This update provides a summary of market conditions, portfolio positioning, and key changes made in the eSAM Conservative Account over 2024 and the first half of 2025. We focus on maintaining a diversified approach that balances balances capital preservation, through a defensive 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. In July, we modified our Intermediate-Term exposure, trimming our SPDR Portfolio Aggregate Bond ETF allocation by 1% and reallocated 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 1.5% 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%. We made modest adjustments in July 2024, trimming our iShares MSCI USA Quality Factor ETF 1% and reallocated to our SPDR Portfolio S&P 500 ETF, refocusing on core holdings in eSAM. 

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 Conservative and further trimmed iShares MSCI USA Quality Factor ETF 1% and reallocated to core SPDR Portfolio S&P 500 ETF. On the bond side of the portfolio, we added a 9% position in core-plus Fidelity Total Bond ETF and trimmed our core SPDR Aggregate Bond ETF 5% and Vanguard Intermediate-Term Bond ETF 4%, for active management and yield exposure.  

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 selling the remaining 1% of iShares MSCI USA Quality Factor ETF. Further, we sold 50% of 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 Fidelity Total Bond ETF and SPDR Aggregate Bond ETF 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, brought allocations close to or slightly above Neutral targets across account styles by mid-year with market appreciation. We locked in our 15% of Equity Neutral International Target Allocation in late May.

Key Portfolio Adjustments – H1 2025

• Rebalanced in late January 2025, and added a 9% position in core-plus Fidelity Total Bond ETF
• Trimmed our core SPDR Aggregate Bond ETF 5% and Vanguard Intermediate-Term Bond ETF 4%
• Further trimmed iShares MSCI USA Quality Factor ETF 1% and reallocated to core SPDR Portfolio S&P 500 ETF
• Late May, sold Large-Cap Value Schwab US Dividend Equity ETF and replaced it with actively managed Capital Group Dividend Value ETF to pair with a new position in passive index-based SPDR Portfolio S&P 500 Value ETF
• Sold remaining 1% of iShares MSCI USA Quality Factor ETF
• Sold 50% of our index-based SPDR Portfolio S&P 600 Small Cap ETF and reallocated it with actively managed Dimensional US Small Cap ETF
• Bought Back iShares 0–5 Year TIPS Bond ETF (+3%) for inflation and interest rate hedge, modestly reversing our Neutral Bond allocation
• Trimmed our Intermediate Core and Core Plus Bond positions (-3%)
• Locked in Neutral International Target balancing Dimensional International Core Equity Mkt ETF with Vanguard FTSE All-World ex-US ETF (3% each)

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 positioning to balance conservative growth potential with risk management and total return from a bond ballast. Staying invested and disciplined remains essential to capturing long-term returns.

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