In college football – as in investing – current success is often misunderstood as permanent. Fans, and investors, naturally extrapolate recent dominance far into the future, assuming that yesterday’s champions will always be tomorrow’s contenders. Yet this year’s College Football Playoff championship game offers a useful reminder that leadership, incentives, and process matter more than legacy. Traditional powerhouses like Alabama and Ohio State have defined the sport for much of the past decade, but this year they find themselves watching from home, while new programs such as Indiana have stepped into the spotlight. (Note: Indiana’s victory has special meaning for us, given that two members of Verger’s Investment Team are IU grads. Congrats to the Hoosiers!)
Periods of sustained success can often lull investors into a false sense of security, believing that dominant trends, sectors, and companies will remain on top, even as the underlying conditions that fueled those gains begin to change. History suggests otherwise. The most painful mistakes in investing often tend to occur not during moments of panic, but during periods of comfort – when past winners are reflexively assumed to be future winners and discipline quietly erodes.
As we look ahead into 2026, we believe the environment increasingly calls for forward-looking judgment rather than backward-looking confidence. Shifting economic conditions, relative valuation differences, and evolving competitive dynamics are creating opportunities in less crowded corners of financial markets. This is where an important component of our investment philosophy – investing through the windshield, not the rear-view mirror – comes into focus, guiding us toward areas where expectations are low, fundamentals are improving, and the next cycle of leadership may already be taking shape.
2025 was a notably strong year for financial markets, with stocks, bonds, and commodities all posting positive returns. Several well-established trends continued to assert themselves. U.S. large-cap equities outperformed U.S. small caps by approximately 5%, marking the fifth consecutive year of large-cap leadership. That streak now matches the 1994-1998 period as the longest run of large-cap outperformance on record, a prior episode that was followed by six straight years of small-cap leadership from 1999-2004. Growth stocks also continued their dominance, outperforming value stocks in the U.S. for the third year in a row.
At the same time, some meaningful reversals emerged. For example, international equities outperformed U.S. stocks by roughly 15% in 2025 – their widest margin in more than a decade – helped in part by an 8% decline in the U.S. dollar, the currency’s worst annual performance since 2017.
In fixed income, U.S. investment-grade bonds gained about 7% for the year, though the asset class remains mired in a drawdown that has now stretched beyond five years – the longest on record. Commodities also delivered positive returns for both the quarter and the year, led by strength in precious metals such as gold and silver.
Source: Bloomberg
The rise of Indiana’s football program under Curt Cignetti is a case study in what happens when organizations stop managing to the past and start building for what’s next. Cignetti has been blunt about his philosophy: “I’m not here to talk about history. I’m here to make history.” His mindset – eschewing nostalgia in favor of disciplined execution – mirrors how we at Verger approach investing. The biggest winners of the last decade, particularly large-cap U.S. growth stocks, have benefited from some tailwinds (e.g., low capital expenditure business models) that may not be repeated. Yet many investors remain anchored to those past returns, assuming dominance will persist – simply because it has. However, students of market history understand that markets often move in cycles. The chart below shows the top 10 companies in the S&P 500 in each decade, starting in 1985. While there are exceptions (e.g., Microsoft), it is rare for a company to stay at the top.
Sources: Bloomberg, Standard & Poor's, J.P. Morgan Asset Management
Cignetti is equally direct about culture and process. “You win with discipline, accountability, and doing the little things right every day,” he has said, emphasizing that outcomes are the byproduct of preparation rather than reputation. In portfolio construction, we see the same dynamic. We do not prioritize based on what has worked most recently. Instead, we prioritize based on investment opportunities where capital is scarce, valuations are attractive, and fundamentals are favorable. This often leads us toward less popular – but increasingly compelling – areas such as biotech, non-U.S. equities, natural resources, reinsurance, and certain areas of emerging market debt. In these areas, we believe that investor expectations are muted, competition is less, and the margin of safety is greater.
