Model Portfolios Post Good Start to 2025, Now What?
Relative to the S&P 500 the four model portfolios managed by Solyco Wealth started 2025 with attractive returns. However, early April 2025 tariff-related asset market disruptions laid waste to returns in a matter of just a few days. Thus, more important than past actions were our model portfolio adjustments made in response to equity market upheaval. Specifically, our actions in our model portfolios and, thus, client accounts included:
- Significant booking of tax losses both to position for the inevitable rebound as well as to add end-of-year flexibility;
- Active upgrading of positions to market leaders in anticipation of these companies being the earliest recipients of rebound investment capital; and
- Dynamic gains harvesting in efforts to rotate into beaten-down holdings with higher potential upsides while also sheltering those gains from prospective ongoing market declines.
Also of note are the actions we chose not to take, including:
- Reducing the >10% average cash holdings across our model portfolios and client accounts;
- Deploying any new investment capital toward greater equity exposure; and
- Drawing down the >10% average short-term fixed income exposure maintained in the models and investment accounts we manage.
Given the rapidity, breadth, and magnitude, of the decline in equity prices, we will remain perfectly comfortable waiting for others to search for and determine a “bottom.” Rather than participate in this bottom-fishing, we hope to be content deploying available liquidity into an upswing once others complete the difficult and painful work of defining “the bottom.”
At the end of this note we include full information on our Model Portfolio holdings and weightings.
For Any Who Still Care:
Source: FactSet and Solyco Wealth
We present each of the return figures above net of out respective management fee: 0.25% for 1Q25, 1.-0% for the last 12 months, 3% for the past three years, and 3.61% since our 9/8/21 inception. For 1Q25, the inverse relationship between returns and risk profile correlates perfectly, as one would forecast for declining equity markets with Conservative posting a +0.47% return for the quarter by virtue of its much higher weighting to cash and fixed income (a combined 70%) vis-à-vis the Aggressive model’s 80% equity weighting.
The following table, which compares performances for Solyco Wealth Model Portfolios with those of their respective benchmarks offers further granularity for parsing out differential return drivers in 1Q25 and for longer time periods. Whereas recent returns suffered vs. those of the benchmarks from an underweight to international equities, substantially greater long-term outperformance illustrates the superiority of being significantly overweight domestic equities. Notably, the top-performing holding for each of our portfolios in 1Q25 was Brazilian bank Itau Unibanco (ITUB), which generated a 28.3% return last quarter.
Conservative benchmark = total returns for 10.0% iShares Russell 3000 ETF (IWV), 65.0% iShares Core US Aggregate Bond ETF (AGG), and 10.0% MSCI ACWI ex-US ETF (ACWX), and 15.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
Moderate benchmark = total returns for 22.5% iShares Russell 3000 ETF (IWV), 45.0% iShares Core US Aggregate Bond ETF (AGG), and 22.5% MSCI ACWI ex-US ETF (ACWX), and 10.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
Moderately Aggressive benchmark = total returns for 32.5% iShares Russell 3000 ETF (IWV), 25.0% iShares Core US Aggregate Bond ETF (AGG), and 32.5% MSCI ACWI ex-US ETF (ACWX), and 10.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
Aggregate benchmark = total returns for 45% iShares Russell 3000 ETF (IWV), 5.0% iShares Core US Aggregate Bond ETF (AGG), 45% MSCI ACWI ex-US ETF (ACWX), and 5.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
All data is as of 3/31/2025. Since inception includes performance from September 8, 2021.
Source: FactSet and Solyco Wealth
The left-hand graph below presents the degree to which our models consistently outperformed their benchmarks across time periods beyond last quarter. The graph to the right below relays model performances vis-à-vis that of the S&P 500, which understandably correlates closely with the equity weightings for the portfolios versus the 100% equity-weighted equity index.
Aggressive Model Portfolio
The Solyco Wealth Aggressive Model Portfolio generated an after-fee, -1.95% total return for 1Q25, lagging its benchmark by 277 basis points (2.77%) but outperforming the S&P 500 by almost the same amount: 2.33%. Since inception Aggressive outpaced the S&P 500 by 597 basis points (bps) and its benchmark by a much wider 22.41%.
