This update provides a summary of market conditions, portfolio positioning, and key changes made in the conservative eSAM Capital Foundation PLUS Account over 2024 the first half of 2025. We focus on maintaining a diversified approach that balances preservation of capital with a ballast of fixed income and conservative equity growth 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. This process bought back bond ballast defense against stock volatility along with yield exposure from higher interest rates. In July, we modified our Intermediate-Term exposure, trimming our SPDR Portfolio Aggregate Bond ETF allocation by 4% and reallocated 3% to Core-Plus Fidelity Total Bond ETF and 1% to Core Vanguard Intermediate-Term Bond ETF. The Fed remained on pause until September 2024, when it cut interest rates for the first time since early 2020. We sold our remaining 2% position in iShares 0-5 Year TIPS Bond ETF and added it to our Vanguard Intermediate-Term Bond ETF, bringing our Short-Term exposure to our 10% Neutral Bond Allocation (relative), with an emphasis on quality intermediate Core, and Core-Plus Bonds.
Equity Performance & Positioning
U.S. stocks outperformed international peers in 2024, with the Nasdaq and S&P 500 leading double-digit gains. International developed markets, measured by MSCI EAFE, rose just 1.2%.
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 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 market drop, followed by one of the largest single-day rallies in decades on April 9 after a 90-day tariff pause was announced. 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. The April 9th 90-day reciprocal tariff pause rally was 8%-12%+ and by April month-end represented over 80% of the gains in the major US markets indexes. By the end of May about 50%, and by the end of June still over one-third of the gains.
As markets normalized, we made additional portfolio adjustments in late May. We sold our Large-Cap Value position in Schwab US Dividend Equity ETF and replaced it with Capital Group Dividend Value ETF, an actively managed Large-Cap Value ETF to pair with a new position in passive index-based SPDR Portfolio S&P 500 Value ETF. This process included slightly trimming our SPDR Portfolio S&P 500 Index ETF. Further, we sold our index-based SPDR Portfolio S&P 600 Small Cap ETF and reallocated it with actively managed Dimensional US Small Cap ETF. We addressed tariff and rising inflation risks by slightly reversing course on our Neutral Bond Allocation. In late May, we bought back a 5% relative 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. We trimmed our Intermediate Core and Core Plus Bond positions correspondingly, which increased our relative Short-Term exposure from Neutral 10% to 15%.
International Allocation & Currency Impact
A 10.7% drop in the U.S. dollar during the first half of 2025 boosted international equity returns, leading to notable outperformance versus U.S. stocks. Our long-term strategy of gradually increasing international exposure, which began in 2017 and the last in 2023, when Capital Foundation PLUS was launched, brought allocations close to or slightly above Neutral targets across account styles by mid-year with market appreciation and we locked in our 10% of Equity Neutral International Target Allocation in late May.
Key Portfolio Adjustments – H1 2025
- Rebalanced late January 2025
- Late May, bought Back iShares 0–5 Year TIPS Bond ETF (+4%) for inflation and interest rate hedge, modestly reversing our Neutral Bond allocation
- Trimmed our Intermediate Core and Core Plus Bond positions (-4%)
- Sold Schwab US Dividend Equity ETF and Added actively managed Capital Group Dividend Value ETF to pair with new index-based SPDR Portfolio S&P 500 Value ETF
- Trimmed Core S&P 500 Portfolio S&P 500 Index correspondingly
- Sold our index-based SPDR Portfolio S&P 600 Small Cap ETF and reallocated it with actively managed Dimensional US Small Cap ETF
- Locked in Neutral International Target balancing Dimensional International Core Equity Mkt ETF with Vanguard FTSE All-World ex-US ETF (1% each)
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 positioning and risk management to balance capital preservation and total return from a bond ballast with conservative growth potential. Staying invested and disciplined remains essential to capturing long-term returns.
