2025.Q2 PERFORMANCE
2nd Quarter Recap - Ending Up, After A Wild Ride
As of June 26, 2025
The second quarter of 2025 has been a whirlwind of events that tested resilience across global markets and individual portfolios alike. From geopolitical tensions to evolving trade policies, the challenges were significant, yet they also ushered in new opportunities for adaptation and growth. Amid this backdrop, strategic investment approaches combined with a focus on innovation and stability have been more critical than ever. As we reflect on this tumultuous period, our focus remains steadfastly on navigating these complexities to maintain alignment with long-term financial goals.
As the second quarter of 2025 ends, we thank you for your trust in our firm. Despite global conflicts and new political policies affecting trade and labor, artificial intelligence (“AI”) infrastructure investment remains strong. This quarter’s Client Letter covers the economy, financial markets, portfolio strategy, non-cash charitable donations, and the trend of delayed retirement among Americans.
In the second quarter of 2025, client portfolios generally matched benchmark averages, with most slightly ahead year-to-date. Stocks fluctuated but returned to February levels after the April related tariff plunge. The S&P 500 increased by 8.9% in the second quarter, resulting in a 4.3% rise year-to-date. Meanwhile, the Bloomberg Bond Index gained 0.7% in the second quarter, up 3.5% year-to-date.
The top core portfolio performers were GE Vernova (+66%), Constellation (+58%), Nvidia (+42%), and Netflix (+37%). The worst performers included Oneok (-20%), Apple (-9%), and Vertex (-8%).
Beyond Cash: Strategic Non-Cash Donations to Charities
While cash remains the most common form of charitable giving, many donors are discovering the advantages of contributing non-cash assets. These gifts can offer significant tax benefits, avoid capital gains, and often provide greater value to both the donor and the receiving organization. Here are several impactful non-cash donation options:
1. Appreciated Securities
Donating long-term appreciated stocks allows donors to avoid capital gains taxes while receiving a charitable deduction based on the asset’s fair market value. This strategy is particularly effective for individuals with low-cost-basis investments.
2. Real Estate
Gifts of residential, commercial, or undeveloped real estate can be highly valuable to charities. When properly structured, these donations allow donors to deduct the full fair market value and avoid capital gains tax.
3. Vehicles
Cars, boats, and other vehicles can be donated to qualified nonprofits. The deduction depends on how the charity uses the vehicle, either its sale price or fair market value. The IRS requires specific documentation, especially if the vehicle’s value exceeds $500.00.
4. Life Insurance Policies
Donors can name a charity as the beneficiary of a life insurance policy or transfer ownership of a life insurance policy. A particularly strategic option is a life settlement, where the policy is sold to a third party and the proceeds are donated. This often yields a higher charitable deduction than surrendering the policy for its cash value.
5. Donor-Advised Funds (DAFs)
DAFs allow donors to contribute appreciated assets, receive an immediate tax deduction, and recommend grants to charities over time. They simplify record keeping and offer flexibility in philanthropic planning. Contributions of non-cash assets—such as private stock, real estate, or insurance interests—are generally deductible at fair market value when donated to a public charity.
6. Other Complex Assets
Sophisticated donors may also consider gifts of private equity, restricted stock, cryptocurrency, or oil and gas interests. These require careful planning and often an independent appraisal, but they can unlock significant philanthropic potential while minimizing tax exposure.
If you are considering a charitable gift, we can assist in evaluating the options to achieve your personal goals.
Economic Review & Outlook
The economy significantly influences financial market trends. However, due to the human element in trading, market reactions to economic circumstances can be unpredictable. Consequently, the market and economy often do not correlate in the short to intermediate term but tend to align over the long term.
The overall trend of the economy continues its upward trajectory, as evidenced by the long-term gross domestic product (GDP) growth rate of 2.1%. The historically low unemployment rate of 4.2% supports consumer spending, which accounts for 68% of GDP. Recent political policies have influenced the shorter term economic outlook. In the second half of the year, factors such as tariff rates, reduction in undocumented workers, and reductions in Federal spending may decrease GDP to 1% for 2025, compared to the 2.5% GDP growth in 2024. Forecasts for economic GDP range from 0.5% to 3%. Policies are subject to change, exemplified by President Trump’s announcement of higher tariffs in April and their subsequent reduction a few days later.
Recent inflation reports have been generally positive, though this may soon change. The Consumer Price Index increased by 2.4% from May 2024. Higher prices and limited consumer budgets are reducing demand for some products. Looking ahead, circumstances may vary due to anticipated tariffs in July. Recent tariffs have increased car prices, and the impact on imported goods will become evident soon, with full effects by the fourth quarter. Overall, it is expected that while inflation may not accelerate as feared in the second half of 2025, economic activity may slow more than anticipated.
