Repositioning for Growth: Key Sectors and Stocks in Diamond Hill's Q3 2025 Large Cap Strategy

In a macroeconomic landscape marked by trade policy uncertainty, supply chain reconfigurations, and divergent regional performances, Diamond Hill's Q3 2025 Large Cap Strategy has adopted a disciplined approach to value-driven sector rotation. By prioritizing sectors and stocks with strong fundamentals, adaptability to global shifts, and long-term growth potential, the firm is navigating a fragmented world where traditional globalization is giving way to localized resilience. This strategy underscores a clear focus on artificial intelligence (AI), communication services, and emerging markets, while selectively hedging against geopolitical risks through gold exposure and strategic exits in underperforming sectors.

Macroeconomic Tailwinds and Sector Rotation Logic

The firm's sector allocations reflect a nuanced understanding of macroeconomic pressures. Asian markets, particularly China and Japan, have emerged as bright spots, driven by self-sufficiency in critical industries like AI and governance reforms that enhance capital efficiency. Conversely, European markets face headwinds, with Germany's weak export performance and U.S. tariffs on EU goods weighing on industrial and financial sectors according to the Q3 report. Diamond Hill's Q3 report highlights a shift toward technology (13%) and communication services (12%), sectors buoyed by surging demand for advanced manufacturing and computing solutions. This rotation is not merely cyclical but structural, as companies adapt to a less globalized world by reorienting capital expenditures and production strategies.

High-Conviction Stocks: Anchored in Resilience and Innovation

Diamond Hill's portfolio is anchored by high-conviction holdings in companies positioned to benefit from long-term technological and structural trends. Alibaba, for instance, has seen significant stock appreciation due to its continued investments in AI and cloud computing, supported by robust revenue and profit growth. Similarly, TSMC, the leading semiconductor foundry, has capitalized on strong demand for advanced manufacturing tied to AI and high-performance computing according to market analysis. These selections reflect a focus on firms with durable competitive advantages and scalable infrastructure.

The firm has also added measured exposure to gold through Franco-Nevada and Agnico Eagle Mines, viewing these as ballast against rising political uncertainty. Franco-Nevada's recent financial results-$487.7 million in Q3 revenue and a debt-free balance sheet-underscore its appeal as a structurally undervalued play on gold's inflationary tailwinds. Meanwhile, emerging markets have benefited from China's rebound, with Brazil's Itaúsa and South Korea's tech-driven growth serving as key contributors to the portfolio.

Value-Driven Reallocation: Exiting Weakness, Embracing Opportunity

Diamond Hill's value-driven approach is evident in its portfolio adjustments. The firm exited four positions, including two REITs and two healthcare companies, to reallocate capital toward higher-conviction opportunities. This move aligns with a broader strategy of capitalizing on market dislocations and improving fundamentals. For example, Japanese industrials like Sumitomo Densetsu-operating in fast-growing areas such as data centers and semiconductors-were added as undervalued plays on Asia's structural repositioning. Similarly, the firm's exit from underperforming European holdings, such as German bottling company Krones, reflects a recognition of macroeconomic vulnerabilities tied to tariffs and geopolitical risks.

Conclusion: A Strategy for the New Normal

Diamond Hill's Q3 2025 strategy exemplifies a forward-looking approach to value investing in a fragmented world. By emphasizing sectors and stocks with strong fundamentals, adaptability, and long-term growth potential, the firm is positioning itself to thrive amid macroeconomic volatility. The focus on AI, communication services, and emerging markets-coupled with a measured hedge in gold-demonstrates a disciplined, risk-aware framework. As global supply chains and trade policies continue to evolve, such a strategy offers a blueprint for navigating uncertainty while capturing the upside of innovation and structural change.