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July 01, 2025
Current Model Portfolio Composition
Dear Valued Subscriber,
AlphaProfit repositioned the ETF & Fidelity Core and Focus model portfolios at market close on June 30, 2025. The new model portfolio compositions, as well as ETF and mutual fund recommendations, are available in the Subscriber Login area of the website.
View Current Model Portfolio Composition
We rate the AlphaProfit Sector Portfolio Indicator ‘Buy’ and recommend that subscribers allocate 40-65% of total investable assets to stocks. We suggest investing the remainder in income investments. We will update the recommended income investments around July 20.
U.S. stocks rose sharply in June, driven by easing geopolitical tensions, trade deal optimism, and renewed hopes for interest rate cuts. A U.S.-brokered ceasefire between Israel and Iran helped calm global markets. Comments from Trump administration officials boosted expectations for new trade agreements, while economic data and Fed remarks lifted hopes for lower rates.
Wall Street’s broad rally marked a clear shift in investor sentiment from earlier in the quarter, when trade policy uncertainty and geopolitical risks had dampened risk appetite. Both large- and small-cap stocks participated in the June rebound. The large-cap S&P 500 index rose 5.1%, while the small-cap Russell 2000 index gained 5.4%.
The AlphaProfit ETF and Fidelity model portfolios had mixed performance versus the S&P 500, with both the ETF models outperforming the S&P 500 benchmark. The ETF Core and ETF Focus portfolios advanced 5.3% and 5.8%, respectively, while the Fidelity Core and Fidelity Focus portfolios gained 4.6% each.
Second Quarter Performance
Stocks stumbled into the second quarter, deepening their first-quarter slide as the Trump administration intensified its tariff stance. By early April, the S&P 500 had fallen nearly 19% from its February peak.
Sentiment improved mid-quarter as the White House reversed some of its most aggressive trade measures and reopened talks with key trading partners. Optimism that major trade deals could materialize by Labor Day helped sustain the rally. Strong corporate earnings and renewed enthusiasm for AI-related investments also contributed to the market’s turnaround.
The S&P 500 rose 10.9% in the second quarter, while the Russell 2000 gained 8.5%. The AlphaProfit ETF and Fidelity model portfolios posted solid gains, with Focus models outperforming Core models. However, all model portfolios lagged the S&P 500 index. The ETF Core and ETF Focus portfolios advanced 8.6% and 9.4%, respectively, while the Fidelity Core and Fidelity Focus portfolios rose 7.6% and 9.0%.
Long-term Performance
The Monthly Report, due July 12, will include longer-term performance data for the AlphaProfit model portfolios and benchmarks.
The S&P 500’s strong second-quarter rally underscores bullish momentum, but lofty valuations and a murky policy outlook temper enthusiasm. With unresolved risks around trade, fiscal policy, inflation, and Fed decisions, investors should brace for continued volatility. A balanced, risk-aware approach appears prudent as markets navigate a complex macro landscape.
The S&P 500 ended the second quarter at record highs, posting its strongest quarterly gain in over a year. In the near term, bulls appear to be in control, and additional new highs may lie ahead. However, investor enthusiasm is tempered by elevated valuations—21.9x forward earnings versus five- and ten-year averages of 19.9x and 18.4x—which warrant caution amid unresolved risks clouding the outlook.
Several potential headwinds could challenge this rally.
Fiscal Policy and Debt Concerns: The proposed “One Big, Beautiful Bill,” backed by President Trump, risks adding $3.3 trillion to the national debt. With deficits already high, additional fiscal expansion could stoke structural inflation and push interest rates higher. Notably, stocks pulled back in May following Moody’s downgrade of U.S. debt from Aaa to Aa1—anxiety that could resurface as the bill moves through Congress.
Trade Uncertainty: Trade uncertainty remains high, with a critical juncture approaching as Trump’s 90-day tariff reprieve expires on July 9. Illustrating the fluid nature of negotiations, President Trump abruptly ended talks with Canada last Friday—though the country later withdrew its digital services tax to revive dialogue. Following trade deals with China and the UK, and comments from NEC Director Kevin Hassett, investors are optimistic that more agreements could follow passage of the “One Big, Beautiful Bill.” However, Treasury Secretary Scott Bessent has warned that steep tariffs could still be imposed—even on negotiating partners—as any extension of the July 9 deadline remains at the president’s discretion. Market sentiment could quickly sour if trade deals fail to materialize.
Fed Policy and Inflation: Softer data and dovish remarks from some Fed officials have fueled investors’ hopes for a July interest rate cut. However, Chair Jerome Powell remains committed to a cautious, data-dependent approach, seeking clearer signals on how tariffs are affecting inflation and growth. For one, inflation could reaccelerate if tariffs flow through to consumer prices, complicating the case for lower interest rates. Whether the Fed will have sufficient clarity to justify a rate cut this month remains uncertain.
