This update provides a summary of market conditions, portfolio positioning, and key changes made in the Strategic Asset Balanced Account over the first half of 2025. We focus on maintaining a diversified approach that balances equity growth potential with the defensive ballast of fixed income.
2024 Review – ETF Transition & Bond Strategy
2024 marked the first full year of being 100% invested in Exchange Traded Funds (ETFs) for all WAM accounts, completing the transition in June 2023. This shift resulted in significant expense savings for clients, including the elimination of custodial fees. On the bond side, we continued moving toward our Neutral Bond Allocation (10% short-term, 90% intermediate core/core plus) and adjusted positions to restore defensive bond exposure while capturing higher yields.
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%. In July 2024, we reduced small-cap exposure, shifted large-cap value holdings from Schwab US Dividend Equity ETF to Vanguard Value ETF, and increased our core Vanguard Total Stock Market Index ETF position.
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 replaced SPDR Portfolio S&P 400 Mid Cap ETF with Fidelity Enhanced Mid Cap ETF and increased our allocation to Capital Group Core Plus Income ETF for active management and yield opportunities.
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.
Key Portfolio Adjustments – H1 2025
- Added Fidelity Enhanced Mid Cap ETF (replaced SPDR Portfolio S&P 400 Mid Cap ETF)
- Shifted Large-cap value from Schwab US Dividend Equity ETF to Vanguard Value ETF
- Added Capital Group Core Plus Income ETF (+2%)
- Reduced SPDR Portfolio Aggregate Bond ETF and Vanguard Intermediate-Term Bond ETF (-1% each)
- Bought Back iShares 0–5 Year TIPS Bond ETF (+5%) for inflation and interest rate hedge, modestly reversing our Neutral Bond allocation
- Added actively managed Capital Group Dividend Value ETF, replacing remaining Schwab US Dividend Equity ETF position
- Locked in International Neutral Target balancing Dimensional International Core Equity Mkt ETF with Vanguard FTSE All-World ex-US ETF
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 brought allocations close to or slightly above Neutral targets across account styles by mid-year.
Outlook – H2 2025
We expect continued market turbulence driven by tariff negotiations, Federal Reserve interest rate policy, and currency movements. While uncertainty remains elevated, we will maintain diversified positioning to balance growth potential with risk management. Staying invested and disciplined remains essential to capturing long-term returns.
