As we continue to navigate a complex and evolving market landscape, last quarter’s portfolio activity reflects our strategic response to sector-specific challenges and broader macroeconomic trends. Our focus remains on maintaining a resilient and balanced portfolio positioned for long-term growth while adapting to shifting fundamentals. 

We sold our position in UnitedHealth Group (ticker: UNH). After a challenging couple of years marked by scrutiny over Medicare billing practices and allegations of unethical and fraudulent behavior aimed at boosting revenues, the company faced intensified negative sentiment. The tragic murder of Brian Thompson, CEO of UnitedHealthcare, in late 2024 further weighed on investor confidence. The company missed earnings estimates in April, withdrew earnings guidance for the remainder of the year, and the CEO unexpectedly resigned, leading to a 22% drop in the stock price. Given the mounting operational and regulatory challenges, including tightening reimbursement rates and pressures from an aging baby boomer population, we decided to refrain from investing in health insurers for the foreseeable future. 

Later in the quarter, we exited a position in Pfizer Inc. (ticker: PFE) due to persistent underperformance and an increasingly challenging regulatory environment. The appointment of RFK Jr. as Secretary of Health and Human Services poses a significant headwind to the drug approval process. Despite Pfizer’s low valuation and attractive 7% dividend yield, the company continues to grapple with declining sales of COVID-19 products, including the vaccine and antiviral treatment Paxlovid. Pfizer also faced setbacks in new drug development, notably discontinuing its experimental weight loss drug over safety concerns, which leaves it trailing behind competitors Eli Lilly (ticker: LLY) and Novo Nordisk in obesity therapies. 

We redeployed the proceeds into Stryker (ticker: SYK), a leading global medical technology company. Stryker offers a diversified portfolio across orthopedics, neurotechnology, and surgical specialties, impacting over 150 million patients annually. After a pandemic-related slump in elective procedures, demand has rebounded strongly. The company and industry stand to benefit from demographic tailwinds, especially the aging population. 

In our global portfolios, we reduced exposure to small-cap equities while increasing allocation to developed international markets. Small-cap indices tend to be heavily weighted toward cyclical sectors such as industrials and consumer discretionary, which are more vulnerable during economic slowdowns. In a challenging macroeconomic environment, investors are favoring quality, profitability, and balance sheet strength over growth potential. International equities remain attractive due to their low valuations, trading at a discount to U.S. equities for over a decade. The MSCI All Country World Index ex-U.S. has a forward price-to-earnings ratio of 14.3x compared to the S&P 500’s 22.0x. We favor developed markets over emerging markets due to steady growth supported by improving consumer demand, infrastructure spending, and corporate earnings, while emerging markets face increased risks and tariff uncertainties. 

Lastly, we swapped our position in the iShares MSCI Emerging Markets ex China ETF (ticker: EMXC) for the Columbia Emerging Markets Core ex-China ETF (ticker: XCEM). Both track the same MSCI Emerging Markets ex-China index and have similar performance profiles. However, XCEM offers a lower expense ratio of 0.16% versus EMXC’s 0.25%, making it a more cost-effective choice.

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