Through the first quarter of 2025, Partners in WMK’s Strategic Opportunities and dealership required reserves portfolios both outperformed their respective benchmarks.
Equity Performance
Global equity markets faced challenges during the quarter, with broad indices declining, particularly in the technology sector. WMK’s relative performance benefited from having less exposure to high-profile tech names—especially the so-called “Magnificent Seven” companies. While this positioning weighed on performance in the previous year, it provided a helpful buffer in the first quarter.
Our curated group of businesses remains thoughtfully balanced. These companies trade at valuations that are meaningfully lower than broad equity indices, yet demonstrate superior characteristics when it comes to wealth creation—most notably, strong returns on invested capital. We prioritize owning businesses that are difficult to disrupt and are positioned to generate significant cash flow well into the future.
One event of note during the quarter was the agreement for Converge Technology Solutions to be acquired by HIG. While the initial offer reflected a sizable premium over its then-current trading price, we believed the proposal undervalued Converge’s long-term standalone potential. We held out for improvements to the deal and were rewarded with further economic enhancement before the transaction finalized.
Fixed Income Performance
As we’ve mentioned in prior updates, several of our investors—including myself—hold a conservative fixed income allocation through reinsurance business entities. These portfolios are predominantly invested in high-grade bonds, and we have consistently managed them with shorter interest rate sensitivity while maintaining competitive yields compared to broader fixed income markets. This discipline helped protect capital during the period of rising rates post-COVID.
In the latter part of last year, we modestly extended duration in anticipation of potential rate normalization. However, we quickly reverted to shorter duration positioning as signs of renewed upward pressure on treasury yields emerged early in the year.
We also reduced our exposure to corporate credit in favor of more government-backed securities. The rationale was simple: credit spreads did not provide meaningful compensation for the additional risk being taken. In our view, investors should be paid appropriately for stepping into riskier areas of the market.
At quarter-end, our fixed income holdings were concentrated in floating-rate treasuries and short-duration government securities.
Ruminations on Tariffs
“You can’t predict. You can prepare.”
– Howard Marks, Oaktree Capital
Given the current political backdrop, that wisdom rings especially true.
The outcome of tariff negotiations remains highly uncertain, but as investors, our responsibility is not to guess the result—it’s to prepare portfolios that can withstand a variety of scenarios.
Initial Impacts
The most immediate consequence of tariff actions is rising costs for goods. This dynamic will place pressure on company profit margins—especially in industries that rely on imported materials or parts. For example, automotive manufacturers are already bracing for higher input costs. At the same time, consumers, still adjusting to lingering inflation, will likely feel the pinch of higher prices.
In this environment, we continue to prioritize businesses that offer essential goods and services—companies whose demand is less likely to falter under the weight of inflationary pressures.
Supply chains, too, are being disrupted. In the days following the tariff announcements, shipping activity dropped sharply—indicating the onset of another potential bottleneck. While these interruptions can be temporary, we learned during the pandemic that restarting global supply chains is a slow and uneven process.
Structural Implications
While short-term disruptions deserve attention, we believe the deeper investment question relates to long-term structural changes—particularly, what outcome policymakers are targeting. In this case, the current administration appears focused on reducing the U.S. trade deficit.
To understand the broader implications, we can look at a foundational economic principle: the balance of payments. This principle tells us that trade deficits are offset by the inflow of capital from abroad.
Historically, this has worked in America’s favor. Foreign investors have used trade proceeds to purchase U.S. financial assets—namely, treasuries and equities. This capital inflow has contributed to a strong U.S. dollar, supported low interest rates, and elevated equity valuations.
However, should global capital flows shift—either due to policy changes or broader geopolitical realignments—the longstanding advantages tied to the U.S. dollar’s reserve currency status could be called into question.
We are not radically repositioning the portfolio based solely on this possibility. But as long-term stewards of capital, we remain watchful of such structural risks and focused on building a resilient investment strategy that can adapt to a changing global landscape.
Disclosures:
The views expressed above are those of WMK Investment Partners. These views are subject to change at any time based on market and other conditions, and WMK disclaims any responsibility to update such views.
Past performance is not indicative of future performance. Principal value and investment return will fluctuate. There are no implied guarantees or assurances that the target returns will be achieved, or objectives will be met. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal. The values and performance numbers represented in this report do not reflect management fees.
WMK may discuss and display, charts, graphs, formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. To the extent that certain of the information contained herein has been obtained from third-party sources, such sources will be cited, and are believed to be reliable, but WMK has not independently verified the accuracy of such information.