I) gained +4.59%, the Xtrackers LPX Private Equity Swap ETF (R49-I) +3.67% and the HgCapital Trust (R50-A) +6.73%. Year-to-date, they are still down between 12% and 21%.
Focus Currencies
The US dollar moved sideways to slightly firmer in October. The DXY index rose from around 101.5 to just under 102, only narrowly surpassing the technical resistance level around 101. A clear breakout has not occurred so far: only a sustained rise above 102 would point to further dollar strength, whereas a fall back below 101 would confirm the overarching downtrend. The dollar is mainly supported by its large interest rate advantage over other currencies. The Swiss franc once again proved to be a safe haven, benefiting, among other things, from political unrest in France. The dollar fell back below 0.83 against the franc.
Our assessment remains unchanged: given America’s high level of debt and based on purchasing power parity, the dollar appears overvalued. For USD-based investors, a degree of diversification into intrinsically more solid currencies such as CHF, SGD, AUD and NOK remains sensible. For foreign currency financing, we continue to favour CHF, SGD and HKD over the Japanese yen.
Our Investment Styles
We generally advocate three investment strategies or philosophies, which we can confidently assume are highly likely to lead to success in the long term.
1) Traditional index investing (Jack Bogle, the founder of Vanguard)
Anyone broadly invested via the MSCI ACWI or the FTSE All-World barely noticed the rotation in October. This shows the advantage of traditional indexing: losses in individual segments are offset by gains in others. It remains important to keep an eye on the heavy weighting of US technology and semiconductor stocks in these indices.
2) Factor-based or scientific investing (Eugene Fama/Kenneth French)
October made it very clear why we recommend diversifying across several factors. Whilst the momentum factor lost more than 7%, quality, dividend and small-cap strategies gained. The multi-factor strategy almost completely offset these opposing movements.
3) Investing focused on a few securities (Warren Buffett/Charlie Munger/Hendrik Bessembinder)
The picture among our active managers reversed in October. Managers who had deliberately stayed out of the semiconductor and AI segments and focused on quality, consumer and healthcare stocks caught up significantly: Fidelity (O29-A) gained +6.97%, Fundsmith (O14-A) +4.52% and GMO (O26-A) +2.40%.
Managers with a high weighting in semiconductor and growth stocks suffered setbacks, including the T. Rowe Global Focused Growth Equity Fund (O16-A) at -3.86%. CT Lux Global Focus (O11-A), on the other hand, held up well at -1.08% and is up more than 13% year-to-date.
This confirms our conviction that active managers should not be judged on the basis of a single month. Different management styles complement each other in a portfolio and ensure more balanced performance.
Our Model Portfolio Performance
Our Dimensional benchmark portfolios all ended October in positive territory, clearly outperforming global equity indices. Portfolio 6 gained +1.01%, compared with -0.41% for the SPDR MSCI ACWI ETF (O1.1-I). This is due to the lower weighting of large technology stocks and the higher weighting of small caps. The continued outperformance of the Dimensional portfolios underlines that patience and broad diversification pay off in the long term.
ARERO – Der Weltfonds (Portfolio 4A) slipped by 1.34% in October due to its commodity exposure, but is still up 8.26% year-to-date.
Outlook – The Rotation Opens Up New Opportunities
October showed how quickly sentiment on the stock market can change when a market segment has become too expensive. The correction in semiconductor and AI stocks did not come as a surprise to us. In recent months, we have repeatedly pointed out the high valuations and recommended a critical review of ETFs with a very high weighting of individual semiconductor stocks. Importantly, the rotation did not lead to a broad market crash. The money did not leave the stock market but flowed into segments that we have long regarded as attractively valued: healthcare, dividend strategies, small caps, Europe and Switzerland. This is good news for broadly diversified portfolios.
The US midterm elections on 3 November are imminent. As explained in the quarterly report, a significant weakening of Donald Trump’s administration would likely lead to more disciplined spending and thus take pressure off the bond markets. A clear Republican victory, on the other hand, would probably push long-term interest rates higher again. We should therefore prepare for a politically driven market.
The next Fed meeting takes place on 9 December. Futures markets are pricing in a high probability of a further 0.25-percentage-point rate hike, especially as the inflation rate remained elevated at 3.7% p.a. in September. Such a hike is therefore largely priced in and should no longer surprise markets significantly. A disappointment would be more likely if Kevin Warsh were to signal a longer cycle of rate hikes.
