This Mid-Year 2026 update provides a summary of portfolio positioning, market conditions, and key changes made in the eSAM Aggressive account over the first half of 2026. We prioritize diversification and disciplined risk management while keeping a long-term focus on capital appreciation with corresponding high volatility and risk potential.

2026 Mid-Year Review 

Financial markets demonstrated remarkable resilience during the second quarter, with performance broadening beyond a handful of large technology companies. Major U.S. indexes reached multiple all-time highs throughout the quarter as investors looked past geopolitical uncertainty and focused on resilient economic conditions and strong corporate earnings expectations.

The first quarter of 2026 was dominated by the beginning of the US-Iran war in early March, which escalated market volatility along with oil prices and inflation expectations. The second quarter of 2026, however, reinforced a familiar theme: resilience. Despite elevated inflation, higher energy prices, geopolitical uncertainty surrounding the U.S.-Iran war, and shifting expectations for Federal Reserve policy, financial markets continued to advance fueled by strong corporate earnings.

Fixed-income markets experienced a challenging environment as well. While the Bloomberg U.S. Aggregate Bond Index posted a modest 0.7% gain during the quarter to finish mid-year up 0.62%, interest rates moved higher as inflation remained stubborn and investors adjusted expectations for Federal Reserve policy. At his first Federal Open Market Committee meeting, which the Fed holding policy rates steady as expected, Federal Reserve Chair Kevin Warsh emphasized the Fed's commitment to restoring inflation to its 2% target, leading markets to price in the possibility of at least one rate increase before year-end.

The third quarter began with continued momentum in early July, but markets became more cautious as concerns surrounding the fragile U.S.-Iran ceasefire resurfaced and interest rates moved higher. US and international stocks finished July with mixed results, and bonds dipped 1.3% and slightly into negative territory YTD down 0.7%. However, August has brought cooler than expected inflation reports, as well as moderating labor and economic data, which reduced Fed rate hike expectations.  Coupled with strong corporate earnings, stocks surged to new all-time highs, while bonds yields have moderated around recent highs, particularly at the long-end, as energy prices remain elevated amid tenuous progress surrounding the US-Iran war resolution, and rising US debt level concerns.  

Equity Positioning

We began 2026 with valuation concerns following a strong but tumultuous 2025, which saw a v-shaped recovery from the tariff turmoil in the spring setting multiple all-time highs along the way. In mid-January, we reintroduced a global minimum volatility position, iShares MSCI Global Min Vol Factor ETF – ACWV (4.0%),  as a risk damper, trimming from both US and international stocks. Additionally, we restructured our International Allocation similar to our WAM portfolios. However, eSAM is all passive International due to our 0.10% expense constraints. To maintain the same allocation as WAM we trimmed our passive Developed SPDR® Portfolio Developed World ex-US ETF– SPDW and bought iShares Core MSCI Emerging Markets ETF– IEMG, which very inexpensive at 0.09%. Developed International is about 70% of the World Ex-US Market and 30% Emerging Markets, as represented by MSCI ACWI and in our Passive Vanguard FTSE All-World ex-US Index ETF - VEU; this accomplished about 80% of our target and we have further adjustments to make going forward. While international stocks outperformed U.S. stocks in 2025, with a healthy tailwind from a weak US dollar, U.S. stocks have largely outperformed developed international in 2026 even amid volatility. However, emerging markets have remained among the top performing asset classes ending Mid-Year 6-30-26. We rebalanced in mid-May following strong record setting gains from the March lows.

In June, we made a significant change to our eSAM accounts, to further tighten the Mid-Cap and Small-Cap allocations to our WAM accounts. This is the culmination of over two years of research and analysis with our core investment partners Vanguard, Dimensional, Fidelity, JPMorgan, and State Street. We have been addressing a persistent challenge with one of our core positions since eSAM’s inception in 2016 being SPDR Portfolio S&P 400 Mid-Cap ETF – SPMD. While the S&P 400 is the most widely recognized benchmark for Mid-Cap stocks, through the lens of Morningstar it has had a growing and consistent small-cap blend profile (currently 68% and in the MS Small Cap Blend category). This has raised our overall small-cap exposure in eSAM above our neutral 10% weight and even beyond our intentional modest overweight.

We solved this issue January 2025 in our WAM accounts when we exchanged SPMD to the actively managed Fidelity Mid-Cap ETF – FMDE. We’ve been working with our partners above on our eSAM accounts since. There were additional things we weighed in the decision process like consistency in index sourcing (S&P, CRSP, Russell) from small to large market cap. Ultimately, we exchanged SPMD for Vanguard Mid Cap Index ETF – VO (now Vanguard Morningstar Mid Cap Index, following Morningstar's purchase of CRSP Indexes (Center for Research in Security Prices), achieving our goal of concentrated Mid-Cap exposure from our Mid-Cap position. Vanguard Morningstar Mid-Cap Index ETF – VO is 88% mid-cap, 0% small-cap, and 12% large-cap. VO tracks the CRSP US Mid-Cap Index, now Morningstar US Mid-Cap Index. The Morningstar Index Series is same index series used in the Vanguard Morningstar Total Stock Market Index ETF – VTI, which is the core equity index sleave in WAM. However, it was not $-for-$. It was a surgical procedure in this reallocation, because we had to buy back some of the lost small-cap exposure from SPMD, increasing our positions in Dimensional US Small-Cap ETF – DFAS and SPDR Portfolio S&P 600 Small-Cap ETF - SPSM. There we some minor adjustments to SPDR Portfolio S&P 500 - SPYM, S&P 500 Growth - SPYG, and S&P 500 Value – SPYV in the eSAM Aggressive accounts detailed below, to again tighten our core market-cap allocation weightings closer to WAM. Each of the eSAM accounts were fully rebalanced, so some of the accounts with bond exposure had some adjustments as well.

