In December 2024, we forecast chaotic markets. Even if you were broadly supportive of Mr. Trump’s policy direction, the fact remains that he has announced, altered, suspended, or cancelled tariffs more than 28 times in 2025, including pausing some tariffs within 24 hours of announcing that the suggestion he might pause tariffs was “fake news.” His desire to reduce federal spending was manifested in the decision to turn Elon Musk loose to ransack the government in search of a promised $1 trillion in savings. Bloomberg’s assessment: “100 days of DOGE: lots of chaos, not so much efficiency.”

At a NewsNation town hall, Mr. Trump was asked what he thought was the biggest mistake of the first 100 days of his administration. His response was, “I’ll tell you that’s the toughest question I can have because I don’t really believe I’ve made any mistakes.” If true, it’s unlikely that Mr. Trump feels an impulse to change his policy-making strategy, which portends rather more of the same.

As of May 1, 2025, the Vanguard Total Stock Market Index Fund was down 5.5% year-to-date. That modest loss masks a bunch of thrashing about. Chip analyzed the daily closing value of the Dow Jones Industrial Average for each day of 2024 and 2025. She notes that there were 28 trading days this year when the index jumped more than 1%, including one five-day period that registered down 4.1%, down 5.8%, down 0.9%, down 0.9%, then up 7.3%. Trading volume was over one billion on seven days in the first four months of the year, compared to two days in all of 2024. And the average trading volume was 650 million, compared to 376 million in 2024.

Short version: enormous thrashing about with panic buying and selling, and more to come.

Our recommendations were two-fold:

1. Act.
2. Do not panic.

Our recommendations were (and are):

1. Consider an actively managed multi-asset fund, that is a fund in which the managers have the option of lightening US equity exposure if US equities aren’t offered compelling opportunities. There are a lot of managers who try that game (sometimes tracked in categories like “tactical allocation” or “world allocation”), but most, not surprisingly, don’t earn their fees. Several do.

   FPA Crescent (FPACX) was, long ago, a hedge fund, and that ethos remains. The managers have an absolute return focus and a mandate to invest across capital structure, geographies, sectors, and market caps. They’re famously independent and consistently successful, though the vogue of ETFs has reduced the fund’s AUM to half of what it once was. In many ways, this operates to the advantage of its current investors, who benefit from a more nimble fund and a larger investible opportunity set.

   Leuthold Core Investment Fund (LCORX) is one of the original quant funds with a strategic allocation of about 60% equities, but the ability to drop that dramatically when the data doesn’t support high equity exposure. Currently, their net exposure to US equities is about 40%.

   Leuthold Core Equity ETF (LCR) is the lower-cost version of the fund, with the tactical allocation executed almost entirely by investing in ETFs.

2. Consider a fund that “games” the market for you; that is, a fund whose managers can either short equities or generate exposure to other asset classes through low-cost futures contracts.

   Standpoint Multi-Asset (BLNDX/REMIX) is 50% global equities and 50% managed futures, both long and short, from seven sectors: equity indexes, currencies, interest rates, metals, grains, soft commodities, and energy. It has done poorly in 2025, which irks but does not panic the managers. Eric Crittenden’s explanation is thoughtful and a bit provocative, since it suggests that larger changes might be afoot in the market:

   “Recent performance hasn’t been particularly pleasant. But we are closely tracking the blend of trend and equity that we seek.

   Our research, spanning 54 years of data, suggests potential drawdowns of 12% to 20% every 5 to 10 years or so. Generally, these have aligned with market regime shifts: 1975, 1980, 1987, 1992, 2002, 2008, 2018, and now 2025.

   Our long equity program gets hurt in bear markets. Our macro program gets hurt in the transition from an established macro theme to a different theme. Occasionally, these happen at the same time; equities and trend become correlated, and we lose money on both, leading to a larger-than-average drawdown.

   That is our blind spot, and every strategy has one. Curing that blind spot can be attempted with tail-risk hedging strategies, but they have a negative expected return and undesirable tax consequences. We think our current approach is the most durable and productive over the long term.”

   Which might suggest that BLNDX’s lag is confirming other hypothesized shifts: from US to global, growth to value, speculative to quality, and large to smaller.