The recovery in bond markets is welcome, but the uncertainty surrounding the solvency of industrialised nations and future central bank policy is not off the table. The yield on 10-year US Treasuries continues to hover around the 5% p.a. mark, which we regard as the most important technical reference point for the coming weeks.
As emphasised many times, valuation is the best guide for an investor. Our high-rise charts show that yields on bond investments, regardless of the investment horizon (FairHorizons purple to green), are all above the US break-even inflation rate of 2.35% p.a. The US Aggregate Index offers 5.29% p.a., and even money market building blocks such as P5-I and P7-A deliver returns of more than 3% p.a. year-to-date. We therefore continue to prefer bond building blocks with short to medium duration and would remain cautious on long-dated government bonds. Emerging markets bonds, Asian credit, high-yield bonds and CAT bonds such as the GAM Swiss Re Cat Bond Fund (Y12-A) remain good complements, as they show only a low correlation with US Treasuries.
The correction has significantly improved the valuations of many technology stocks. The expected earnings yield of the MSCI World Information Technology Index is now 6.19%, above our minimum target return of 6% p.a. The Nasdaq 100 (5.80%) and the S&P 500 (5.96%) are slightly below, but have moved noticeably closer to the 6% mark. However, these valuations are based on earnings estimates for the coming years. On the basis of these forward price-to-earnings ratios, technology stocks now look cheaper. I am not sure, though, whether the very optimistic earnings projections can actually be sustained. The weak guidance from Intel and other technology companies in October is a first warning sign.
A look at history calls for caution: around the year 2000, Cisco Systems was regarded as the undisputed supplier of the internet age, much as semiconductor manufacturers are seen today as the suppliers of the AI world. When investment in network infrastructure was cut back sharply after the dot-com bubble burst, Cisco’s earnings collapsed: in fiscal year 2000, Cisco had still earned a profit of USD 2.7 billion. A year later, it reported a loss of around USD 1 billion, not least due to multi-billion-dollar inventory write-downs. In the fourth quarter of fiscal 2001, even adjusted earnings were 86% below the previous year. In fiscal 2002, sales also fell by around 15%, and earnings per share, at USD 0.25, were still around 30% below the 2000 level. The share price lost almost 90% of its value between 2000 and 2002, even though Cisco itself remained an excellent company. Investors who had paid more than 100 times earnings at the peak learned the painful lesson that even the best companies in the world can be too expensive.
Should the earnings of the AI suppliers collapse in a similar way, current valuations would still be very ambitious despite the correction. Today’s earnings yield would then very quickly prove to be an illusion.
The technical picture has also deteriorated significantly. The Philadelphia Semiconductor Index (SOX) fell to around 10,700 points at the end of October, dropping below its 200-day moving average for the first time in more than a year. We see the first important support at the summer low of around 10,450 points. Should this level fail to hold, there is hardly any significant chart support until around 8,500 points, a further decline of around 20%.
The Nasdaq 100 Index closed October at around 28,385 points, more than 9% below its record high on 6 October. On 30 October, it fell intraday to around 28,090 points, briefly entering correction territory (-10%) for the first time since the summer. This intraday low is now the first important support. Below that, the next support lies in the 27,150–27,200 range, where the index found a floor at the end of July. On the upside, the area around 30,000 points is likely to act as initial resistance. In the S&P 500, the area around 7,600 points was broken to the downside. The next support lies around 7,300 points, roughly in line with the 200-day moving average.
We will therefore only see a solid technical bottom for technology and semiconductor stocks once the SOX stabilises above its summer low and the Nasdaq 100 above 27,150 points. Otherwise, the SOX could fall towards 8,500 points. Until such a bottom has formed, we would refrain from larger one-off purchases. Investors who believe in the long-term prospects of the technology and semiconductor industry can use the correction for gradual purchases in several tranches. For technology investors R45-A remains, in our view, a very good long-term solution.
