Stock stories that the headlines skipped

Markets looked fully priced then sold off after Donald Trump’s “liberation day”, before powering to new highs. The illusion of control dissolved. This year has shown us that sometimes returns are not a reward for bravery but a prize for surviving uncertainty.

Investors have spent 2025 transfixed by the same headline: AI-powered US mega-caps marching to fresh highs. While the spotlights have followed the magnificent seven, the real comeback story has happened offstage – value outside the United States.

In fact, value factors have beaten factor peers across multiple regions this year, with independent data from MSCI showing value’s outperformance in major regions including Japan, Europe and the UK, as well as in Australia.

We should lean on intellectual capital for investment approaches that endure. Take Benjamin Graham, who argued in The Intelligent Investor, that the “margin of safety” is the single most reliable principle in finance. It is an engineering-grade buffer that protects against the inevitable errors in our forecasts and the unpredictable movements of markets.

A framework that demands we anchor every position in empirical valuation, quantify uncertainty rigorously and ensure that mispricing, not optimism, does the heavy lifting. In an era of accelerated information flow but not necessarily wisdom, Graham’s core insight remains scientifically durable: resilience is earned not through precision but through prudence.

The broader backdrop matters. At the time of writing, equities outside the US have outpaced the S&P 500 by about 21 per cent versus just over 11 per cent (in Australian dollar terms). This reverses a decade of American exceptionalism and reminds us that concentration risk is still risk. A weaker US dollar, cheaper valuations and more cyclical earnings leverage did the quiet work while investors were glued to hyper-scalers.

Investors did not need to short artificial intelligence, or even own niche small caps, to benefit. A simple tilt towards World ex-US value would have captured a regime shift that the market mostly ignored. Value wasn’t dead, it was under-owned. And, as one seasoned value shop argued in a widely circulated essay, even if parts of US growth look bubbly, there is opportunity.

For much of this century, value has been the forgotten factor. It briefly resurfaced after the dotcom bust in the early 2000s, only to be eclipsed by the era of zero rates and platform monopolies that powered a decade-long dominance of growth.

For over a decade, value lagged growth by the widest margin in history. Even the revival in 2022 after inflation spiked faded quickly as capital rushed back to the mega-cap momentum. For the best part of 20 years, being a value investor meant being early, wrong or ignored. Yet, quietly through 2025, that tide started to turn, and most of the market did not notice.

For Australian investors, the most tangible way to see this is through an international enhanced value index strategy beating its growth counterpart by more than 6 per cent with a 26 per cent return year-to-date.

It’s diversified across sectors and countries, deliberately avoiding unintended sector and stock biases, and it tells a story the AI-only crowd missed: cash-rich telecoms, global banks, German car makers and crucially semiconductors trading at relative value multiples.

These are stock stories that the headlines skipped.

Not a ‘dinner party stock’

Let’s start with semiconductors. The value rotation didn’t bypass chips; it broadened them. Micron has been a standout, surging well into triple-digit returns on AI-driven memory demand and better pricing power. That’s value participating in the AI economy but at a discount to the poster children. Intel, left for dead by many, also posted a powerful rebound as investors re-rated its foundry optionality and turnaround progress.

Banks were another quiet engine unless you were transfixed on Commonwealth Bank. Capital One’s share price move this year reflects a combination of elevated net interest income, disciplined capital allocation, strategic scale acquisition and favourable macro credit tailwinds.

In telecoms, AT&T wasn’t anyone’s dinner party stock. We are sure Telstra resurfaced, but it did deliver positive total returns with cleaner balance sheets, better free cash flow and steadier guidance, a defensive cash cow re-priced from distress to durability.

And BMW, the iconic German car maker, has ticked several boxes for a quality cyclical play with strong brand equity, cash-return discipline and visibility on the new-generation EV platform and production pipeline, which has worked through policy noise, China headwinds and tariff risk. It’s the kind of automobile story value investors prize in a choppy macro.

So why did investors miss it? Narratives became monolithic. When one theme dazzles, cognitive crowding sets in: everyone starts to think the same thoughts. The consequence was a massive opportunity cost, not because AI leadership has been “wrong”, but because portfolios have ignored everything else that was right. Factor data made the rotation visible, flows and headlines did not.

An investor’s job isn’t to pick heroes, it is to design resilience. That means balancing growth with quality and broadening the earnings engines. In 2025, you did not need to fight the AI trade, you just needed to widen it.

For Australians building international equity exposure, shifting a slice from concentrated US growth towards World ex-US value is no longer contrarian, it’s resilience. Even the Future Fund has put resilience at the centre of its portfolio design.

We view resilience as a system: the ability to absorb shocks, adapt across regimes and stay the course. That takes conviction and diversification across styles, factors, fixed income and alternatives that respond differently to macro forces.

Resilience is not about dodging pain but using it. As author Morgan Housel reminds us, “Endurance is more valuable than brilliance.” Investors who build for endurance won’t just survive the next decade, they will shape it.

This article was originally published in The Australian Financial Review on 7 December 2025.