The above table reflects a 1% annual management fee, equivalent to 0.25% for 1Q25 and 3.6% since the 9/8/21 inception of Solyco Wealth’s model portfolios.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Aggregate benchmark = total returns for 45% iShares Russell 3000 ETF (IWV), 5.0% iShares Core US Aggregate Bond ETF (AGG), 45% MSCI ACWI ex-US ETF (ACWX), and 5.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
The following stocks drive Aggressive’s upside in 1Q25:
- Itau Unibanco [(ITUB), +28.3%]
- FMC Corp. [(FMC), +19.9%]
- Dollar General [(DG), +16.9%]
- Medtronic [(MDT), +13.4%]
- Eastman Chemical [(EMN), +11.5%]
Notably, we swapped EMN shares for those of FMC intra-quarter, illustrating the value of aggressive, active management. Dollar General defines one of the companies in which we booked a gain in early 2Q25 in order to rotate into a company for which we estimate greater future upside: Target (TGT).
The greatest detractors to 1Q25 performance for the Aggressive Model Portfolio were:
- Block [(XYZ), -36.1%]
- American Eagle Outfitters [(AEO), -29.8%]
- DLocal [(DLO), -25.9%]
- MongoDB [(MDB), -24.7%]
- Alphabet [(GOOGL), -18.5%]
Subsequent to end-1Q25, we swapped shares of XYZ, AEO, and MDB, for shares of Apple (AAPL), Restoration Hardware (RH), and Snowflake (SNOW).
Moderately Aggressive Model Portfolio
With a -0.38% return for 1Q25, net of the 0.25% management fee, our Moderately Aggressive Model Portfolio performance exceeded the performance of the S&P 500 by 3.9% while coming up 1.65% short of its benchmark’s performance. Despite a significantly more conservative asset allocation (35% cash and debt), ModAgg lags the S&P 500 since its inception by only 0.66%, not of its 3.6% management fee for that time period.
The above table reflects a 1% annual management fee, equivalent to 0.25% for 1Q25 and 3.6% since the 9/8/21 inception of Solyco Wealth’s model portfolios.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Moderately Aggressive benchmark = total returns for 32.5% iShares Russell 3000 ETF (IWV), 25.0% iShares Core US Aggregate Bond ETF (AGG), and 32.5% MSCI ACWI ex-US ETF (ACWX), and 10.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
For Moderately Aggressive the following positions drove 1Q25 upside performance:
- Itau Unibanco [(ITUB), +28.3%]
- FMC Corp. [(FMC), +19.9%]
- Dollar General [(DG), +16.9%]
- MercadoLibre [(MELI), +14.7%]
- Eastman Chemical [(EMN), +11.5%]
In terms of net contribution, Vanguard Short-Term Corporate Bond Exchange Traded Fund (VCSH) generated the 3rd-highest impact, +0.36%, on ModAgg due to its 20% weighting in the portfolio last quarter. Just as in our Aggressive Model, we swapped EMN shares for those of FMC intra-quarter. We also moved out of Dollar General and into Target (TGT) early in 2Q25.
The greatest detractors to 1Q25 performance for the Aggressive Model Portfolio were:
- Block [(XYZ), -36.1%]
- MongoDB [(MDB), -24.7%]
- Alphabet [(GOOGL), -18.5%]
- Burlington Stores [(BURL), -16.4%]
- Advanced Micro Devices [(AMD), -14.9%]
We exchanged XYZ, MDB, and AMD shares just after end-1Q25 for same-size positions in Dell (DELL), Snowflake (SNOW), and NVIDIA (NVDA).
Moderate Model Portfolio
As our Moderate Model Portfolio carries a 45% fixed income weighting and a 10% tactical cash position, it performed much better in 1Q25 than the 100% equity-levered S&P 500: -0.37% vs. -4.28%. Since inception, however, equities obviously win out as Moderate lagged the index by 1,562 basis points, as shown in the bottom-right cell of the following table. Moderate remains a comfortable 899 basis points, or 8.99%, ahead of its benchmark since inception, though, again net of our 3.6% cumulative management fee.
