Members benefitted from strong equity market performance in Q3
A strong equity market rally over the third quarter has led to double-digit growth phase performance over the past year, Isio analysis finds.
The consultancy's analysis of the investment performance and asset allocation of 15 major UK defined contribution (DC) master trust providers found members benefitted from strong equity market performance in Q3, with the better performers having greater exposure to emerging market and small cap equities.
The firm said global equity markets rallied sharply across the three months to the end of September, supported by optimism around AI-led productivity gains, resilient corporate earnings and cooling geopolitical tensions.
It said the S&P 500 reached new highs following an August rate cut from the US Federal Reserve, while the FTSE 100 delivered its strongest quarterly gain since 2022. Emerging markets outperformed developed markets, driven by a weaker US dollar and strong returns from tech-heavy markets.
Market background for the quarter to 30 September 2025
Source: Refinitive, DGF investment managers and Isio calculations
Isio said that, while the rally reinforces the importance of global diversification, the dispersion in performance highlighted the challenge of building portfolios designed for consistent long-term outcomes, rather than chasing short-term market leadership.
Private market progress
The consultant's analysis also found that providers continued to make steady progress toward integrating private market assets into default strategies, aligning with the Mansion House Accord's ambition for DC schemes to broaden their opportunity set.
It said, while overall allocations remain modest, many major providers were working towards a 10% private markets allocation within off-the-shelf defaults by 2030.
Isio said this shift is aimed at unlocking exposure to infrastructure, private equity and real estate, while having the added benefit of reducing reliance on increasingly concentrated public equity markets, particularly mega-cap US technology stocks.
Fixed income positioning
Isio said that how a provider allocates to fixed income has been another big driver. In simple terms, it said exposure to longer duration has been bad, as yields have climbed upwards, and anything spread-based, such as corporate bonds and high yield bonds, has fared better.
In addition, it said that some providers are reviewing their cash allocation as this can act as a drag on performance over the long term.
At-retirement phase
Isio said it was starting to see providers increasingly look at how to diversify in the retirement phase. Illiquid allocations are still relatively rare but starting to build and asset classes that have been more common in defined benefit (asset-backed securities, multi-asset credit and protected equity) are starting to be debated.
Performance to 30 September 2025 in the at-retirement phase
Commenting on the analysis, Isio director Mark Powley said: "This quarter was a reminder of how quickly market leadership can shift, with emerging markets and small caps driving much of the global equity rebound. Default strategies are designed for long-term resilience rather than quarterly winners, but these patterns highlight the value of maintaining genuinely diversified exposure across regions and asset classes.
"At the same time, the resilience shown by more defensive strategies this quarter underlines the role that thoughtful fixed income diversification can play as members approach retirement. With providers also continuing to build out their private markets capabilities and expand inclusive investment options, the direction of travel remains focused firmly on improving outcomes for all DC savers."
