Dear Valued Investors,
As we close the first quarter of 2025, we are navigating an increasingly complex and dynamic global investment landscape. Trade dynamics are shifting, tariff tensions are mounting, and equity markets are evolving in structure and behavior. These developments—alongside the growing concentration in U.S. equities and rising liquidity abroad—are reshaping the opportunities and risks facing investors today.
Trade Policy and Tariff Headwinds
One of the most significant risks to global growth is the intensifying use of tariffs as a policy tool. Throughout Q1, the U.S. escalated trade barriers, particularly with China and the European Union. What were once viewed as temporary measures have now become structural features of international policy, adding friction to global trade and increasing input costs across supply chains.
These shifts have begun to disrupt multinational operations, forcing a realignment of production and consumption patterns. The result is a drag on global economic expansion and an uptick in inflationary pressures. We continue to closely monitor trade developments, particularly as policy decisions will increasingly shape both investor sentiment and real economic outcomes.
Concentration Risk in the ‘Magnificent 7’
The U.S. equity market remains dominated by a handful of mega-cap technology names—Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta, and Tesla. Collectively known as the “Magnificent 7,” these companies now represent an outsized share of major index performance.
While they have contributed meaningfully to past returns, their heavy weighting in cap-weighted indices poses structural risk. Any meaningful correction among these names can disproportionately impact passive portfolios. In this environment, overexposure can undermine portfolio resilience, particularly as macroeconomic headwinds build.
Rising Liquidity and Opportunity Abroad
In contrast to the more restrictive policy setting in the U.S., international economies—particularly in Asia and Europe—are experiencing rising liquidity supported by accommodative central banks and active fiscal stimulus. This surge in stimulus is beginning to unlock growth potential in regions that have long underperformed.
Years of sluggish growth have left international equities trading at depressed valuations. As fundamentals begin to improve alongside policy support, these markets now present compelling opportunities for investors looking to diversify away from U.S.-centric risks and capitalize on attractive relative valuations.
A Market in Transition: Active vs. Passive
Perhaps the most important development as we entered the second quarter—particularly in the wake of Liberation Day—has been the clear divergence between active and passive investment outcomes.
Passive strategies, heavily tied to the largest names in the market, have struggled under the weight of extreme concentration. In contrast, active strategies have demonstrated resilience, flexibility, and the ability to capitalize on dispersion across asset classes and geographies. Active managers with broad mandates have been able to avoid crowded trades, respond swiftly to changing macro conditions, and identify idiosyncratic opportunities missed by static, rules-based passive allocations.
This has not only driven superior relative performance, but also provided a critical layer of risk management in an increasingly volatile market.
Years of sluggish growth have left international equities trading at depressed valuations. As fundamentals begin to improve alongside policy support, these markets now present compelling opportunities for investors looking to diversify away from U.S.-centric risks and capitalize on attractive relative valuations.
Portfolio Positioning: Navigating an Evolving Landscape
In response to these changes, we have adjusted our portfolio positioning to emphasize balance, flexibility, and diversification. Key adjustments include:
- Rotating Toward International Equities
We have shifted a portion of our equity exposure toward international markets—particularly emerging economies and select developed regions with improving growth prospects and supportive policy environments. These markets offer diversified return drivers and, in many cases, more attractive valuations than their U.S. counterparts. - Enhancing Downside Protection
With heightened volatility and policy uncertainty, we’ve increased our use of volatility hedges and options strategies. These tools help buffer portfolios from sharp equity drawdowns and provide optionality in the face of market stress. - Maintaining High-Quality, Short-Duration Fixed Income
In the face of rising interest rates and potential slowdowns, we continue to favor high-quality bonds with shorter durations. This approach helps manage interest rate sensitivity while preserving liquidity and capital stability. Our fixed income allocation remains diversified across corporates, Treasuries, and municipals.
Looking Ahead
As we progress through the rest of 2025, we expect continued volatility and structural shifts across global markets. The combination of trade frictions, policy divergence, and equity concentration contribute to a more complex investment landscape—one that presents both challenges and potential opportunities for disciplined, long-term investors.
We believe that an active, globally diversified approach—grounded in fundamentals and supported by risk-aware strategies—will be key to navigating what lies ahead.
Thank you for your continued trust. We remain committed to aligning your portfolios with global opportunity while safeguarding against downside risk, always in service of achieving your long-term financial objectives.
Regards,
Austin Graff, CFA
Chief Investment Officer
49 Wealth Management, LLC d/b/a 49 Financial, is an SEC registered investment adviser. Registration with the SEC does not imply a certain level of skill or expertise. All investment advisory activities are performed through 49 Financial. All commissionable product sales are performed through and under the supervision of Oakwood Capital Securities (“Oakwood Capital”). 49 Financial and Oakwood Capital are not affiliated entities. Please visit https://adviserinfo.sec.gov/firm/summary/319484 For additional information regarding 49 Financials’ services, fees, conflicts of interest, and other important information.
The information presented herein is provided for general informational purposes only and does not constitute investment advice, a recommendation to purchase or sell any security, or a solicitation of any kind. The views expressed are those of the CIO as of the date shown and may change in response to market conditions.