In a year where popular large cap growth stocks had more strong performance, we are very pleased to have generated attractive results by “winning differently.” Our results were driven by many of the less popular investments highlighted in the previous paragraph. Like Coach Cignetti – who has confidence in a repeatable process that travels across teams, conferences, and circumstances – we have confidence in a repeatable investment process that travels across different market environments.
Markets, like college football, are constantly evolving. Those who cling to past champions often miss where the next advantage is being built. Our job is not to celebrate what worked yesterday, but to identify where a lack of capital, improving fundamentals, and undemanding valuations are quietly setting the stage for tomorrow’s winners.
Building on the Indiana analogy, the Hoosiers’ emergence also offers a useful framework for thinking about natural resources as a go-forward investment opportunity. Indiana did not rise by outspending traditional powers or chasing splashy headlines. It rose by focusing on fundamentals, discipline, and doing more with less. In much the same way, many natural resource companies have spent the better part of the last decade out of the limelight – starved of capital, ignored by investors, and forced to start prioritizing balance sheet strength and returns instead of growth for growth’s sake. This period of restraint has quietly helped to reshape the sector.
Underinvestment and hard-earned capital discipline are now key differentiators for natural resources. After years of boom-and-bust cycles, management teams have learned that survival – and ultimately success – depends on measured spending, conservative leverage, and returning cash to shareholders. As an example of measured spending, note in the chart below the reduced percentage of S&P 500 capital expenditures coming from the commodity sectors.
More and more natural resource companies are embracing a “do the basics exceptionally well” mindset. The result is an industry with lower break-even costs, healthier free cash flow profiles, and a stronger alignment between management incentives and investor outcomes – all conditions that historically have set the stage for attractive forward returns.
Equally important, natural resources remain underappreciated by the broader investment community. Despite their essential role in global growth, energy security, and the physical build-out required for electrification and infrastructure, natural resources represent only a small fraction of the overall ETF universe. As shown in the chart below, over a decade ago Commodity ETFs were 12% of the overall ETF universe, compared to only 3% currently. Much like Indiana entering the playoff conversation without the pedigree of Alabama or Ohio State, the sector lacks the brand recognition that drives passive inflows – yet that very neglect creates opportunity. Expectations are low, positioning is light, and valuations remain anchored to skepticism rather than optimism.
Indiana’s success is a reminder that leadership changes often occur quietly before they become obvious. By the time the crowd fully acknowledges the shift, much of the advantage is gone. Natural resources share a similar profile today: more disciplined operators, favorable supply-demand dynamics, and minimal investor enthusiasm. For those willing to look forward rather than backward, the parallels are clear. The next leaders are often not the loudest or most celebrated, but the ones best prepared for the environment ahead.
Taken together, the lessons from markets and from college football point to the same conclusion: leadership is rarely permanent, and success is far more cyclical than most fans or investors are willing to admit. Whether it is dominant equity styles, marquee technology stocks, or storied athletic programs, past winners tend to attract capital and confidence long after their best conditions have passed. Forward looking investing requires resisting that instinct – looking beyond reputation and recent performance to identify where fundamentals, discipline, and incentives are quietly improving. Just as Indiana’s rise reflects a shift driven by culture, process, and execution rather than legacy, attractive investment opportunities often emerge outside the most crowded and celebrated areas of the market.
Our current positioning reflects this philosophy. While we continue to have exposure to large-cap growth stocks, we are emphasizing underappreciated areas of the markets, such as non-U.S. equities, emerging market debt, and natural resources. We are aligning portfolios where both fundamentals and valuations are attractive and expectations remain low.
History suggests that the next decade’s leaders will not look like the last, and those willing to recognize that shift early are best positioned to benefit when today’s quiet contenders become tomorrow’s consensus winners.
However, our two IU alumni, Madison Moses and Scott Clancy, are happy to celebrate the team currently in the spotlight...
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