2025 Q1 Letter

After two very good years for investors, financial markets began to experience elevated
volatility in the first quarter of 2025. U.S. stocks, which have led global markets for a while now,
were negative for the quarter. Large-cap U.S. stocks, as measured by the S&P 500, declined by
4.6% (excluding dividends) in the quarter, and small-cap stocks (Russell 2000) were down by
almost 10%. The Magnificent Seven (Mag 7), which has been a major driver of both the
economy and equity markets, was down nearly 15% in the quarter, and we began to see a
notable reversal in the relative performance of key sectors within the broader market. In
particular, the technology and consumer discretionary sectors (last year’s relative winners)
were down the most, while defensive sectors like healthcare and consumer staples, along with
energy, were among the leaders. In addition, international stocks (MSCI ACWI Ex USA), which
have lagged U.S. markets dramatically over the past few years, outperformed the S&P 500 by
over nine percentage points through the end of March. In terms of other major asset classes,
bonds (as measured by the Bloomberg Barclays US Agg Bond Index), were up 2.8% in the
quarter, as the 10-year yield declined 34 basis points to 4.23% from 4.57% at the end of 2024,
and cash/money market returns were around 1%.