Value Investing Resurgence in Q3 2025: Insights from American Century's Portfolio Shifts

The third quarter of 2025 has marked a pivotal inflection point for value investing, as market dynamics began to shift in favor of undervalued equities after years of growth stock dominance. American Century Investments, a long-standing proponent of disciplined value strategies, has recalibrated its portfolio to capitalize on these emerging trends. This article examines the firm's Q3 2025 portfolio shifts, focusing on sector rotations, strategic outperformance, and the broader implications for investors navigating a rapidly evolving market landscape.

A Tectonic Shift in Market Leadership

According to the 2025 Investment Outlook, the firm observed a "significant rotation in market leadership" during Q3 2025, with non-U.S. and emerging market equities outperforming U.S. stocks. This shift was accompanied by a resurgence in small-cap value stocks, which outpaced large-cap counterparts amid a favorable economic environment. The Russell 2000, a benchmark for small-cap equities, surged 12.02% in the quarter, reflecting renewed investor confidence in smaller, undervalued firms.

While growth stocks-particularly those tied to artificial intelligence-continued to lead the broader market rally, value stocks demonstrated resilience in mid- and small-cap categories. For instance, the American Century Value Fund noted that its industrials sector allocations contributed meaningfully to outperformance, driven by strategic stock selection in companies like Teradyne (TER) and Marsh & McLennan Cos Inc (MMC). This sectoral divergence underscores the importance of diversification across market capitalizations and geographies.

Sector Rotation: From Growth to Value

The firm's Q3 2025 commentary highlighted a deliberate tilt toward sectors historically undervalued but showing signs of stabilization. In the industrials sector, American Century emphasized exposure to firms with strong earnings visibility and operational efficiency. For example, the Mid Cap Value Fund's position in Teradyne, a semiconductor equipment manufacturer, was bolstered by its robust Q3 earnings and optimistic outlook.

Healthcare, a sector that lagged in 2025 due to regulatory headwinds and pricing pressures, also showed early signs of recovery. American Century's healthcare strategy focused on niche subsectors, such as contract research organizations (CROs) and clinical laboratories, which demonstrated resilience in the latter half of the year. Companies like Becton Dickinson and Zimmer Biomet were cited for their adaptive supply chain strategies and improved pricing models, positioning them as value plays in a sector poised for stabilization.

### Contrarian Bets in Energy and Small-Cap Value
Perhaps the most striking aspect of American Century's Q3 2025 portfolio shifts was its contrarian approach to the energy sector. Despite falling oil prices driven by oversupply and economic slowdown forecasts, the firm identified opportunities in small-cap energy stocks with stable cash flows and dividend yields. Crescent Energy and Flowco, for instance, were highlighted for their hedging strategies and production optimization techniques, which insulated them from commodity price volatility. This approach aligns with the firm's broader thesis that high-quality, undervalued assets in cyclical sectors can outperform in a low-interest-rate environment.

Small-cap value stocks also benefited from renewed M&A activity and accommodative monetary policy. The firm's Focused Large Cap Value ETF, which includes holdings like Verizon Communications Inc (VZ) and American Tower Corp (AMT), exemplifies its focus on defensive, cash-generative industries. These positions reflect a strategic pivot toward sectors with durable cash flows, even as growth-oriented technology stocks continued to dominate headlines.

Strategic Implications for Investors

American Century's Q3 2025 portfolio shifts underscore a broader market narrative: the re-emergence of value investing as a viable strategy in a post-growth paradigm. The firm's emphasis on sector rotation-particularly in industrials, healthcare, and energy-demonstrates a nuanced understanding of macroeconomic cycles and investor sentiment. By overweighting small-cap and non-U.S. equities, American Century has positioned itself to capitalize on divergent market leadership while mitigating risks associated with prolonged growth stock dominance.

For investors, the key takeaway is the importance of adaptability. As the firm's 2025 Investment Outlook notes, "diversification across asset classes and regions is critical to navigating shifting market dynamics." This includes not only sectoral diversification but also a willingness to embrace contrarian views in undervalued sectors.

Conclusion

The Q3 2025 portfolio shifts by American Century Investments signal a strategic recalibration toward value stocks, driven by sector rotations and a focus on high-quality, undervalued assets. While growth stocks remain a dominant force, the firm's emphasis on industrials, healthcare, and energy-particularly small-cap and non-U.S. equities-highlights the potential for value investing to reclaim its place in a balanced portfolio. As market conditions continue to evolve, investors would be wise to heed the lessons of American Century's approach: diversification, sectoral agility, and a contrarian mindset.