It’s been an eventful start to 2025, with shifting economic indicators, central bank policies, and market volatility shaping the investment landscape. On April 24, NEI Investments' Chief Investment Officer, John Bai, and Vice President of Asset Allocation, Judith Chan, hosted a webcast attended by over 700 advisors. They shared their thoughts on the first quarter, and insights from the first 90 days of Donald Trump's second presidency. Here are five key takeaways from the event.

1. Market environment and outlook

The U.S. economy is undergoing a significant regime shift, marked by weakening momentum in consumption, cooling employment, and rotating sector leadership. This shift has been accompanied by a rising risk-off sentiment, primarily triggered by recent U.S. tariff announcements, which have fueled growth fears and broad market volatility. Interestingly, during this period of volatility, the U.S. dollar and U.S. Treasuries have not acted as traditional safe havens, raising questions about global confidence in U.S. assets.

2. Market trends and performance rotation

The investment landscape is experiencing a notable shift, with capital flows moving away from U.S. equities toward international markets, particularly Europe, due to valuation advantages. This sector and factor rotation has driven outperformance of defensive, low-beta, dividend-paying value stocks, while the Magnificent 7 are underperforming the broader market.

Additionally, small-cap stocks, growth, and high-beta names are lagging. Amid this volatility, managers’ positioning is proving beneficial, as sub-advisors who were already defensively positioned are driving strong outperformance across NEI portfolios.

3. Portfolio positioning and adjustments

Select portfolio changes in early 2025 have proven highly beneficial. Additions to the NEI Global Dividend RS Fund have delivered strong performance. Additionally, shifting from equities to high-yield bonds has helped reduce drawdowns in private portfolios, providing a more stable investment environment. Tactical flexibility using environmental, social, and governance (ESG) ETFs has allowed quick moves to lower-beta and more attractively valued areas, enhancing portfolio resilience. Although the long-short strategy underperformed briefly, managers have since tightened factor exposures and repositioned for more consistent downside protection.

4. What portfolio managers are doing

Investment managers are currently adopting a defensive quality bias, focusing on companies with high margins, strong returns on equity (ROEs), and local demand, particularly in the U.K. and Europe. This approach aims to capitalize on stable and resilient businesses in these regions. Managers are avoiding crowded shorts to mitigate risks during short squeezes and rapid rallies. Additionally, there is also a subtle shift away from U.S. allocations, with investments moving into defensive sectors in Europe, such as healthcare, staples, and select industrials.

5. Tariffs and the bigger picture

Tariffs are currently the main driver of uncertainty in the market. The recent pullback is driven more by politics than economic deterioration, with President Trump's tariff escalation being a key concern. The bond market has become a pressure point for the administration, as rising yields threaten fiscal sustainability, making the bond market a stronger constraint than equities. Volatility and uncertainty have become the new normal, making diversification more critical than ever.

The silver lining is that stock markets tend to go up over time. Based on decades of market data, investors should expect a 10% pullback approximately every 17 months. The current pullback driven by the tariffs reflects this pattern. However, if the Trump administration pivots to more stimulative policies, such as tax cuts and deregulation, risk-on assets like stocks could rally.
 

For your clients

The best way to address your clients’ concerns and ensure they remain vested during times of market uncertainty is through proactive conversations. Here are three tips to help guide those conversations.

1. Don’t count on cash

Much of the downside may already be priced in. Timing a recovery is challenging, and markets can rebound quickly.
 

2. Diversification is key

Diversification has proven to be a reliable strategy, especially during periods of volatility. Avoid concentrating investments in one area. A highly diversified portfolio — across geographies, factors, styles, or a combination of each —can weather turbulence. For example, a 60/40 portfolio (60% equities, 40% fixed income) is well positioned for volatile times.
 

Another way to diversify portfolios is through alternative investments, such as private equity/credit or long-short funds like NEI Long Short Equity Fund. These investments often have lower correlations to traditional asset classes like stocks and bonds, though they come with additional risks. Always conduct thorough research to assure their suitability for your clients’ portfolios.

3. Resilient solutions, for rigorous times

During times of uncertainty and heightened volatility, resilient solutions are essential to bolster portfolios, generate returns and provide a smoother ride. consider investing in NEI Select, Private, or Income portfolios, to help strengthen their portfolios and deliver results during times like these.

Watch the replay of the entire webcast here.