   Dynamic Alpha Macro (DYMIX) is a 50% US equities and 50% futures trading strategy, which sounds like Standpoint but is fundamentally different. Standpoint’s strategy is quantitative and trend-following, Dynamic Alpha’s is macro-driven. That is, the futures adviser identifies important macro trends (“coordinated central bank rate cutting cycle” would be an example) and positions the futures contracts to profit from them.

3. Consider a fund whose managers are willing to hold cash, as Mr. Buffett is, when holding stocks is a poor bet. We’ve written about the strategy for years, and have designated the managers who follow it as “the dry powder gang.”

   Kinetics Global targets “classic value investment opportunities worldwide,” which is a reasonably well-diversified portfolio of about 60 names and a single-digit turnover ratio.

   Marshfield Concentrated Opportunity is a concentrated value fund with a huge disparity in its capture ratio: it captures 80% of the market’s gains but suffers only about 25% of its losses. More or less 20 high-quality, undervalued names in the portfolio at any one time.

   Towpath Focus is concentrated, low-turnover, diversified, quality-focused, and risk-conscious. It’s also consistently excellent, with manager Mark Oelschlager at the helm since inception.

4. Consider increasing your exposure to high-quality stocks, which have traditionally crushed the market in the long term by being decent in good markets and great in terrible ones. It’s a phenomenon we’ve documented in The Quality Anomaly.

   GQG Partners US Select Quality Equity and GQG Partners US Quality Value (formerly GQG Partners US Quality Dividend Income) are both managed by Rajiv Jain, whose record of excellence stretches over decades and whose firm is entirely devoted to investing in high-quality equities. GQG Partners primarily relies on fundamental, rather than quantitative, research to evaluate each business based on financial strength, sustainability of earnings growth, and quality of management.

   GMO US Quality Equity ETF (QLT) is the retail investor’s path into the discipline embodied in GMO Quality, a fund with a 20-year track record, five-star performance … and a $250 million minimum initial investment.

5. Consider adding a short-term or short-term high-yield fixed income fund to the mix. These funds typically invest in fixed-income securities whose returns are uncorrelated with the gyrations of the Fed. Short-term high-yield bonds have provided comparable returns to the broader high-yield market but with significantly lower volatility. Over the course of a full market cycle, such funds tend to return about 4% per year.

   Intrepid Income. Intrepid Income Fund is a fixed income fund that primarily invests in U.S. corporate bonds, aiming to generate strong risk-adjusted returns and high current income while protecting and growing capital. With a focus on downside protection and risk control, the fund typically invests in smaller bond issues of less than $500 million, targeting businesses with low leverage ratios and consistent cash flows1. The fund’s strategy has demonstrated resilience while maintaining a relatively concentrated portfolio of 15 to 70 high-yield securities. You might anticipate returns of 4-5%.

   RiverPark Short-Term High Yield invests in, well, short-term, high-yield debt securities. Its strategy focuses on identifying opportunities where the credit ratings may not fully reflect a company’s ability to meet its short-term obligations. The fund targets investments in companies undergoing or expected to undergo corporate events, such as reorganizations or funding changes, which could enhance their capacity to repay debt. About to celebrate its 15th anniversary, the fund, the fund has the highest Sharpe ratio (over 5.0 since inception) in existence. That is, it offers a better risk-return tradeoff than any other fund or ETF. You might anticipate returns of 3-5% with negligible downside.

YTD Performance, through 4/30/2025

My own non-retirement portfolio, which we disclose every February, is structurally cautious: 50% equities / 50% not. In equities, 50% US / 50% not. In non-equities, 50% cash / 50% not. Roughly 25% US equity, 25% international, 25% cash, and 25% other diversifiers such as short-term bonds. Year-to-date, it’s up 2.5% and its five-year average is about 9.5%.

Bottom Line

There is no reason to anticipate greater predictability or stability in the markets than we’ve seen so far in 2025. Formal resumption of a bear market is possible as investors, globally, lose interest in betting on the US. That suggests that betting on what has worked in the past – large, momentum, US, tech, high beta – may turn out to be wildly imprudent. Leavening your portfolio now with assets that have been out of favor – smaller, stable, quality, global – has the prospect of protecting portfolio and sanity both!