Second Quarter 2025 Review

Personalized Portfolios account: Total Return Investment Approach

By Strategic Advisers LLC

Key Takeaways

MARKET BACKDROP

Global stocks rose notably while bonds posted modest gains.

POSITIONING

We shifted some allocations to favor diversification and inflation protection.

PERFORMANCE

Stocks around the globe posted strong returns.

OUTLOOK

The potential for resilient U.S. economic growth and rising global earnings could contribute to the stock market.

Market Backdrop

Even as policy uncertainty lingered, tariff relief and a resilient U.S. economy supported markets.

• Low unemployment supported consumer spending.
• Inflation remained relatively stable.

U.S. Stocks

U.S. stocks¹ fell sharply in April but recovered and experienced healthy gains by the end of June. U.S. stocks rebounded as the administration paused tariffs. Additionally, first quarter earnings showed that U.S. stocks reported their highest earnings growth since 2022.²

The U.S. economy remained healthy:

• U.S. consumers continued to spend, supported by low unemployment. Spending was particularly up among consumers on the higher end of the wealth spectrum.³
• The outlook for corporate earnings remained positive but has moderated in recent months.
• Inflation held steady at 2.1% but may rise because of tariffs.⁴

The U.S. Federal Reserve (Fed) left interest rates unchanged. However, it may decide to cut interest rates later in the year if inflation falls or the job market weakens.

International Stocks

U.S. tariffs have not had a significant impact on international developed market stocks. Positive earnings continued to push international developed market stocks higher. Just like last quarter, German stocks led the way, supported by the country’s healthy economic outlook and planned fiscal spending increase. The U.K. lagged other developed markets but still posted positive returns as its economic growth continued to show signs of improvement.⁵

Emerging market stocks outpaced their developed market peers.⁶ South Korea had the best performance for the quarter led by technology stocks. Meanwhile, Latin American stocks made a strong showing as tariff impacts were more limited than many market participants had feared. Meanwhile, China finished the quarter with positive returns. However, China lagged other countries as many global trade questions have remained unanswered.⁷

Bonds

Bonds posted gains⁸ as the U.S. economy continued to grow, inflation remained contained, and the Fed held rates steady. Within the investment-grade bond market, corporate bonds outperformed mortgage-backed bonds (MBS) and Treasuries. Lower quality, high-yield corporate bonds outperformed their investment-grade peers as riskier bonds rallied following the tariff pause.⁹

Positioning

We increased diversification and inflation protection.

• We added exposure to international stocks due to attractive valuations and positive earnings expectations.
• We added exposure to bonds, Treasury Inflation-Protected Securities (TIPS), and commodities.

U.S. Stocks

Even though the U.S. economy has continued to expand, we believe the pace of growth may slow. As a result, we trimmed exposure to U.S. stocks. We continued to focus on core, research-driven managers. These managers may have the potential to perform well during periods of economic expansion. Due to attractive valuations, we modestly added exposure to value stocks, small-sized companies, and mid-sized companies. Additionally, we added exposure to higher quality stocks, which historically do well in the late stages of economic expansions. By contrast, we reduced exposure to large companies due to their stretched valuations.

International Stocks

We added to both international developed market and emerging market stocks. In international developed markets, valuations¹⁰ have remained low and earnings growth expectations have stayed positive. We favor quality managers that have historically performed well during economic expansions.

Like U.S. stocks, we have lower exposure to the largest, most expensive companies. We’ve also lowered exposure to companies with higher tariff risks. By contrast, we favor exposure to multinational companies that are less impacted by their domestic economies and more tied to global growth. Our outlook for emerging markets has been supported by attractive valuations and positive earnings outlooks.¹¹ We favor quality managers within this space as well.

Bonds

We added to investment-grade bonds and reduced exposure to short-term investments. These moves were designed to add yield, with the aim of potentially benefiting from positive bond market performance. We also added to TIPS and commodities to help manage inflation risk.

Performance

U.S. stocks lagged international stocks¹² but still experienced strong performance, led by growth¹³ and technology¹⁴ stocks.

• Emerging markets had a strong quarter, outpacing developed market stocks.¹⁵
• Within U.S. stocks, healthcare and energy stocks lagged as managed care company earnings faced challenges and oil prices remained low.

Past performance is no guarantee of future results. Indexes are unmanaged. It is not possible to invest directly in an index. U.S. stocks are represented by the Dow Jones US Total Stock Market Index, International Developed Market Stocks are represented by the MSCI EAFE Index (Net MA Tax), Emerging Market Stocks are represented by the MSCI Emerging Markets Index (Net MA Tax), High-yield Bonds are represented by the ICE BAML High Yield Constrained Index, and Investment-grade Bonds are represented by the Bloomberg U.S. Aggregate Bond Index. All data is as of 6/30/2025.

Outlook

The U.S. economy is projected to experience a more moderate pace of growth.

