WMK Group’s Strategic Opportunities portfolio experienced a modest decline in market value during the second quarter.
Although we don’t manage the portfolio against a benchmark, it’s worth noting that market performance varied significantly depending on index construction, with market cap-weighted indices advancing while equal-weighted indices fell.
The current market environment is highly dynamic, influenced by a mix of themes including enthusiasm around artificial intelligence, shifting interest rate expectations, and major political elections unfolding around the world—not just in the United States. These forces are contributing to an increasingly divergent performance landscape within equities.
Our portfolio continues to consist of stable businesses with capable leadership and clear long-term visions. Valuations across the portfolio remain reasonable relative to expected operating performance, supporting our confidence in the long-term return potential of the group.
One of our largest holdings, Alphabet (Google’s parent company), delivered strong results during the quarter. On the other hand, two of our international holdings detracted from performance. A Canadian small-cap technology services firm and a Mexican retail operator both faced short-term challenges, but we’ve held each for several years and continue to see long-term value in both.
Portfolio Commentary
“Be careful what you wish for, lest it come true.”
– Aesop’s Fables
Stock market returns continue to be dominated by a narrow group of mega cap technology companies often referred to as the “Magnificent Seven.” These companies have significantly outperformed the broader market so far this year, resulting in extreme concentration within major indices. The ten largest stocks now comprise an outsized share of the S&P 500’s value—raising the stakes for their future earnings growth.
Valuations in these companies assume continued above-average earnings expansion. While some growth is likely to persist, consensus expectations already reflect a material slowdown from recent performance levels.
The market is also heavily focused on potential interest rate cuts, which are broadly expected to begin in the near term. As our Partners know, we don’t make market predictions. However, it’s important to point out that rate cuts are not inherently bullish. Historically, markets have often declined following rate cuts—not because of the cuts themselves, but because those cuts typically signal deteriorating economic conditions.
Rather than attempt to time macro events, we stick to our foundational approach: owning durable, cash-generating businesses that can perform across economic cycles.
One long-term example is a Canadian-based operator of gas stations and convenience stores. While the industry’s growth may appear modest compared to the explosive potential of AI, it has proven its resilience through both financial crises and the pandemic. That kind of stability—combined with a fragmented competitive landscape—has supported impressive long-term shareholder returns. Stability, in many cases, wins over time.
In short, we are not chasing hype. We are focused on realistic expectations and enduring business quality.
CFC Required Reserves Portfolio Update
Several of our investors—including myself—maintain a conservative investment portfolio within reinsurance entities. These portfolios are dominated by high-grade fixed income securities and managed to prioritize capital preservation.
During the quarter, the portfolio produced positive results and outperformed its benchmark. As we prepare for a potential shift in interest rate policy, we have modestly extended the portfolio’s sensitivity to rate changes—while remaining disciplined with respect to credit risk.
Today’s credit markets are reflecting a level of optimism that may not fully account for future risks. Specifically, credit spreads are nearing historically tight levels, which implies broad economic strength. In our view, it is more likely that investors are betting weaker companies will benefit from lower borrowing costs—not that underlying fundamentals are improving across the board.
We continue to see little justification for taking on more credit risk in this environment. Instead, we’re content to hold a conservatively positioned portfolio with strong income characteristics—generating a yield that exceeds traditional benchmarks, without taking undue risk.
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.