CIO Letter Q2 2025

Performance

‍

In the second quarter of 2025 the Flagship portfolio advanced 7.45%, net of fees.   The S&P 500 Index, our benchmark, gained 10.94%.  For the first six months of the year our Flagship declined 0.88%, net of fees, while the S&P 500 Index gained 6.20%.

‍

Review

‍

For the first half of this year the portfolios’ returns lagged our benchmark.  Our returns were hurt by our investment in UnitedHealth Group.  The company is the largest health insurance and medical services provider in the nation.  Until very recently the company has had an enviable history of growth and good management.  

‍

Regarding United, it is important to note that the Federal government is deeply involved in the reimbursement of health care in the United States, now paying for many of the insurance and medical services provided by private companies such as United to Medicare recipients.  Over the past few quarters, the Federal government’s reimbursement practices have begun to impair United’s revenue and earnings to the point where, we believe, United’s long-term growth has been impacted adversely.  Because of this uncertainty, we exited the holding in the second quarter.  

‍

In the stock market decline during Liberation Day week, we initiated new holdings in Palo Alto Networks, Chipotle Mexican Grill and Zoetis at favorable valuations.  All three companies are well-established leaders in their respective fields.

‍

Palo Alto is arguably one of the two or three global leaders in cybersecurity – a growth industry judging by all the widely-reported IT security breaches that occur with disconcerting regularity.  Chipotle is a restaurant company in the “fast casual” restaurant” category.  A visit to one of the company’s stores is a testimony to the business’ popularity and its high-quality food offerings.  Zoetis is a leader in developing and distributing animal health medicines.  Its strength in companion animal health is especially noteworthy.   We believe all three have many years of growth ahead of them.

‍

In the quarter, we also profitably exited two holdings, MSCI Inc, a global data services and database company, and Domino’s Pizza, a restaurant company.  Our analyses have led us to conclude that both companies are most likely to grow much less rapidly in the future.  

‍

Prospects

‍

Despite the modest setback in the portfolios in the year-to-date period, the Look-through Earnings of the portfolio continued to grow.   In the first quarter, your portfolio’s earnings increased by over 20%.  We expect that in 2025, all the holdings in your portfolio will grow, some quite notably, such as Nvidia, Broadcom, Palo Alto, and Mastercard.  Over the next half decade, we believe that the earnings power behind your portfolio will grow at about 17.5%, a rate of growth greater than what most analysts expect of the S&P 500 Index.  

‍

While the growth in earnings is paramount to our investment strategy, we can’t ignore the very real intrusions of the macroenvironment. The new administration in Washington has launched many new initiatives domestically and internationally that differ markedly and, in some instances, radically from previous administrations’ policies. These changes have caused both adulation and scorn.  The cacophony has caused shares to swing turbulently.  Our many decades of profitable investment experience demonstrate that resolutely focusing on the growth and quality of the businesses in which we have invested clients’ capital will yield strong results over the long-term.  

‍

Underlying this feverish din, investors should bear in mind that the U.S. economy, corporate profits and job creation continue to grow solidly.  In addition, inflation has collapsed from its nine-percent high of three years ago, although it seems to be stuck at a rate that remains modestly above the Federal Reserve bank’s long-term goal. Lastly, the government’s economic policy seems pro-growth though many question our government’s blustering.

‍

Conclusion

‍

Share prices seem to have regained much of their composure though an echo of the recent bristling volatility may recur in the short term. Volatility creates opportunities both to invest and to profitably harvest and we are intent on taking advantage of such occasions.

‍

My colleagues and I would like to wish you all an enjoyable summer.  Please call or email me at any time.

‍

I look forward to communicating with you in early October.

Thomas M. Valenzuela

Chief Investment Officer

‍

‍

* Performance Disclosures

The returns for the second quarter of 2025 is the performance of an account (“Flagship Portfolio”) that the Firm believes fairly represents the performance of the Stewart Asset Management Team’s (“SAM”) strategy (“Strategy”).  The “net” returns presented are after the deduction of management fees as well as other expenses, including costs associated with brokerage. The returns provided are based on performance of the Flagship Portfolio starting from April 1, 2025 to June 30, 2025. The year to date return stated for 2025 is based on performance of the Flagship Portfolio starting from January 1, 2025, to June 30, 2025.

‍

The annualized returns for a 10-year period from July 1, 2015 to June 30, 2025, net of fees, and the performance for a 5-year period from July 1, 2020, to June 30, 2025, are 14.08% and 13.14%, respectively, net of fees. The annualized returns for a 1-year period from July 1, 2024, to June 30, 2025, net of fees is 1.50 %, net of fees. Annualized returns provided herein are based on performance of the Flagship Portfolio starting from January 1, 2019, to December 31, 2024. Performance returns reflect the average annual rates of return.  Performance from January 1, 2019, to March 14, 2024, reflects SAM’s investment performance as a team at Stewart Asset Management, LLC, which was a period prior to SAM’s move to and continued management of the Strategy at Ingalls & Snyder, LLC (“Ingalls”).  Generally, the Strategy maintains an allocation ranging from 1% to 4% in cash.

‍

Flagship Portfolio represents how SAM generally implements its investment process under normal market conditions.  Past performance is not an indication of future results. The performance of each client’s managed account may differ due to specific investment guidelines, restrictions and time period which the account has been open and under the management of SAM. Accordingly, individual results will vary.  

‍

Additional Disclosures

This Strategy are subject to market risk, which is the possibility that the market values of securities owned in an account will decline. Accordingly, you can lose money investing in this Strategy.  Please be aware that this Strategy may be subject to certain additional risks. In general, equity securities' values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. American Depositary Receipts (ADRs) represent an ownership interest in securities of foreign companies and involve many of the same risks as those associated with direct investment in foreign securities, including currency, political, economic and market risks.

‍

The Strategy may, from time to time, invest in stocks of small- and medium-capitalization companies which entail special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies.  

‍

The Flagship Portfolio has employed the investment strategy in a similar manner to that employed in the SAM’s separately managed accounts (“SMAs”). However, portfolio management decisions made for the Flagship Portfolio may differ.  The holdings and portfolio activity in the Flagship Portfolio may not be representative of some SMAs managed under this Strategy due to differing investment guidelines, client restrictions, and the time period the account was opened and managed by SAM.  

‍

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

‍

Please consider the investment objectives, risks and fees of the Strategy carefully before investing.  

‍

Any third-party data has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy, completeness or timeliness. Third party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data.

‍

Stewart Asset Management is a team at Ingalls & Snyder, LLC.  Ingalls & Snyder, LLC is a SEC registered investment adviser and FINRA member broker dealer. For important information about the investment manager, please refer to Form ADV Part 2 and Form CRS which are located here.

‍