• Stocks may potentially be influenced by earnings, which could be impacted by tariffs and government policies.
• We believe the risk of an imminent recession remains low.

Economic growth in the U.S. has shown some signs of maturing. Jobs are less plentiful, and some consumers are falling behind on debt payments. However, unemployment remains low, and most consumers are keeping up with their debt obligations. At the same time, economic growth remains positive and corporate profits are expected to rise.

Looking out over the second half of 2025, there are several potential factors that could influence stock performance:

• We anticipate potential for earnings growth.
• Tariff policies may shift, and new trade agreements may emerge.
• Recently passed tax reform could potentially influence economic growth.

Uncertainty remains around tariffs and other federal government policies. However, over the long-term, stock market performance has historically been driven mostly by earnings and economic growth. We anticipate that both factors may have a positive impact during the current phase of the business cycle. Therefore, we believe the U.S. economy is not at risk of an imminent recession. Should we see warning signs of recession start to increase, such as declining earnings or higher levels of unemployment, we will seek to appropriately manage risk within client accounts.

Investment Objective

The Total Return investment approach seeks to enhance total return for a given level of risk through broad diversification across asset classes.

The foregoing commentary was prepared by Strategic Advisers LLC and Fidelity Management & Research Company LLC. Strategic Advisers LLC provides discretionary portfolio management services for Personalized Portfolio account: Total Return Investment Approach.

Strategic Advisers LLC and Fidelity Management & Research Company LLC are a registered investment advisers and Fidelity Investments companies.

¹ Dow Jones U.S. Total Stock Market Index, as of 6/30/2025.

² FactSet, based on quarterly year-over-year earnings per share (EPS) growth for the S&P 500 Index.

³ Consumer spending is an important metric when assessing the health of the economy as consumer spending accounts for more than two-thirds of U.S. GDP.

⁴ Based on seasonally adjusted 12-month percentage change Chained Consumer Price Index (CPI) for all urban consumers, U.S. city average, released 6/11/2025.

⁵ Based on a country-level breakdown of the MSCI EAFE Index, as of 6/30/2025.

⁶ MSCI Emerging Markets Index (Net MA Tax), MSCI EAFE Index (Net MA Tax), and Dow Jones U.S. Total Stock Market Index, respectively, as of 6/30/2025.

⁷ Based on a country-level breakdown of the MSCI Emerging Market Index, as of 6/30/2025.

⁸ Bloomberg U.S. Aggregate Bond Index, as of 6/30/2025.

⁹ ICE BofA U.S. High Yield Constrained Index and Bloomberg U.S. Aggregate Bond Index, respectively, as of 6/30/2025.

¹⁰ Based on trailing price-to-earnings (P/E) ratios for the MSCI EAFE Index, as of 6/30/2025.

¹¹ Based on trailing P/E ratios for the MSCI Emerging Market Index, as of 6/30/2025.

¹² Dow Jones U.S. Total Stock Market Index, MSCI EAFE Index (Net MA Tax), and MSCI Emerging Markets Index (Net MA Tax), respectively, as of 6/30/2025.

¹³ Russell 1000 Growth Index, as of 6/30/2025.

¹⁴ Based on the ICB industry breakdown of the Dow Jones U.S. Total Stock Market Index, as of 6/30/2025.

¹⁵ MSCI Emerging Markets Index (Net MA Tax), MSCI EAFE Index (Net MA Tax), and Dow Jones U.S. Total Stock Market Index, respectively, as of 6/30/2025.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Indexes are unmanaged. It is not possible to invest directly in an index.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

Lower-quality debt securities generally offer higher yields, but they also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Investments in smaller companies may involve greater risk than those in larger, more well‐known companies.

Index information:

Securities indexes are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.

Benchmark returns assume the reinvestment of dividends and interest income. Investments cannot be made directly in a broad‐based securities index.

S&P 500 Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.

Consumer Price Index is a widely recognized measure of inflation calculated by the US Government.

The Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-back securities (agency fixed-rate pass-throughs), asset-backed securities and collateralized mortgage-backed securities (agency and non-agency).

Dow Jones US Total Stock Market Index is a float-adjusted market capitalization–weighted index of all equity securities of US headquartered companies with readily available price data.

ICE BAML US High Yield Constrained Index is a modified market capitalization–weighted index of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the US or a Western European nation. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of The ICE BofA US High Yield Index but caps issuer exposure at 2%.

MSCI EAFE Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed markets, excluding the U.S; Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR). 

MSCI Emerging Markets Index (Net MA Tax) is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).

MSCI Emerging Markets Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).

MSCI EAFE Index (Net MA Tax) is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed markets, excluding the U.S. & Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).

Russell 1000 Index is a market capitalization–weighted index designed to measure the performance of the large-cap segment of the U.S. equity market. 

Fidelity® Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Personalized Portfolios accounts for a fee. Advisory services offered by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

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