The above table reflects a 1% annual management fee, equivalent to 0.25% for 1Q25 and 3.6% since the 9/8/21 inception of Solyco Wealth’s model portfolios.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Moderate benchmark = total returns for 22.5% iShares Russell 3000 ETF (IWV), 45.0% iShares Core US Aggregate Bond ETF (AGG), and 22.5% MSCI ACWI ex-US ETF (ACWX), and 10.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
The five leading positions for Moderate in 2Q25 were:
- Itau Unibanco [(ITUB), +28.3%]
- FMC Corp. [(FMC), +19.9%]
- Dollar General [(DG), +16.9%]
- MercadoLibre [(MELI), +14.7%]
- Medtronic [(MDT), +13.4%]
As with the prior two model portfolios, FMC represents an intra-quarter addition while we also moved out of Dollar General in early April in favor of Kraft Heinz (KHC) shares as Moderate already owned TGT shares. The 20% weighting in the Vanguard Short-Term Corporate Bond Exchange Traded Fund (VCSH) substantially aided Moderate’s performance, just as it did ModAgg’s returns in light of the increasingly difficult environment for equities.
For the Moderate Model Portfolio the greatest headwinds to 1Q25 performance came from:
- Block [(XYZ), -36.1%]
- Target [(TGT), -22.1%]
- Alphabet [(GOOGL), -18.5%]
- Burlington Stores [(BURL), -16.4%]
- Microchip Technology [(MCHP), -15.0%]
Consistent with actions across our models, early in 2Q25 we moved out of positions in XYZ and MCHP and into Microsoft (MSFT) and Arista Networks (ANET). Upgrades in quality and upside potential motivated these moves, in addition to the prospective benefit of taking advantage of tax-loss opportunities for clients early in the year.
Conservative Model Portfolio
Our Conservative Model Portfolio, with a 65% combined weighting to fixed income and cash, was the only one of our models to post a positive return in 1Q25 as it added 0.47% last quarter, net of fees. For the Last 12 Month, 3-Year, and Since Inception periods, Conservative posted respective net-of-fee returns of +5.67%, +12.24%, and +10.5%, as shown in the following table. These returns compare well with those of the Model’s benchmark for each of these time periods.
The above table reflects a 1% annual management fee, equivalent to 0.25% for 1Q25 and 3.6% since the 9/8/21 inception of Solyco Wealth’s model portfolios.
Actual client investment performance likely will differ from respective model portfolio performance due to several factors including: 1) Timing of securities purchases and sales, 2) Dividend reinvestment choices, 3) Securities held outside the model portfolio, 4) Weighting differentials for certain securities relating to whole versus partial share accounting, 5) Timing and pricing of rebalancing actions, and other minor factors.
Conservative benchmark = total returns for 10.0% iShares Russell 3000 ETF (IWV), 65.0% iShares Core US Aggregate Bond ETF (AGG), and 10.0% MSCI ACWI ex-US ETF (ACWX), and 15.0% Charles Schwab Family Federal Debt Securities mutual fund (SWGXX).
Conservative benefited in 1Q25 from the following stock’s performances for the quarter:
- Itau Unibanco [(ITUB), +28.3%]
- FMC Corp. [(FMC), +19.9%]
- Dollar General [(DG), +16.9%]
- Johnson & Johnson [(JNJ), +15.6%]
- MercadoLibre [(MELI), +14.7%]
The greatest detractors to 1Q25 performance for the Aggressive Model Portfolio were:
- Block [(XYZ), -36.1%]
- Target [(TGT), -22.1%]
- Alphabet [(GOOGL), -18.5%]
- Burlington Stores [(BURL), -16.4%]
- Microchip Technology [(MCHP), -15.0%]
We moved out of XYZ and MCHP last week and into Microsoft (MSFT) and Broadcom (AVGO), representing an effort to move into higher quality, less volatile equities.
Below, we include holdings and weighting information for each of our model portfolios.
Click table to enlarge.