In the first quarter of 2025 sources of relative weakness include:
- A leading private equity manager declined after fourth quarter earnings disappointed primarily in their insurance/annuity division. Our estimates for asset monetization also decreased as the macro environment deteriorated. The position was eliminated.
- A cloud-based enterprise automation platform provider underperformed as investors feared that Federal government efficiency efforts would disrupt near-term growth.
- Two semiconductor stocks underperformed as Gen-AI sentiment soured. We have reduced exposure to this thematic.
Gains in the Health Care sector partially offset the above weakness.
The bigger news came after the quarter on April 2nd. President Trump announced a 10% tariff on all imported goods and reciprocal tariffs (as high as 46%) on a country-by-country basis. Additionally, tariffs on Chinese imports were raised to over 100%. Judging by cross-asset market reactions, investors were shocked by the magnitude of the collective actions. Notably, 10-Year Treasury yields increased over 0.5%, counter to this asset’s history as a safe haven in times of turmoil. Needless to say, U.S. equity markets reacted violently to the threat of higher inflation/lower growth presented by potential tariff levels unseen in nearly a century.
Subsequently, the administration has signaled a desire to negotiate, delayed the imposition of reciprocal tariffs, and temporarily granted exemptions (ex. Chinese electronics estimated to be over $800 billion). The S&P 500 rallied close to 10% on the delay of reciprocal tariffs so it is critical to realize that current policy is a moving target and sentiment can quickly change.
We cannot tell you the outcome of this tariff policy or even the next card to turn. Our sense is that the aggressive level of tariffs is likely a part of hardball negotiations tactics, but some portion will be permanent. We also reckon that the stock market’s decline this year factors in at least part of the uncertainty and economic damage. In other words, we need to see how policy evolves.
However, we can share our portfolio management actions. Simply put, we have reduced exposure to the companies we believe are most exposed to economic disruption (semiconductors, retailers, capital markets) and increased concentration in service providers such as pharmaceutical distribution, streaming video and music, and telecommunications.
Although this is a volatile environment, we are confident that our focus on earnings acceleration will reward us as it has done in past cycles.
Sincerely,
Craig B. Steinberg Matt Ward Bob Ruland
Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is intended for informational purposes only. Actual portfolios may vary. Investing in securities carries a risk of loss. There is no assurance that the investment objectives will be achieved or that the strategies employed will be achieved or that the strategies employed will be successful. Past performance is no guarantee of future results. This presentation may contain forward looking statements or projections relating to future events or future performance. Such statements and projections are subject to a variety of risks, uncertainties and other factors, such as economic, political, and public health, that could cause actual events or results to differ materially from those anticipated in this presentation.
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In the first quarter of 2025 sources of relative weakness include:
Gains in the Health Care sector partially offset the above weakness.
The bigger news came after the quarter on April 2nd. President Trump announced a 10% tariff on all imported goods and reciprocal tariffs (as high as 46%) on a country-by-country basis. Additionally, tariffs on Chinese imports were raised to over 100%. Judging by cross-asset market reactions, investors were shocked by the magnitude of the collective actions. Notably, 10-Year Treasury yields increased over 0.5%, counter to this asset’s history as a safe haven in times of turmoil. Needless to say, U.S. equity markets reacted violently to the threat of higher inflation/lower growth presented by potential tariff levels unseen in nearly a century.
Subsequently, the administration has signaled a desire to negotiate, delayed the imposition of reciprocal tariffs, and temporarily granted exemptions (ex. Chinese electronics estimated to be over $800 billion). The S&P 500 rallied close to 10% on the delay of reciprocal tariffs so it is critical to realize that current policy is a moving target and sentiment can quickly change.
We cannot tell you the outcome of this tariff policy or even the next card to turn. Our sense is that the aggressive level of tariffs is likely a part of hardball negotiations tactics, but some portion will be permanent. We also reckon that the stock market’s decline this year factors in at least part of the uncertainty and economic damage. In other words, we need to see how policy evolves.
However, we can share our portfolio management actions. Simply put, we have reduced exposure to the companies we believe are most exposed to economic disruption (semiconductors, retailers, capital markets) and increased concentration in service providers such as pharmaceutical distribution, streaming video and music, and telecommunications.
Although this is a volatile environment, we are confident that our focus on earnings acceleration will reward us as it has done in past cycles.
Sincerely,
Craig B. Steinberg Matt Ward Bob Ruland
Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is intended for informational purposes only. Actual portfolios may vary. Investing in securities carries a risk of loss. There is no assurance that the investment objectives will be achieved or that the strategies employed will be achieved or that the strategies employed will be successful. Past performance is no guarantee of future results. This presentation may contain forward looking statements or projections relating to future events or future performance. Such statements and projections are subject to a variety of risks, uncertainties and other factors, such as economic, political, and public health, that could cause actual events or results to differ materially from those anticipated in this presentation.
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