Portfolio Management Update Summer 2025

I view the stock market in a Bull market and the economy in an expansion phase, showing signs of softening activity. Federal Reserve (Fed) monetary easing should help arrest this slowdown. A rebound in housing activity, coupled with stable full employment, is likely to support credit growth, drive sales of goods and services, and bolster corporate profits. On the fiscal front, policy remains stimulative, with lower tax rates for businesses and households secured by the passage of the Big Beautiful Bill.

Avoiding a trade war would accelerate growth, with only a one-time price increase in select imported goods. I anticipate the impact of tariffs will fade. Greater certainty around tariffs should lift consumer sentiment, which would fuel increased spending and broader economic expansion.

Asset Allocation Strategy

I maintain an overweight position in equities relative to bonds. The probability of Fed easing continues to rise, and corporate earnings have proven resilient in an environment transitioning from uncertainty to clarity. Over the next 12 months, I favor economically sensitive sectors while maintaining investment grade bond exposure for portfolio ballast to dampen market volatility.

As the economic cycle reaccelerates, I’m constructive on both equities and commodities—particularly energy, copper, and gold. I am overweighting cyclical sectors demonstrating superior earnings growth versus defensive sectors. I continue to favor the “MAG 7” stocks, which remain at the forefront of the AI revolution. These companies consistently generate higher sales growth, free cash flow, and profit margins compared to the broader S&P 500. In a moderating interest rate environment, premium valuations are justified given their superior performance. On the other hand, there is “value” to be found in other parts of the market such as housing and healthcare that I am nibbling at.

Technology stocks, both AI providers and users, are poised for margin expansion and output gains. The sector tends to outperform as market multiples and valuations rise during a cyclical bull market. I remain committed to investing in reasonably priced growth stocks regardless of current valuations.

Sector Positioning

Analysts are most optimistic about Energy, Communication Services, and Information Technology sectors. In contrast, Consumer Staples carries the highest concentration of Sell ratings per FactSet data.

Health Care Outlook

Though Health Care has lagged, it continues to benefit from robust long-term drivers: an aging global population, increased demand for managed care, and rising drug consumption. Current sector headwinds stem from policy uncertainties, including efforts to reduce U.S. drug prices. UnitedHealth’s, the nation’s largest managed care provider, underperformance has also weighed on sector returns.

Morningstar analysts note that Health Care stocks are trading at their cheapest valuations in over five years. With improving fundamentals and solid cash flow, the sector offers attractive entry points. FactSet projects a 15% price increase by year-end. Additionally, emerging markets are seeing accelerated growth in healthcare spending, adding further tailwinds.

Utilities & Technology Synergy

Utilities offer attractive income opportunities, some price appreciation potential. and serve as a hedge against my overweight tech allocation. Independent utilities, especially those powering AI infrastructure, are behaving more like growth companies than traditional regulated entities. The sector is projected to grow revenue at 6.53%—surpassing the S&P 500’s projected 5% growth, per FactSet. Wall Street analysts forecast a 3% sector gain versus a 7.7% S&P 500 increase.

Financials & Bank Resilience

I remain positive on Financials. A steepening yield curve supports bank profits, while lower interest rates stimulate mortgage activity. The Fed’s stress tests reveal strong capital positions, which should allow banks to reduce reserves and return capital to shareholders through buybacks and higher dividends.

Energy Allocation

I continue to hold Energy stocks as a long-term hedge against inflation and to benefit from the growing energy demand driven by AI expansion. Energy stocks offer diversification, attractive yields, and tend to perform independently from broader market movements. They also provide upside exposure to rising oil prices and serve as effective inflation hedges.

Gold as a Strategic Hedge

Gold remains a key portfolio diversifier and a hedge against multiple economic risks. It has reached record highs in 2025, driven by:

- Strong reserve demand
- A hedge against dollar devaluation
- Geopolitical and economic uncertainty
- Expanding money supply and fiscal deficits

Central bank purchases, especially outside the OECD, have surged past 1,000 metric tons annually. Gold now accounts for 18% of global official reserves—up from an 11% average between 2014–2023—and has surpassed the Euro as the second-largest reserve asset according to State Street Global.

International Diversification

I am adding to underweight foreign equity position. While U.S. equities have faced volatility in 2025, international markets have outperformed and delivered solid diversification benefits. As of June 30, non-U.S. equities, as measured by the iShares MSCI ACWI ex US ETF (USD), returned 18.5% versus the S&P 500’s 6% return. A weaker dollar and robust foreign central bank stimulus support sustained investment flows into developed markets. Lower valuations abroad suggest further upside potential relative to U.S. equities.

Bond Allocation Update

Bonds still play an important diversifying role. With yields normalized, bonds now offer compelling, risk-adjusted returns. Monetary easing, particularly a pause in rate cuts not followed by hikes, creates a favorable environment for both bonds and equities. Longer maturities beyond Treasury bills offer higher income and some potential price appreciation. However, fewer expected rate cuts ahead, due to a healthy economy and moderating inflation, limit the upside for long-duration bonds. Tariff revenue—adding $22 billion/month to the Treasury—helps reduce the deficit, which is positive for bond markets.

I favor overweighting investment grade short-to-intermediate-term bonds and underweighting long-duration exposure unless recession risks re-emerge. These segments offer balance against inflation and better performance during mild economic expansions.

Cash Equivalents

Until rates begin to decline, cash equivalents pay a real yield that is attractive. Portfolio allocations include:

- ETFs holding inflation-indexed Treasury Bills
- Investment-grade floating rate notes with minimal duration risk (0.02)