Year-End 2025

Dear Clients and Friends,

We hope you had a wonderful holiday season and wish you all a Happy New Year. 2025 was a strong year for both global equity and bond markets, marked by resilience amid volatility from trade policies, AI-driven growth, and shifting monetary policy.

• U.S. Markets Delivered Solid Gains: The S&P 500 rose  ~16% for the year (price return), hitting multiple record highs, including rising above 6,900 in late December. The Dow Jones Industrial Average gained  ~13%, while the Nasdaq Composite outperformed with ~20% gains, fueled by technology and AI themes.
• Volatility from Trade Policies: A major event was the "April Tariff Tantrum" (or "Liberation Day" tariffs announced around April 2), triggered by new Trump administration tariffs, leading to a sharp but short-lived global stock decline (S&P 500 dropped ~10-11% in days). However, markets quickly recovered as confidence returned with falling rates, and economic resilience prevailed.
• Global Outperformance: Non-U.S. stocks shone brightly, with international equities (ex-U.S.) posting their strongest outperformance vs. the S&P 500 since 2009. Japan (Nikkei) led major markets with ~24% returns, followed by the UK (~20%), while emerging and Asian markets surged on AI bets  (e.g., South Korea's Kospi up 75%).‍
• Sector and Style Trends: Gains were initially concentrated in large-cap growth and AI-related stocks, but broadened later (e.g., Health Care led in some periods). Momentum and innovation themes (solar, digital finance) performed well, with market breadth improving.‍
• Positive Fixed Income Performance: We have been bullish on bonds for the last few years in a falling interest rate environment and we saw investment-grade bonds post their strongest annual gains in years (Bloomberg US Aggregate Bond Index ~7% as of late data points), supported by Fed easing.

Bauer Heitzmann Performance

At Bauer Heitzmann we had a strong year with our equity portfolios up ~19.14% and bond portfolios up ~7% (note individual performance can be different depending on timing of purchases/withdrawals and other household specific preferences or restrictions). In most cases we also maintain a strong allocation to alternative investments primarily made up of structured income notes, private credit, and private equity, all posting strong gains for the year. So in short our equity portfolio outperformed the return of the S&P 500 but with greater diversification, and our bond portfolio matched the performance of the aggregate bond index.

Some of the reasons for our outperformance this year came down to a few items. We were overweighted in XLK and FBCG which are technology ETFs that gave us exposure to the largest growth type stocks, many of which have a strong foothold in AI. XLK posted performance of 24.67% and FBCG 18.75%. The individual stock portion that we call our alpha sleeve also did well with notable outperformance coming from JPM 37%, IBM 39%, and NVDA 39%.

We have owned Nvidia for the last few years believing AI would be a center of growth for several years and there is still more to come. We also have owned Oracle, Nebius, and Broadcom betting these companies will continue to benefit from AI technology and be a big part of the technological revolution.

While 2025 performance was a surprise to many, we enter the new year with optimism that we are still firmly rooted in a technological revolution that will continue to surprise expectations. Undoubtably there will be volatility and unpredictability, but we are armed with data, context, and perspective.

Our aim in 2026 is to be a beacon of clarity in an ever-changing, complex financial world. In a life devoted to service, we stand as your vigilant guardians of wealth. We are grateful for each of you, the most productive people on earth.

The Bauer Heitzmann Team