By: Paul Morrone
The headlines move so fast these days that it’s hard to provide any sort of timely information that stays relevant for a meaningful amount of time. It seems just after we draft any sort of communication, another tweet, Fed meeting, or white house briefing comes up that negates the news of the day before. At the risk of this becoming obsolete overnight, we wanted to send a brief update prior to our upcoming event next Wednesday where we will be covering all your questions in greater detail. As we are all aware, 2025 has been a challenging year so far for investors, but fortunately we believe the outcomes (at least thus far) could have been far worse than where we are today. Below is a not-so-brief summary of where we are doing, what’s been working and what hasn’t so far in 2025.
What we’re doing: Not panicking, for one. Which is hard to do when markets are volatile and politically charged opinions work their way into the decision making of many retail traders throughout the country. As professional asset managers, we understand that circumstances can change in an instant and being on the wrong side of a trade can have detrimental long-term consequences for those who are impatient, skittish or emotional with respect to their investment allocations.
We’re fortunate to work with a group of clients who have resisted the urge to blink even when the markets have tested them. This strategy has proved beneficial to those who have stayed the course as there have been many substantial upward market movements within just a couple of hours that could have easily been missed by the person who is too quick to react. Missing out on an 8-10% run could materially alter short-term performance and long-term outcomes and, further complicating matters, is the unanswerable question of when to buy back in after getting out. Inevitably, folks who act more impulsively will succumb to the sell-low, buy-high trade that should be avoided at all costs.
From the start of 2025, we have been implementing certain trades, even before inauguration day in January or Liberation Day in April. These allocation updates have resulted in a reduction in exposure to certain asset classes such as small cap equities (which often bear the brunt of economic uncertainty in terms of short-term performance), long-term treasuries (because we feel there may be less Fed rate cuts than originally planned at the beginning of the year) and reconfigured our fixed income exposure to be more nimble in an environment that is unpredictable to say the least, especially with respect to Fed policy and their interpretation of the impact of the tariffs and trade policy on inflation. Additionally, we recently incorporated exposure to real estate assets into the portfolio, which has proved beneficial during 2025 as losses have been minimal compared to broader domestic equity indices such as the S&P 500.
Volatility also gives us the opportunity to rebalance portfolios back to our long-term target (i.e. 70/30, as an example) and large and swift market movements can make account-level allocations materially different than what we desire them to be. This allows us to sell certain assets that have performed well during volatility and purchase those that have lost more relative value to get things back in line. As part of the rebalancing process we’re also using this opportunity to loss harvest within portfolios. This means we can sell some assets at tax losses and reallocate those funds into securities that we feel are a better long-term hold and may be more consistent with our long-term thesis of how we want to be positioned for the next 12-18 months.
What’s worked so far in 2025: Gold, plain and simple. One of the best performers of 2023 and 2024 continues its hot streak in 2025, notching several new highs this year alone. No doubt this is driven by the age old ‘gold standard’ and safe-haven status often associated with the most famous of the precious metals. We also view gold as a hedge against uncertainty – which we’ve had in spades lately.
We also stand by our other strategies, including allocations to cash, fixed income of all sorts and alternative multi-strategy alternatives exposure. Contrary to the recession in 2022 where virtually all asset classes lost value, 2025 has proved different with diversification working to the benefit of those who have trusted the process. We believe holding these asset classes in 2025 has helped to lessen the blow of the volatile movements in US equities and have helped investors with the sticker shock of looking at their statements.
The real surprise to many has been the outperformance of international equity markets, many of which are solidly in the green for 2025. Notably, developed international markets (represented largely by Western Europe, Japan and Australia) have posted nearly double-digit YTD returns in an environment plagued by trade negotiations, currency fluctuations and central bank policy uncertainty.
What has not worked: For US equities, however, the picture is a little mor grim, with most major domestic indices showing red across the board. Within the US, bright spots have been within the value stocks, which is a contrast to what we’ve seen during most stages of equity bull markets since 2008. Value has relatively outperformed growth so far YTD, driven by strength defensive sectors such as utilities, financials, healthcare and consumer staples. We have held dedicated positions to value stocks and continue to believe in their long-term benefits for portfolio diversification and long-term appreciation.
It’s nearly impossible to sum up what has been a wild 3 months in only a few paragraphs. We hope that these summaries provide insight into what is happening at the portfolio level and how we are reacting, or not reacting, to the ever-changing investment climate in which we operate. We encourage all reading this to attend our upcoming webinar with Eric Parnell, Chief Market Strategist of Great Valley Advisor Group, where we will dissect 2025 in greater detail and give you the opportunity to have your questions addressed in real time.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
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