Earnings Outlook: Earnings growth is expected to slow. According to FactSet, analysts forecast S&P 500 company profits to grow by 5.0% in the second quarter—the slowest pace since the fourth quarter of 2023 and down from 13.3% in the first quarter. Although modest acceleration is expected in the second half of 2025, elevated tariffs pose risks. If companies cannot completely pass on increased import costs to consumers, tariffs may reduce profit margins and hinder profit growth.
We expect continued bouts of volatility amid the risk of erratic policy changes. Given this mixed environment, a balanced approach to asset allocation is prudent.
As stated on June 30, we recommend subscribers allocate 40% to 65% of total investable assets to stocks and stock equivalents (i.e., stock mutual funds and stock ETFs). The exact allocation depends on each investor’s objective and risk tolerance. Subscribers can allocate the remaining assets to income investments. We plan to update the recommended income investments around July 20.
We rate the AlphaProfit Sector Portfolio Indicator ‘Buy.’
We suggest that current subscribers reinvest the proceeds from selling investments held before June 30 in our new recommendations.
New subscribers can start with an equity allocation in the 40% to 65% range.
We believe this allocation to stocks should allow investors to take advantage of corrective periods that may materialize in 2025.
The investment thesis for the new recommendations follows.
International real estate investments provide exposure beyond the U.S. property cycle, with assets spanning Europe, Asia, and other regions. They include property developers and REITs that own or manage residential, industrial, retail, and specialized properties globally.
Large budget deficits, a downgraded U.S. credit rating, and inflation concerns are prompting investors to look beyond traditional safe havens like Treasury bonds and the dollar. Foreign real estate is gaining traction, offering higher income potential, diversification, and inflation protection—often at a discount to U.S. property values.
Falling interest rates in Europe and Asia are supporting valuations and demand for income-producing assets like real estate. Lower borrowing costs enhance the appeal of REITs. Favorable supply-demand dynamics, increased infrastructure investment in Europe, and growing demand for AI-driven data centers further strengthen the case for international real estate exposure.
The preferred mutual funds and ETFs for investing in international real estate are:
We add international real estate investments to the Core and Focus model portfolios.
Natural resources investments offer diversified exposure to companies across energy, metals & mining, and agriculture. They include integrated oil & gas firms, gold and other metal miners, fertilizer and agricultural input providers, and paper and packaging companies.
Natural resources stocks have posted strong gains in 2025, supported by macroeconomic tailwinds and structural supply-demand imbalances. Years of underinvestment in mining and infrastructure, combined with rising demand from clean energy transitions, AI infrastructure, and electric vehicles, have led to shortages in key commodities and driven up prices. Meanwhile, energy investments have lagged the broader natural resources sector—partly due to OPEC and Russia’s decision to increase oil production. Commodities have also acted as a hedge against persistent inflation and a weakening U.S. dollar.
Given these dynamics, we believe natural resources offer a stronger, more balanced opportunity set which allows more comprehensive participation in the global commodities cycle than energy alone. Accordingly, we are replacing energy sector investments in the Core and Focus model portfolios with natural resources investments.
The preferred mutual funds and ETFs for investing in natural resources are:
Next-generation connectivity technologies, including 5G and 6G, are foundational to the AI revolution. 5G enables real-time innovations such as autonomous vehicles, smart manufacturing, and telemedicine. Looking ahead, 6G is expected to enable breakthroughs in holographic communication, brain-computer interfaces, and advanced quantum applications.
As telecom providers expand broadband infrastructure and embed AI across their networks, demand for enabling hardware, semiconductors, and software is set to rise. ETFs targeting this theme offer diversified exposure to beneficiaries such as networking and communications equipment makers, semiconductor firms, telecom service providers, and telecom infrastructure REITs.
Since we added next-gen connectivity to the Core portfolios on March 31, Invesco Next Gen Connectivity ETF (KNCT) is up 15.0%, while Fidelity Select Wireless (FWRLX) has gained 2.3%. The underperformance of FWRLX reflects its heavier allocation to diversified traditional telecom service providers and telecom tower REITs, both of which have lagged.
We believe Fidelity Select Tech Hardware (FDCPX), with nearly two-thirds of its portfolio in technology hardware and communications equipment, better captures the growth potential of this theme. We are replacing Fidelity Select Wireless with Fidelity Select Tech Hardware as the preferred mutual fund for investing in next-generation connectivity.
The preferred mutual funds and ETFs for investing in next-generation connectivity are:
We add next-generation connectivity investments to the Focus model portfolios. Next-gen connectivity investments are already included in the Core model portfolios.
Stock recommendations will be included in the July Report due for publication on the 12th.
We welcome your comments.
With best wishes for profitable trades,
Sam Subramanian PhD, MBA
AlphaProfit Investments, LLC
Ideas. Insights. Results.
https://www.alphaprofit.com