Key Portfolio Adjustments – H1 2026

• Mid-January 2026, we reintroduced a global minimum volatility position in eSAM Aggressive adding iShares MSCI Global Minimum Volatility Factor ETF – ACWV  (+4.0%) to reduce risk with lower global stock volatility, and trimmed from US and international stocks. 
• Also Mid-January, we restructured our International allocation so eSAM Aggressive International pairs more closely with our WAM International allocation. We trimmed Developed SPDR® Portfolio Developed World ex-US ETF– SPDW (-3%) and bought passive iShares Core MSCI Emerging Markets ETF– IEMG (+3.0%)
• Mid-May, given the sharp rebound in April and May from the March decline and volatility, we rebalanced our eSAM Aggressive accounts
• At the end of June, we restructured our Mid-Cap allocation to pair more closely with our WAM portfolios; Sold SPDR Portfolio S&P 400 Mid-Cap ETF – SPMD (17.6%), Bought 10.80% Vanguard Morningstar Mid Cap Index ETF – VO, Added 2.3% to Dimensional US Small-Cap ETF – DFAS,  added 3.3% to SPDR Portfolio S&P 600 Small-Cap ETF – SPSM, added 1.0% to SPDR Portfolio S&P 500 ETF - SPYM, added 0.1% to S&P 500 Growth ETF - SPYG, and added 0.1% to S&P 500 Value ETF – SPYV, Rebalanced

The Outlook – H2 2026

We remain cautiously optimistic about the second half of 2026 while recognizing that uncertainty remains elevated, mid-term elections loom in early November, and the macroeconomic environment is becoming increasingly complex. Strong corporate earnings continue to support and drive the market, while resolution to the turmoil in the Middle East remains promising. Market leadership broadened significantly in Q2, and a well-diversified portfolio remains one of the most effective ways to navigate changing market conditions and manage risk across a variety of economic and investment environments. Periods of market volatility are a normal part of investing and, for disciplined long-term investors, often create attractive opportunities.

Portfolio diversification, discipline, risk management, and a long-term focus will continue to drive our eSAM Aggressive accounts for the remainder of the year and into 2027. 

Special Note for eSAM Aggressive Taxable Accounts:

On January 16, 2026, when we added iShares MSCI Global Minimum Volatility Factor ETF – ACWV and added iShares Core MSCI Emerging Markets ETF– IEMG, we trimmed SPDR® Portfolio S&P 500 ETF- SPYM 2.0%, as well as SPDR® Portfolio S&P 400 Mid Cap ETF - SPMD, SPDR® Portfolio S&P 500 Value ETF - SPYV, SPDR® Portfolio S&P 600 Small Cap ETF - SPSM, and Vanguard FTSE All-World ex-US Index ETF - VEU.  October 31, 2025, SPDR® Portfolio S&P 500 ETF- SPYM underwent a ticker symbol change from SPLG to SPYM. Using Schwab's iRebal platform for our trading, there was an unknown glitch in our iRebal eSAM Aggressive model portfolio allocation, and iRebal errantly processed Sell All shares of SPYM (SPLG) and instantly purchased the Net trimmed allocation number of shares to complete the rebalance trade to target allocations. The sell and buy prices were exactly the same and there was no negative financial loss nor a positive financial gain to clients with the transaction. However, taxable eSAM accounts booked both long-term and short-term capital gains on the gross All Shares sale. Trade reviews the following day showed the expected allocation percentage targets and appeared normal. However, the allocation percentage targets did not reveal the entire trade process. This oversight error was not discovered until April 2026 when researching proposed allocation changes for potential capital gains exposure in our eSAM accounts with stock exposure. Stunned by the realized capital gains in eSAM Aggressive beyond expectations, we immediately contacted Schwab's Trade Desk and ultimately their cost-basis team to determine the cause and to correct the trades. Following extensive research and discussions for a solution, we determined that all eSAM Aggressive taxable accounts needed to have their cost basis corrected by Schwab so only the intended 2% Net Trim shares were realized for applicable long-term and short-term gains for each account. The corrections were made by the Schwab Cost-Basis Team May 13 and all taxable eSAM accounts will get 2026 1099s for the correct realized capital gains. Given there was no negative or positive trade results for qualified accounts (IRAs, Roth IRAs, 401(k)s, etc.) and no reportable distributions from the trades, we left those accounts as completed. Nominal SEC and FINRA Sell Transaction Fees (cents not dollars) were charged to the Client on the total Sell All transaction, at stated rates in our Management Agreement. ETF ticker symbol changes are very uncommon. The unintended Sell All and Net Repurchase of the intended trim allocation shares results of the iRebal trades for eSAM Aggressive surrounding SPYM and SPLG could not be determined by Nelson Securities or the Schwab iRebal Team. The other eSAM objectives with the same trades (Capital Foundation PLUS, Conservative, Moderate, Moderate-Aggressive) were executed exactly as intended and had no impact with the ticker symbol change. Regardless, we apologize for any confusion and if you have further questions, please call your Nelson Advisor. 

All eSAM Managed Account Objectives are driven by risk-based models with specific diversified asset allocations. Investing in Exchange Traded Funds (ETFs) have historically required whole-share purchases; using Schwab's iRebal platform to manage our portfolios, we strive to be as precise as possible to hit our target allocations; however, each account varies in size and positions may vary slightly from our model portfolios. We are excited that effective August 4, 2026, Schwab's iRebal executes fractional share purchases, which will provide more precise model portfolio allocations, less cash drag, and keep portfolios more closely aligned to our model targets and further benefit our clients.   

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