This update provides a summary of market conditions, portfolio positioning, and key changes made in the eSAM Capital Foundation Account over the first half of 2025. We focus on maintaining a diversified approach with the objective to preserve capital, manage interest rate and credit risk, generate interest/dividend income yield, and maximize overall total return potential.
2024 Review & Bond Strategy
From the beginning of 2024, we continued moving toward our Neutral Bond Allocation (10% short-term, 90% intermediate core/core plus) and adjusted positions, like reducing our iShares 0-5 Year TIPS Bond ETF position and adding to Intermediate-Term Core Bond, to restore defensive bond exposure while capturing higher yields. The Fed remained on pause until September 2024, when it cut interest rates for the first time since early 2020. We sold our remaining position in iShares 0-5 Year TIPS Bond ETF and added it to our Vanguard Intermediate-Term Bond ETF and also trimmed SPDR Portfolio Aggregate Bond ETF 1% and also added it to Vanguard Intermediate-Term Bond ETF. This brought our Short-Term exposure to our 10% Neutral Bond Allocation (relative), with an emphasis on quality intermediate Core, and Core-Plus Bonds.
Early 2025 Market Conditions
Following the January inauguration, markets rallied to all-time highs on policy announcements, including the DOGE commission, immigration, and tariff policies. In late January, we rebalanced eSAM Capital Foundation to our current model allocation given changing interest rate and inflation expectation dynamics the bond market.
Q2 Volatility & Recovery
Tariff policy changes in early April triggered a sharp stock market drop, followed by one of the largest single-day rallies in decades on April 9 after a 90-day tariff pause was announced. Bonds initially rose in a flight to quality but succumbed to the volatility and uncertainty, though volatility in bonds paled in comparison. Bonds took a few more days to find their bottom and started to recover. By April month-end, major indexes had recovered most losses, highlighting the importance of staying invested during volatile periods. We remained patient and disciplined during the turmoil, refraining from making changes we had planned for the Second Quarter. That patience and discipline was well-rewarded. The swing from extreme pessimism to relief was one of the quickest and largest in magnitude in modern history and missing even one day was devastating for returns.
As markets normalized, we made additional portfolio adjustments in late May. We addressed tariff and rising inflation risks by slightly reversing course on our Neutral Bond Allocation. In late May, we bought back a 5% weight position in iShares 0-5 Year TIPS Bond ETF, which provides short-term Treasury Inflation Protected Securities to address the inflation risks and being short-term, provides a hedge against rising interest rates. To buy back the 5% position in iShares 0-5 Year TIPS Bond ETF, we trimmed SPDR Portfolio Aggregate Bond ETF 2% and Core-Plus Bond position Fidelity Total Bond ETF 3%. This increased our Short-Term exposure from Neutral 10% to 15%.
As expected, the Fed kept policy interest rates unchanged in the Second Quarter at both FOMC meetings and maintained its 2025 rate-cut projection at two, citing continued uncertainty around tariff policy, raised inflation expectations, and slowing economic growth (though recession risks have moderated), while headline inflation measures remained muted in delay of tariff impact. Interest rates, however, navigated within a range driven by the same factors influencing the Fed’s policy decisions. The benchmark 10-year Treasury Note Yield fluctuated widely in Q2, ranging from 4.10% to 4.59%, but was largely unchanged in Q2 closing at 4.24%. The Bloomberg Aggregate Bond index gained 1.3% in Q2 and ended the First Half up 4.0%.
Key Portfolio Adjustments – H1 2025
- Late January 2025, rebalanced eSAM Capital Foundation in given changing interest rate and inflation expectation dynamics the bond market
- Late May, bought Back iShares 0–5 Year TIPS Bond ETF (+5%) for inflation and interest rate hedge, modestly reversing our Neutral Bond allocation
- Trimmed our Intermediate Core-Plus Bond position Fidelity Total Bond ETF (-3%) and Core SPDR Portfolio Aggregate Bond ETF (-2%) focusing more on higher quality Intermediate Core Bond
The Outlook – H2 2025
While the market’s resilience and speed of recovery have been remarkable, we anticipate continued market choppiness driven by tariff policy negotiations, inflation expectations, Federal Reserve interest rate policy, market valuations, and currency movements. Uncertainty remains elevated; however, we remain cautiously optimistic and will maintain diversified and prudent duration and quality positioning with risk management and a long-term focus on capital preservation and total return. Staying invested and disciplined remains essential to capturing long-term returns.
