Q2 2025 Portfolio Overview

July 15, 2025

In the second quarter of 2025, client portfolios experienced notable growth, despite heightened volatility and uncertainty due to tariffs. The global stock market rose meaningfully, and fixed income returns were positive except for long-term Treasuries and long-term municipal bonds. Inflation-sensitive investments were up modestly, while insurance-linked securities rebounded from the previous quarter.

Strategic Portfolio Contributors

• Private Credit continued to outperform the broader fixed income markets. Private credit interest rates remain competitive, with few signs of stress.
• International Equities outperformed U.S. equities. Our multi-factor funds outperformed market-cap-weighted funds in international markets. The U.S. market rebounded sharply from its first-quarter lows.
• Gold Miners and Gold Bullion gained 13.45% and 5.51%, respectively, driven by growing retail investor interest and continued central bank buying.

Portfolio Detractors

• Long-term Treasuries and Municipal Bonds were down as interest rates rose. However, Treasuries still delivered a relatively strong year-to-date return of 3.16%.
• Energy Stocks were down 5.09%, amid concerns over potential oil supply disruptions stemming from Middle East tensions. When those disruptions failed to materialize, oil-related investments declined.

Market Conditions and Global Landscape

Geopolitical chaos that defined much of Q1 has eased for now. The potential for wider conflict involving Iran has shifted to backchannel negotiations. Meanwhile, the war in Ukraine grinds into its third year. A resolution of this conflict would, in our view, be the single most powerful market stimulus for Western countries.

Domestically, the U.S economy remains strong. Unemployment is low, economic growth prospects are solid, despite a decline in the first quarter, and interest rates and monetary policy remain moderately restrictive. Consumer balance sheets are in very good shape overall. Equity markets have performed strongly in Q2 in the U.S. and worldwide. Uncertainty remains regarding tariff policies and the ongoing battle between the Trump administration and the courts to determine the direction of domestic policy.

Fiscal Policy and Long-Term Concerns

The recently enacted One Big Beautiful Bill Act (OBBBA) raised the U.S. debt ceiling. Regardless of the policies outlined, the bill magnifies concerns of our fiscal situation and future prospects for the dollar, inflation, and global standing.

Neither major political party appears ready to address the long-term debt sustainability, instead prioritizing short-term spending. Here are three broad paths to addressing our debt trajectory:

1. Raise taxes
2. Cut spending
3. Print money

Money creation in excess of underlying economic growth leads to inflation – something taxpayers emphatically don’t like. We expect some combination of the three solutions with an emphasis on money printing, which is likely to drive long-term inflation.

Tariffs and Inflation Outlook

Just when the budget crisis was resolved, tariff policy emerged as a source of uncertainty. The administration has extended deadlines and announced near-daily adjustments to tariffs, which have already risen 9% in 2025, and are projected to reach 14% by year-end (Goldman Sachs).

These measures are expected to raise the year-on-year inflation rate by 1%, bringing the estimate to 3.3% by the end of the year. The economic burden is shared: 20% by foreign exporters, 40% by U.S. consumers, and 40% by U.S. businesses. While tariffs function as a one-time event, like throwing sand in the engine of economic growth, their broader impact could hinder global growth if they escalate.

Gold’s Resurgence and Inflation Hedges

Inflation fears and the stability of the U.S. dollar have driven a notable increase in gold and gold mining stock prices, up 26% through the first half of the year. What’s driving this surge? Private investors joined central banks in driving up the price of gold.

A key factor dates back to the early days of the Ukraine invasion, where Western governments froze nearly $300 billion in Russian monetary reserves held at Western institutions. Interest earned on those reserves is now being redirected to support Ukraine’s war effort. This move has prompted governments, oligarchs, and investors to take note and own and hold gold as a reserve asset. It cannot be seized or defaulted on if physically held.

Given these dynamics, our client portfolios maintain relatively small allocations to gold, gold mining, agriculture, metals, water, and energy stocks. These positions serve as inflation hedges, reflecting concerns about unsustainable government debt levels across most Western industrialized nations.

European Equities and a Greek Recovery

While a relatively small portion of our equity portfolios, an opportunistic investment in the Greek stock market has paid off well so far in 2025. This reflects a broader trend across European markets, which have been buoyed by a 10% decline in the U.S. dollar this year. Price increases in these markets have slightly closed the big valuation gap between the U.S. and European markets.

Greece, however, stands out. Starting from a much lower base – still recovering from depressionary conditions after the Great Financial Crisis – its economy and markets have made significant progress.

Banks have been recapitalized, Greek government debt has been upgraded to investment-grade from junk status by all major ratings agencies, and the current administration is widely regarded as one of the most competent in the European Union. This remains an encouraging recovery story that we still believe has additional upside opportunity.

Looking Ahead: Strategic Diversification and Growth

In today’s environment – marked by record highs in the U.S. stock market, home prices, bitcoin prices, U.S. stock market margin debt, and federal debt – portfolio diversification across possible economic outcomes, geographies, and asset classes is critical.

As Versant continues to grow, we are evaluating options to expand our investment reach, providing you with more options for portfolio returns and diversification. This includes prudent opportunities in private investments, such as credit, equity, and real estate. We’re also evaluating innovative investment options that combine investment market exposures with income tax reduction, with the goal of delivering more flexible, tax-aware solutions for our clients.

In Closing

It is a privilege to serve you and your family. As always, we welcome your questions and conversations as we look ahead to a productive finish to the year. Please don’t hesitate to contact your Versant Wealth Advisory Team with any questions you may have.

Sincerely, 

Thomas J. Connelly, CFA, CFP
Chief Investment Officer