International equity markets showed an exceptionally dynamic and overall very positive performance in the third quarter of 2025. In the United States, the major benchmark indices – the S&P 500, Nasdaq, and Dow Jones – reached new record highs. The main drivers of this development were technology stocks and growth-orientated companies which once again recorded substantial gains. Most notably was the Nasdaq which benefited disproportionately from the ongoing enthusiasm surrounding artificial intelligence and broad wave of investment across the technology sector. Smaller companies (small caps) also performed well, supported by expectations that the US Federal Reserve might soon ease its monetary policy.

At the same time, international markets likewise showed a clear upward trend. European equities and emerging markets recorded solid gains, further supported by a weakening US dollar and the prospect of a less restrictive monetary policy in the United States. Whilst the S&P 500 gained around seven to eight per cent during the quarter, some emerging markets even posted double-digit returns. Bonds also delivered a modestly positive performance, as risk premiums narrowed and investor demand for fixed-income assets strengthened slightly.

Despite the strong rally, the markets nevertheless remained exposed to risks and uncertainties. Geopolitical tensions, persistent inflation concerns, and the risk of new trade conflicts continue to weigh on the economic environment. Although corporate earnings rose on average in the third quarter, earnings forecasts for the full year 2025 were, in many cases, revised downward. This underscores that not all sectors were able to benefit equally from the upswing. In addition, the markets’ strong focus on technology stocks remains a potential risk factor, as this concentration increases their vulnerability to abrupt corrections.

Convertible bonds also benefited significantly from the positive developments in the equity markets. Their hybrid nature of combining a bond component with an equity option  made them particularly attractive to investors. They allowed investors to participate in the strong equity gains, whilst the bond component offered stability during periods of heightened uncertainty.

However, this positive trend was not without certain risks. A substantial number of new issues were brought to market during the quarter, many carrying very low and in some cases even zero coupon rates. As a result, investors became even more dependent on favourable equity market performance. In addition, a significant share of the new supply was concentrated in technology and growth companies, leading to concentration risks. Compounding this, several issues were priced at ambitious valuation levels, diminishing their attractiveness to long-term investors.

Against this backdrop, LiLux Convert posted a solid performance in the third quarter of 2025, advancing by 2.88%. This enabled the fund to achieve solid performance in an overall positive yet still risk-prone market environment.