Reflecting on Q4 2025: Navigating a Shifting Economic Landscape with the Victory Diversified Stock Fund

Well, here we are, reflecting on the close of another year, and frankly, Q4 2025 was quite the ride for the financial markets. It truly felt like a quarter where investors finally started breathing a collective sigh of relief, largely due to the growing consensus that we might just pull off that elusive 'soft landing' for the economy. It's been a journey, hasn't it? From the dizzying heights of inflation to the steady march of interest rate hikes, the past few years have certainly kept us all on our toes. But as 2025 drew to a close, there was a palpable sense of optimism, a feeling that perhaps the worst was behind us.

And let me tell you, here at the Victory Diversified Stock Fund, we're genuinely pleased with how things shaped up. The fund certainly delivered a robust performance, actually outshining the Russell 1000 Value Index. We truly believe this strong showing underscores the power of our patient, quality-focused approach, especially during times when the market narrative is still, shall we say, a little complex. It wasn't about chasing every fleeting trend; it was about sticking to our convictions, focusing on what truly matters: solid fundamentals and enduring value.

Looking back, the economic backdrop for Q4 was fascinating. We saw clear signals that monetary policy, after quite a run, was indeed reaching its peak. This, combined with what seems to be a gradual cooling of inflation, really set the stage. The talk of rate cuts, perhaps even as early as the first half of 2026, started to gain serious traction. Now, don't get me wrong, economic growth has certainly moderated – that's undeniable. But crucially, it hasn't fallen off a cliff. We're witnessing a slow and steady deceleration, which, in many ways, is exactly what policymakers were hoping for, trying to bring things back into balance without tipping into a deep recession.

What's particularly interesting, from our perspective, is the ongoing valuation story. The Russell 1000 Value index, our benchmark, has consistently traded at a pretty significant discount compared to the Russell 1000 Growth index. This persistent gap, frankly, presents a fantastic opportunity for those of us who believe in the long-term potential of well-run, established businesses. We continue to see value in companies that might not grab the flashiest headlines but possess intrinsic strength and consistent profitability.

Digging a bit deeper into sectors, it was an eventful quarter. Energy stocks, for instance, enjoyed a very welcome rebound, really showing their resilience. Financials and Industrials also put in quite a strong performance, reflecting a general strengthening in those foundational parts of the economy. On the flip side, we did see some underperformance in areas like Health Care and Utilities. These sectors, often seen as more defensive, sometimes lag a bit when the broader market starts to feel a touch more confident and growth-oriented. But even within these, we're always looking for those individual gems that stand apart.

Our investment philosophy, you see, remains steadfast. We're not swayed by the daily noise. Instead, we're diligently seeking out companies that boast truly sustainable competitive advantages – the ones with that special something that makes them hard to replicate. We love businesses that generate robust free cash flow, showing they can fund their own growth and reward shareholders. Disciplined capital allocation is paramount, meaning management teams that make smart decisions about where to invest and when to return capital. And crucially, we want management whose interests are truly aligned with yours, the shareholders. It's about finding quality, yes, but at a price that makes sense for the long haul.

As we gaze into 2026, there's a definite air of cautious optimism. We anticipate a continued moderation in inflation, which should further pave the way for potential rate cuts. This environment, we believe, could truly favor a diversified value approach like ours. While challenges will undoubtedly emerge – they always do – we remain confident that our disciplined search for high-quality companies at reasonable prices will continue to serve our investors well. We're excited about the opportunities ahead and look forward to what the new year brings!