The S&P declined .76% for the month of February, its biggest loss in four months. While the declines were small, the index is essentially at the same point it was at the end of October 2025. The DJIA gained .17%, while mid-caps and small caps once again outperformed, rising 4.1% and 2.2%, respectively. S&P500 equal weight (RSP) advanced 3.5%, continuing the theme of broadening market participation. S&P growth declined 3.4% while S&P value gained 2.3%. Developed markets ex-U.S. gained 5.7% and bonds gained 1.3%.

Value outperformed growth, small caps outperformed large caps, and international outperformed the U.S.

TWG growth, moderate and conservative gained 2.3%, 2.1% and 2% respectively in February. YTD gains are up to 6.4%, 5.9% and 4.9% vs their respective benchmark gains of 2.9%, 2.7% and 2.5%.

Our two largest equity positions in GCOW and SMH gained 7% and 1.8% respectively in February.

WHAT MOVED THE MARKETS

February was a month of significant market dispersion and volatility, characterized by a rotation away from mega-cap technology and toward defensive and “real economy” sectors.

Concerns shifted from the AI buildout to the potential for AI to disrupt established business models. Reports of advances in agentic AI sparked heavy selling in software, data, and payment stocks as investors feared AI-native tools would erode legacy subscription revenues.

Miliary conflict between Israel and Iran at the end of the month caused a flight to quality. This uncertainty drove gold and silver higher while causing crude oil to spike to six-month highs.

The U.S. Supreme Court overturned the administration’s sweeping global tariffs on February 20th. However, the White House immediately responded with a new 10% to 15% global import duty, reigniting trade war fears and weighing on investor sentiment.

January CPI showed cooling to 2.4%, but a late-month PPI report came in hotter than expected at .05% suggesting persistent wholesale price pressures that could delay Federal Reserve interest rate cuts.

And finally, fourth quarter of 2025 earnings season was characterized by resilient corporate performance and a significant acceleration in growth, despite initial conservative estimates. For the S&P 500, earnings grew by approximately 13% year over year, marking the fifth consecutive quarter of double-digit growth.

PORTFOLIO ADJUSTMENTS

At the beginning of February, TWG portfolios initially featured a diversified collection of ETFs weighted heavily towards semiconductor and tech exposures via SMH and QQQ. Meanwhile, defensive and income segments were constructed through allocations to bond and dividend ETF’s such as CWB (convertibles) and PFF (). The presence of international ETF’s (IEV and EEM) added geographical diversification but with lower betas and downside capture ratios below 1.0, helping temper volatility. The portfolio’s high beta indicated growth bias, but capture ratios suggested potential for strong upside participation balanced by meaningful downside exposure. The approach established a dynamic foundation blending growth, value and income that positioned the portfolio for differentiated alpha while being mindful of risk.

By the second week of the month, we notably increased exposure to GCOW (global value) while trimming QQQ and EEM. This reallocation lowered overall portfolio beta by increasing weight in a lower-beta equity income ETF and reduced concentration risk in high beta growth ETF. Other adjustments included adding new fixed income exposure via HYG (high yield bonds) and adding small positions in VTV and NOBL to further diversify value and dividend segments. Despite the beta of SMH remaining elevated, the increased weighting to defensive ETF’s lowered downside capture metrics, indicating a tactical pivot towards risk mitigation. This resulted in the portfolios smoother risk profiles with more balanced growth-defensive exposure and refining risk-return dynamics.

The portfolio evolved in the third week by further emphasizing lower-beta and income-oriented ETF’s: GCOW increased, and fixed income and value ETF’s such as RPV and CWB also gained weight. Meanwhile, high beta SMH was trimmed, alongside reductions in QQQ. The addition of FTCS and modest increase in VTV and NOBL further diversified value style and sector exposure. Risk metrics reflected a portfolio with reduced beta concentration while maintaining attractive upside capture in select growth ETF’s yet lowering downside risk via allocation shifts. These changes enhanced downside protection and income yield without sacrificing upside potential, reflecting prudent tactical management amidst evolving market conditions.

By the end of the month, the portfolios held steady their large position in GCOW, continued a strong but reduced SMH exposure, and maintained allocation in value (RPV) and fixed income (CWB, DBMF) ETF’s. Noteworthy is the trimmed position in QQQ and a slight increase in EFG (international growth), adding further equity diversification. Metrics indicated quality alpha persistency with SMH while downside captures remained controlled for defensive holdings. The final allocation exhibited a portfolio that is both growth-oriented and defensively resilient, reflecting an effective tactical balance between pursuing upside and mitigating downside risk.

LOOKING AHEAD

As we look forward, we are mindful of the impacts of war. Typically, geopolitical events cause a reaction of fear, as investors shoot first and ask questions later. The war in Iran has certainly rattled the markets given the potential impacts on oil and adding more turmoil in the middle east. However, such reactions are usually short-lived, and markets are often higher in the months ahead. We do not see the current situation as being any different historically, particularly as earnings have shown resilient growth. We do not believe that war will have a negative impact on corporate earnings and we are inclined to ride the storm out.

Of course, investors can cause meaningful shifts in their allocation of assets, to which we will observe and adjust accordingly.

With earnings season winding down, there will be few fundamental catalysts to move the markets. This may increase the markets sensitivity to other inputs, such as a dragged-out conflict in Iran (bad) or potentially higher consumer spending as 2025 tax refunds are issued (good).

Regardless of the direction, we have the tools to adjust accordingly and change the risk dynamics of your portfolios based on what is working and what is not working.

We are very pleased with the progress we have made this year in the face of a broad market that appears stuck in a narrow trading range. The S&P 500 has been flat for four months, while we have been successful in finding pockets of productivity that have enabled us to outperform. Taking a wider view, the past two months of outsized gains in a flat market have brought our one-year returns in line with our benchmarks (which include international), and on a risk adjusted basis, outperforming the S&P 500.

Enjoy the early days of Spring! Until next month.