Portfolio Management Update Fall 2025

The U.S. economy remains in an expansion phase and a Bull market. Overweight equities in accounts, neutral on Bonds, and underweight in Cash-equivalents. The Federal Reserve’s monetary easing benefits economically sensitive equities, Bonds, and not Cash-equivalents, Expect cash-equivalent yields to decline ahead. Lower rates and yields are expected to support credit growth, drive demand for goods and services, and bolster corporate earnings. On the fiscal side, policy remains stimulative, with lower tax rates for businesses and households secured under the Big Beautiful Bill. Trade agreements are gradually being signed, offering prospects for stronger global growth. Greater certainty around trade policy should lift consumer sentiment, fuel spending and broadening the expansion.

Asset Allocation Strategy

- Equities vs. Bonds: I maintain an overweight in equities relative to bonds and cash-equivalents. Corporate earnings remain resilient, and the probability of Fed easing continues to rise.
- Invest in Cyclicals: Over the next 12 months, I favor economically sensitive sectors while maintaining investment-grade bond exposure for ballast. Cyclical sectors—consumer discretionary, industrials, financials, materials, and technology—tend to outperform from November to April, and I am leaning into this seasonal strength.
- Technology & AI: Lower yields support higher valuations in technology. AI build-out themes provide greater earnings visibility, reflected in portfolio tilts toward AI infrastructure and technology leaders.
- Financials: Supported by deregulation, a steeper yield curve, credit growth, and AI-driven productivity gains.
- Small Caps: Benefiting from easier credit conditions and attractive relative valuations, I am adding exposure to profitable small-cap companies.

Sector Positioning

- Optimistic: Financials, Energy, Communication Services, Information Technology (FactSet). Diversify into Healthcare and Utilities.
- Cautious: Consumer Staples, which carry the highest concentration of Sell ratings.

Health Care

- Long-term drivers remain intact: aging demographics, rising drug demand, and managed care growth.
- Near-term headwinds: U.S. drug price policy uncertainty and UnitedHealth underperformance.
- Valuations are at five-year lows (Morningstar), with FactSet projecting 15% upside by year-end. Emerging markets add further growth tailwinds.

Utilities & Technology Synergy

- Utilities provide income, diversification, and a hedge against tech being overweight.
- Independent utilities powering AI infrastructure are behaving like growth companies, with projected revenue growth of 6.9% vs. 6.6% for the S&P 500, FACTSET.

Financials & Banks

- A steeper yield curve supports bank profitability. Moreover, a downward shift in economic expansion supports credit growth.
- Fed stress tests confirm strong capital positions, enabling buybacks and dividend growth.

Energy

- Held as a long-term inflation hedge and beneficiary of AI-driven energy demand.
- Offers diversification, attractive yields, and upside to oil prices.

Gold as a Strategic Hedge

Gold remains a core portfolio diversifier and hedge against multiple risks.
- Drivers: reserve demand, dollar devaluation hedge, geopolitical uncertainty, fiscal deficits.
- Central bank purchases exceed 1,000 metric tons annually, lifting gold to 18% of global reserves, surpassing the euro as the second-largest reserve asset (State Street Global).

International Diversification

- Valuations: U.S. equities remain premium-priced; international markets offer cheaper entry points.
- Performance: Non-U.S. indexes have outperformed the S&P 500 YTD, aided by a weaker dollar and foreign central bank stimulus.
- International equities are trading off their 20-year lows relative to U.S. stocks, moving in an upward price channel over the last twelve months, with improving earnings growth momentum.

Bond Allocation Update

- Bonds remain a key diversifier with normalized yields offering compelling risk-adjusted returns.
- Positioning: Overweight short-to-intermediate investment grade bonds.
- Underweight long-duration bonds unless recession risks re-emerge.
- Favor investment grade credit with some exposure to non-investment grade given recession risks is low: high-quality CLOs, 1–10 year IG corporates, and U.S. bank loans, which out-yield high yield bonds.

Cash Equivalents

Reducing cash allocations in favor of higher-yielding, low-duration Bank Loan instruments:
- ETFs holding inflation-indexed T-bills
- Investment-grade floating rate notes with minimal duration risk

Disclosures

ASPETUCK is an SEC-registered investment adviser. This material is for educational purposes only and not an offer or solicitation to buy or sell securities. Investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Indexes are unmanaged and cannot be invested in directly.