Investment Pros: Here's How We're Navigating Trump 2.0 -- Barrons.com

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By Steve Garmhausen

This year wasn't supposed to go like this. Coming into 2025, strategists expected steady economic growth, falling inflation, interest-rate cuts, and market strength building on -- if perhaps not matching -- that of 2023 and 2024. Instead, headlines have focused on mounting fears of inflation and recession, stock market volatility, and rising Treasury yields, most of it spurred by President Donald Trump's protean tariff approach and reprisals by trade partners.

On the other hand, Wall Street remains hopeful that deregulation and tax cuts will flow through to corporate earnings, and that favorable trade deals will ultimately be struck. Investment advisors are helping clients navigate this tricky landscape, so we asked several of them the same question: Are you changing portfolios based on shifting government policy? Why and how? Here's what they had to say.

Don't Underestimate the U.S.

Brett Carson, chief investment officer, Harrison Financial Services

We haven't been making any adjustments based on how 2025 has started off. In 2023, we went pretty heavy on U.S. investments strategically, as opposed to being tactical or even cyclical.

I think a lot of people misunderstand the extent to which the U.S. dominates the digital economy. We have the world's leading provider of smartphones in Apple and the world's leaders in e-commerce and digital advertising, cloud computing, electric vehicles, and now AI chips for GPUs [graphics processing units].

The rest of the world has fallen behind, outside of China. And China is a different animal. I believe that a lot of Chinese technology just won't be accepted in the U.S. or Western Europe. And the rest of the world is falling even further behind in AI.

We believe that artificial intelligence will prove to be one of the biggest technological innovations in modern history, and Europe and Japan are lagging pretty far behind. There was a European Commission report that said Europe invests only 4% of what the U.S. has invested into AI. I think the rest of the world has become, at least in the digital economy, quite dependent upon us, and that will only increase.

We're certainly concerned with what has been going on over the past several months, but we feel that over the next three to five years and beyond, capital is treated best in the U.S. and there's a higher probability of higher returns on U.S. investments.

Add More Dividend Stocks

Michael Yoshikami, CEO and investment committee chairman, Destination Wealth Management

We've been underweight longer-duration bonds in fixed income for quite a while, and we're starting to move toward a slightly longer duration on the assumption that the economy will soften [which could lead to lower interest rates; bond prices move inversely to interest rates].

We think that dividend stocks are going to make a lot of sense if we start approaching a recession. We still are invested in tech, but we're certainly trying to reduce reliance on more-speculative names. We've been adding to financial services because of increasing net interest margins. And we've been generally reducing volatility in portfolios on the assumption that it's going to be a very uncertain year.

We've done an analysis on tariff impacts on different industries, so we're lightening vulnerable areas in portfolios. Vulnerable industries are things like imported consumer cyclicals -- refrigerators and those kinds of things -- auto makers, obviously. Energy certainly is going to be a challenge, as well as raw materials.

Less impacted by tariffs would be things such as staples, basically things that people are going to buy no matter what. Intellectual-property technology probably will be somewhat resistant to tariffs, despite some of the chip bans that we've seen. Technology in many cases isn't a product, per se, it's more intellectual property.

Be Sure to Rebalance

Sameer Samana, head of global equities and real assets, Wells Fargo Investment Institute

We came into the year positioned for risk-on, with a mild overweight to equities and commodities relative to fixed income. Then around the middle of March, when the S&P fell by about 10%, we took a little more money out of fixed income and put it into mid-cap equities. We forecast the U.S. economy doing pretty well this year, and we thought mid-caps were well positioned to take advantage. Now that we're back close to the highs, that seems to be working well.

In early April with the S&P falling another 8% or 9%, and with technology selling off, we upgraded there and funded it from our industrial holdings. While we think there will be some manufacturing resurgence in the U.S., some of those names are running a little bit ahead of where they should be. There's no magic wand, no easy way to bring manufacturing back. It's going to be a multiyear -- if not a multidecade -- process. So those have been the major moves.

Now that we're back near the highs, we're telling clients, "You've done pretty well with some of the names you purchased during pullbacks, and now is a good time to make sure you're rebalancing, taking profits, not getting over your skis, especially in lower-quality areas like small-cap equities or emerging market equities." We think those areas remain very vulnerable to downside economic shocks.

Make the Most of Munis

Leah Bennett, chief investment strategist, Concurrent Asset Management

It is a very challenging environment, so I've gotten more conservative. I reduced equity exposure in the beginning of April and got more conservative within other asset classes. I reduced high-yield bonds, reduced small-caps, and anything that was more funding-oriented and would be negatively impacted by higher interest rates.

I then increased exposure to real assets and TIPS [Treasury inflation-protected securities], anything that will benefit from higher rates for longer. Most recently, I've been buying seven- to 12-year munis to take advantage of the higher rates in the muni market. I think equities might be a little bit richer than they should be. And I don't think all the supply-chain issues have started materializing. It's going to take a longer period of time for those to be resolved [after they appear]. I'm a secular bull, but from a cyclical perspective, I think we have too many headwinds.

Consider Hedging Strategies

Timothy Davis, wealth manager, Davis Executive Wealth Management at Steward Partners

We aren't changing a lot based upon the policy backdrop. I do underweight and overweight market-neutral and managed-future strategies to hedge against both equity and fixed-income risk. Right now our allocation range to those strategies [combined] is between 5% and 10%. We took the allocation equally from equities and fixed income.

Those two strategies act very well in volatile environments, when you're trying to shield yourself from volatility without necessarily giving up money on the upside. There were managed futures strategies that exceeded 30% returns in 2022. You don't need very much of an allocation to that type of strategy to add some serious asymmetrical alpha.

Do you want to own those strategies in a raging bull market? Absolutely not. So there are times when we have zero allocation. Right now, we do have an allocation because the reality is that market volatility is probably here for a while. And that has as much to do with policy as it does the fact that the price-to-earnings ratio of the S&P 500 index is 22. There have been only a handful of times in the history of the market, especially the past 25 years, that P/Es have been that elevated.

Embrace the AI Trade

Jason Katz, private wealth advisor at UBS Global Wealth Management

We're big believers in scaling back where we're overweighted due to outperformance, and vice versa. This time it's no different. Starting late last year, we upped our ante on the international side, which has worked out really well. Stylistically, we were grossly underweight value, so we meaningfully pivoted a little more in that direction.

In terms of sectors, we felt financials would benefit from deregulation, and it looks like that'll be the case in the latter part of this year. We love the artificial-intelligence trade, and we really love the picks-and-shovels part of the AI trade -- utilities, infrastructure, anything that supports that ecosystem. On the tariff front, we thought consumer discretionary would probably suffer the most, so we meaningfully dialed back there.

Lastly, bonds are finally a game in town. Tax-equivalent yields on munis haven't looked this attractive since I got into the business in the early '90s, so we've definitely upped the ante there in the past two to three weeks.

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June 06, 2025 01:00 ET (05:00 GMT)

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