Financial Market Outlook
The four major asset categories—currencies, commodities, bonds, and stocks—are interconnected, with varying levels of correlation. This year, the U.S. Dollar has declined by 10% as foreign investors shift to other markets, and concerns grow over the expanding U.S. deficit. The weakening U.S. dollar makes imported goods more expensive while making U.S. exports more attractive to foreign buyers. This dynamic affects the remaining three asset categories.
U.S. Dollar Decline in 2025
Commodities generally show a downward trend this year, which is positive for inflation but raises questions about economic growth. Agricultural commodities have decreased, led by orange juice, while livestock commodities such as hogs and cattle have increased. Metals prices have risen, driven mainly by increased demand for gold from hedging investors. Fuel commodities have experienced significant volatility due to the recent Israel-Iran conflict, causing initial oil price surges followed by sharp declines. West Texas crude oil is down approximately 5% year-to-date. There is a bias towards lower prices as supply increases moderately, while demand shows signs of moderation. Specifically, China’s investment in solar and wind energy, coupled with the rapid adoption of electric vehicles, may impact oil demand.
Oil rose & fell even faster as the Israel – Iran conflict concluded.
Gold – Historically a Safe Haven in Times of Turbulence
Given various risks to financial markets and emerging threats, gold remains a reliable safe haven. Outperforming both stocks and bonds, gold has increased by 24% year-to-date. Gold hedges several risks including currency fluctuation and inflation and is also seeing increased demand from central banks.
Gold has been trending higher for over a year.
The primary reason for holding gold in our portfolio is its role as a safe-haven asset. During periods of market volatility or geopolitical tension, investors often flock to gold, driving up its price. This inverse relationship with other asset classes helps balance the portfolio, reducing overall risk. AHIA invests in gold through the SPDR Gold Trust ETF, closely tracking the spot gold price. This ETF has minimal correlation with the S&P 500, making gold an effective hedge and diversification tool. Currently, gold constitutes roughly 5% of most client portfolios.
Turning to the bond market, where nearly half of our clients’ investments reside, the Treasury bond market sets the tone for other segments, including corporate, municipal, and international bonds. Since treasuries are considered “risk-free,” all other segments base their rates on similar maturity.
10 Year Treasury Bond Yield has been relatively Stable in 2025
The 10-year Treasury bond currently yields about 4.3%, offering a reasonable return with minimal default risk. For taxable accounts, municipal bonds are attractive since the interest is tax-free. However, munis have underperformed this year due to several factors. Firstly, there are threats to taxing interest on municipal bonds, although no concrete measures have surfaced, and recent tax bills are still under debate. Secondly, Federal support for state and local governments is being cut, with Medicaid being the most at risk. Thirdly, climate change-related costs have doubled over the past decade, according to Bloomberg analysis. With FEMA defunded, local communities may bear recovery efforts following weather incidents. These issues make muni bonds riskier. Florida Senator Kathleen Passidomo expressed these issues in her recent presentation to the Naples Area Chamber of Commerce members. We mitigate these and other risks by purchasing insured bonds and diversifying across multiple issues to reduce the risk of any single bond issue.
Across client portfolios, we continue to favor a laddered bond strategy, positioning bonds to mature annually in alignment with future estimated cash needs. Laddered maturities held in high-quality bonds provide portfolios with a solid foundation and low risk, enabling us to invest for higher returns in equities or other higher risk opportunities.
In the equity market, wide swings in 2025 have been observed, from nearly a 20% decline in April to a single digit gain in late June. Going forward, further volatility is anticipated as human emotions combined with algorithmic trading amplify small issues into significant market price changes. Technology companies leading the AI ecosystem offer the best growth opportunities, while some heavily depreciated stocks also present potential for appreciation.
Approximately one-third of our individual equity holdings are directly involved in the AI infrastructure build-out, spanning technology, communications, finance, and utilities. AI holdings have largely driven strong equity returns over the past few years, modestly outperforming the S&P 500 so far in 2025.
Beyond AI holdings, from a strategic perspective, we include some stocks with low correlation to the S&P 500, known as low beta stocks. Examples include Garmin, Duke Energy, Progressive Insurance, Sprouts Farms, Motorola Solutions, and CME Group. These stocks tend to perform better during S&P 500 declines, as seen in April this year.
SP500 has been on a wild ride in 2025
Recently, we have invested in several companies meeting traditional criteria of growth, competitive advantages, and good corporate citizenship, though their stock prices have been impacted by political concerns. Yeti is a prime example, with extensive product lines including drinkware, coolers, luggage, beach chairs, and backpacks. Outsourced manufacturing to foreign countries introduces tariff uncertainty. With the stock down over 20% in 2025, we hope the selling pressure has subsided. Investments in Thermo Scientific and HA Sustainable Infrastructure follow similar narratives, presenting opportunities for above-market returns if investor concerns prove overstated.