Korea and Taiwan, whose indices are heavily influenced by semiconductor stocks, deserve a closer look: The Korean KOSPI Index closed October at around 5,730 points. The index is now around 37% below its record high of just over 9,100 points in June, a correction more reminiscent of a bear market than a healthy consolidation. The 6,000 mark is now the first resistance level. We see support around 5,500 points, where the index broke out in February, and below that at 5,000 points. (Our building block R76-I does not track the KOSPI but the FTSE Russell Korea Index, which is why its performance differs from that of the KOSPI.)
The Taiwanese TAIEX Index has held up much better. It reached a new record high of almost 50,000 points on 6 October, but then lost 5.7% in October, its weakest October on record. The first support is the intraday low of 30 October at around 44,700 points. On the upside, the round 50,000 mark is the decisive resistance level. Whether the market stabilises depends mainly on whether it can regain its six-month moving average and ultimately on the further development of the US semiconductor sector.
For both markets, after the extraordinary gains of the past twelve months, we would not rush in but wait until a technical bottom emerges and then proceed step by step. In Korea, a large part of the exaggeration has already been corrected; in Taiwan, only a small part.
The majority of our equity building blocks continue to show valuations that make long-term returns of 6–8% p.a. possible. These include the MSCI ACWI Index (7.00%), the MSCI World Value Index (7.19%), the multi-factor strategy (7.67%) and US small and mid caps (Small Cap: 7.85%, Midcap: 7.34%). REITs (7.06%) also remain attractively valued.
Indian equities stabilised in October. It remains important to take a long-term view here and to use the recovery for gradual investments. The same applies to shares of private asset managers, which recovered significantly in October but are still clearly down year-to-date.
Shares of gold and copper producers have given back almost the entire August rally. This does not change our fundamental assessment: with a gold price of just under USD 4,000 per ounce, mining companies are earning a great deal of money and are attractively valued. Even if the gold price fell to USD 3,500 per ounce, most producers would remain highly profitable.
As gold is technically very weak and a decline towards USD 3,500 per ounce remains possible, we would add to positions in several steps rather than all at once. The reality of global conflicts and spiralling government debt remains unchanged and tends to be inflationary. We would therefore see the correction as an opportunity to build up a 10–15% portfolio allocation to commodities, preferring metals and precious metals, or shares of metal and precious metal producers such as Gold Miners (R71-I) and the Copper Miners (R75-I), over futures-based commodities.
Our stance on Bitcoin remains unchanged: October showed how volatile the cryptocurrency is and that it does not act as a safe haven in times of stress. Investors who still want exposure should limit it to a small portion of their assets that they could afford to lose.
October once again showed that broad diversification is the best protection against excesses in individual segments. Our Dimensional portfolios weathered the rotation virtually unscathed and even posted gains. Please stick to your chosen investment styles and do not change them out of short-term disappointment.
Those wishing to invest fresh money should continue to look at value, dividend and small-cap strategies alongside broadly diversified index building blocks. I would particularly like to highlight the quality factor, which is fairly valued again after several difficult years and is likely to benefit from the rotation out of expensive technology segments, for example via the iShares Edge MSCI World Quality Factor ETF (O19-F) or our quality-oriented active managers. For small caps, the Avantis Global Small Cap Value ETF (R79-F) is a good choice and complements our very popular small-cap building block, the Janus Henderson Horizon Global Smaller Company Fund (R58-A), very well.
The fourth quarter is usually accompanied by price gains and a positive end to the year. After the shake-out in October and with the political situation clarified after the midterm elections, we see good conditions for this pattern to be confirmed this year as well.
If you are worried whether your portfolio is well prepared for the current situation, just get in touch with us. We will be happy to check it for you.
Otherwise, I would be delighted if you could tell your friends and family about Das Family Office so that they can also become part of our community.
With best wishes for a pleasant November!
Yours,
Mario Becker
- (purple) Up to 1 Year: Invest in money market funds P5-I, P7-A or Portfolio 1.
- (blue) Up to 4 Years: Invest in Portfolio 2 or combine B15-A and O1.1-I in an 80/20 ratio.
- (green) Up to 7 Years: Invest in Portfolio 3 or combine B15-A and O1.1-I in a 60/40 ratio.
- (yellow) Up to 10 Years: Invest in Portfolio 4 or combine B15-A and O1.1-I in a 40/60 ratio.
- (orange/red) More than 10 years: Invest in Portfolio 6 or in one of our various portfolio strategies.
