Portfolio update: 1Q2025

I will begin by saying that writing this 1Q2025 update feels slightly awkward given that market sentiment has worsened so badly since the end of the first quarter, less than 10 days ago. Risk assets have been affected adversely (an understatement) by President Trump’s “Liberation Day” tariff announcement after the close last Wednesday.  Never in my investment experience have I seen a president destroy investor sentiment so quickly and deeply.  Like many investors, I am hoping that the tariffs will be dropped, or at least moderated, and that sentiment in risk markets will start to improve in the coming weeks.  But with this administration, there is no guarantee, and the ongoing uncertainty will make the direction of asset prices nearly impossible to predict.  This clearly favours a risk-off approach for “in-and-out” investors.  For long-term investors, although these circumstances are unique, I can only say “been there, done it”, so hang in there as there will be better days ahead. 

My portfolio at the end of the first quarter was slightly more conservative than at the end of last year.  Stocks as a percentage of my portfolio decreased 2%, and cash and equivalents increased 2.5%.  I continued to scale back some equity positions that I thought were expensive, as well as ones that I felt were too exposed to the consumer.  Appreciation in some of my defensive stock positions in the quarter more than offset the decline in prices of my Mag 7 and other technology holdings.  I also continued to carry SPY puts as insurance against a market sell-off, which materialised in the first few days of the new quarter (although they were woefully inadequate given the magnitude of declines).  Overall, my return in the 1Q2025 on a USD basis was 2.9%, compared to a decline in the total return S&P 500 of 4.3% and a gain in the 7-10 year total return UST bond index of 3.9%.  I was pleased with this performance, especially given my exposure to technology shares.  If you want to know more about the market performance in 1Q2025, you can read “First quarter 2025 review of markets”.

My portfolio attributes

Asset class mix

The table below shows the breakdown of my portfolio at the end of 1Q2025, and the direction of travel compared to the end of 2024.

My equity component decreased from 76.9% of my portfolio at the end of 2024 to 74.9% at the end of the first quarter. I also reduced some positions that I thought were expensive, like BRKB and AAPL. I completely exited LULU just before earnings, which proved to be a smart move. Gold appreciated sharply in the first quarter, and my cash position increased from 4.9% of my portfolio at the end of December to 7.3% at the end of March.

Top 10 equity holdings

The table below shows my top 10 equity holdings at the end of the first quarter. The holdings are ranked by percentage of my total portfolio, including alternative investments. The direction of change is vis-à-vis the end of 2024. I also included columns on the right side of the table showing the change in the stock price during the quarter and the forward P/E at the end of the quarter.

As the table illustrates, many of the defensive stocks I own outperformed the Mag 7 stocks in the first quarter, as tech shares were under pressure the entire quarter (and have encountered even more pressure in early April due to tariff effects). At the end of the 1Q25, I owned 23 individual stocks and seven stock ETFs, of which three were geographic ETFs (Europe, Japan and China) and four were sector ETFs (oil, US infrastructure, and two gold ETFs).

I made several changes in my positions in the first quarter. I decreased my holdings of BRKB during the quarter because I thought the stock was running too much given its 4Q earnings and escalating valuation (on a “Berkshire basis”). The majority of share sales during the quarter were related to the delivery of stock pursuant to covered calls. BRKB remains my largest single position, and I added back some of the shares I lost at lower prices during the latter part of March and in early April as the share price declined. I also continued to decrease my holdings of AAPL, because I did not believe the valuation reflected the slow top- and bottom-line growth of the last few quarters. I increased my holdings of V because I like the company and believe it is defensive, although it is expensive. I still retain a healthy exposure to Mag 7 and other technology stocks, which proved to be a drag in the first quarter but has bitten even harder in the early days of the second quarter. Throughout the first quarter, I wrote covered calls to generate ancillary income on positions that I felt were reasonably fully-valued, most – but not all of which (e.g. BRKB) – expired worthless.

Equity sector breakdown

The table below contains a stratification of my equity portfolio by sector, including the 23 individual stocks and four sector-specific ETFs that I own. The geographic ETFs have not been included for obvious reasons. The two gold ETFs I own have been included in the “Materials” sector.

My exposure to the information technology sector declined slightly in the first quarter, although it remains my largest concentration. The decline in percentage of portfolio was mainly caused by declines in the prices of most of the Mag 7 stocks I own, although the nearly 30% appreciation in CSCO shares offset some of these declines. I also reduced significantly my exposure to consumer discretionary stocks during the quarter, continuing on the path I started on in 2024. One notable exit was LULU, a stock I have traditionally liked a lot but one that was facing headwinds due to pressure on consumer spending and increasing competition. Although consumer facing, I decided to maintain my position in AMZN on the basis that it is a global giant and is sufficiently diversified (from a segment perspective) to remain a core holding. Most other sector changes in the first quarter were driven by increases in prices of shares in sectors that benefitted from the rotation out of tech, including sectors that are considered less cyclical and more defensive. Energy stocks also remained relatively firm, and gold (“Materials” sector) benefitted from ongoing price appreciation as investors sought diversification into a traditional safe haven asset.

Macro hedges / “insurance”

At the end of the quarter, I held S&P 500 (SPY) out-of-the-money puts expiring at the end of May, June and July, struck at 570, 575 and 550, respectively. These are positions I have been rolling for several months to provide insurance in case of a market sell-off (which materialised in early April). Of course, this insurance costs money, but my view was that President Trump was creating enough turmoil even before he was inaugurated to convince me to keep this protection. And now I am glad that I did, although it has proven to be less of an offset that I was expecting given the early April declines.

Fixed income holdings (and cash)

My fixed income holdings including cash at the end of the year are summarised in the table below:

Cash increased from 4.9% of my portfolio at the end of December, to 7.3% at the end of March because of sales of stocks during the quarter. 8.6% of my portfolio is in corporate bonds, an area (especially high yield) which is experiencing widening spreads, a trend that has been accelerating in April. My high yield exposure is all “top-of-the-capital-structure” leveraged loan ETFs, although this does not insulate me from overall spread widening as credit spreads widen and concerns about credit more generally increase.

Returns

I have looked at my returns for my combined stock, bond and cash portfolio only (i.e. ignoring alternative investments) for the first quarter. My $ portfolios (US accounts only) had a total return (price change + dividend/interest income) of 2.1% in the first quarter, of which 1.6% was due to net appreciation in values and 0.5% was due to investment income. My £ portfolio had a total return (£) of 4.3% in the first quarter, and 7.7% in US Dollar equivalent as Sterling strengthened during the quarter. The £ portfolio did well because it is primarily invested in UK Gilts and corporate bond ETFs, as well as UK, European, Japanese and Chinese stocks, all of which outperformed US stocks in the first quarter.

What’s ahead

At the end of the last update, I wrote:

“The new Trump Administration will add volatility to US bond and stock markets. We will need to carefully watch how his myriad of economic policies (i.e. tariffs, tax cuts that increase deficits, etc) ultimately affect investor sentiment. Having said this, Mr Trump seems to measure his own performance by the performance of the US stock market, an ongoing positive for investors in stocks in the US.”

Where I have been proven badly wrong is in gauging Mr Trump’s association with the performance of the stock market, a trademark of Trump 1.0. Although valuations moderated throughout most of the first quarter simply because US stocks were so richly valued, Mr Trump’s “Liberation Day” tariff announcement on April 1st rocked sentiment around the world as far as risk assets, and sharply increased the odds of a US and global recession. I suspect that as a result, my portfolio at the end of the second quarter might look quite different than the one I am presenting at the end of the first quarter. I am almost certain it will be smaller.

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