Barron's Annual Top 25 CEOs Includes Six Key Holdings in Client Accounts
Barron’s magazine annually reviews top CEOs based on their future positioning of their companies, typically reflected in stock performance. This year, six core holdings made the list:
- GE Aerospace, Larry Culp
- JP Morgan, Jamie Dimon
- Nvidia, Jensen Huang
- Microsoft, Satya Nadella
- Garmin, Cliff Pemble
- Netflix, Greg Peters & Ted Sarandos
All these companies have significant competitive advantages, that is a key ingredient in producing above market returns.
Top Equity Holdings:
The equity portion of most client portfolios has been reduced significantly but still account for about half of most client portfolios. We focus on core holdings with a sustainable competitive advantage, growth in sales and earnings, and positive stock price momentum. Although the underlying conditions of the equity market have deteriorated, we have found several compelling companies that are positioned well in various environments:
JP Morgan Chase: As the largest and most diversified bank, JP Morgan benefits from operational synergies and may benefit from lowered reserve requirements.
Microsoft: Microsoft generates dependable, recurring revenue mainly from business customers and leads in AI with its Co-Pilot product.
Netflix: Netflix dominates streaming and is protected from tariffs, showing 30% earnings growth with little risk.
Uber: Uber’s ride-hailing platform benefits from high interest rates and car prices making vehicle ownership less affordable, along with innovation in autonomous vehicles.
Garmin: Garmin continues to grow by expanding from GPS services to boating, automobiles, and aviation despite tariff-related cost increases.
American Superconductor: This small company’s products enhance energy efficiency for renewable energy suppliers and provides products to the U.S. Navy.
Duke Energy: Duke offers reliable energy from multiple sources, paying a stable dividend and showing low volatility compared to the SP500.
Nvidia: Nvidia creates essential chips for AI but faces export controls and competition. They are the outright leader in their industry.
Constellation Energy: Constellation leads in nuclear power production and supports major data centers, benefitting from high barriers to entry in the industry.
EQT: As an environmentally conscious natural gas supplier, EQT focuses on efficiency and debt repayment amid macro-level drivers.
S&P500 Earnings Per Share (EPS) estimates for 2025 and 2026 have declined, suggesting below-average returns for the current year. Earnings revisions are an important factor in predicting stock price moves and a primary factor in our security selection. As the chart below shows, the estimates on the SP500 index have been declining and may decline further should economic conditions weaken. We will be watching the data on earnings revisions when second quarter earnings reports are released beginning with JP Morgan in mid July.
How Financial Technology Is Changing the Way We Pay
Digital transactions are increasing, and the proposed GENIUS Act may allow companies to issue stablecoins tied to the U.S. dollar. Stablecoins are a cryptocurrency pegged to the U.S. dollar, so essentially “digital cash”. Using stable coins could simplify payments and reduce fees. In response, we’ve removed Visa from the portfolio, favoring stocks like Circle (CRCL) and Fiserv (FI) which benefit from this trend.
Companies who process high volume of transactions, such as Walmart and Amazon, could issue their own stablecoin. This would allow customers to use their stablecoin instead of their credit card, which has the effect of cutting out the middleman, Visa and Mastercard.
Why More Americans Are Delaying Retirement:
The Role of Healthcare Costs & Medicare Cuts
In recent years, a growing number of Americans have chosen to delay retirement, driven largely by financial pressures related to healthcare and uncertainty surrounding Medicare and Medicaid.
In January 2025, approximately 22% of Americans aged 65 and older are still participating in the labor force, according to the U.S. Bureau of Labor Statistics (BLS). This rate has increased from a low of 10.8% in 1985, reflecting both economic necessity and personal choice.
One of the primary reasons is the high cost of health insurance for those not yet eligible for Medicare. Retiring before age 65 often means facing steep premiums for private insurance or marketplace plans. In 2025, the average monthly premium for a 60-year-old in Florida purchasing health insurance through the Affordable Care Act (ACA) marketplace is approximately $1,208 without subsidies. This figure may vary slightly depending on the insurer, plan type, and specific location. There’s no wonder why a 2025 Bankrate report revealed that many workers delay retirement to avoid this coverage gap and the associated expenses.
Even after qualifying for Medicare, concerns remain about out-of-pocket costs, especially for services not fully covered, such as dental, vision, and long-term care.
Adding to the anxiety are potential cuts to Medicare benefits. In 2025, proposed changes have raised fears about reduced coverage and increased premiums, prompting many older adults to remain in the workforce longer to maintain employer-sponsored insurance and financial stability.
Beyond healthcare, delaying retirement can also offer financial advantages. Working longer allows individuals to continue contributing to retirement savings and delay claiming Social Security, which can significantly increase monthly benefits. As life expectancy increases and financial pressures mount, more Americans are choosing to work longer to secure a more comfortable retirement.
Thank you for your interest in Andrew Hill Investment Advisors, Inc.
OUR TEAM
Andrew “Andy”
D. W. Hill, CFA
President and
Co-Founder
Jennifer R.
Figurelli, CTFA
Managing Director
and Co-Founder
Elicha D.
Moore
Client Concierge
Representative
Sean
O'Brien
Associate
Portfolio Manager
