As we closed out the second quarter, we have been encouraged to see equity performance begin to broaden across more and more of the 500 names in the S&P 500. The equal-weighted index has outperformed the S&P 500 market value weighted index, a healthy sign that today’s market is relying less heavily on the “Magnificent Seven.” This broadening reflects investors recognizing value in many of the other 493 companies in the S&P 500 stocks that have been overlooked and underappreciated in recent years. We continue to see attractive opportunities in small-cap companies, and we view developed international markets as a valuable complement to U.S. large caps, offering exposure that is less concentrated in technology. We continue to believe that fixed income is a good source of income and stability. In a market that is still constantly changing, the question of whether a portfolio remains properly invested and aligned with long-term goals becomes especially relevant.
One of the distinctive features of Cardinal Capital is our dedicated individual approach to managing your portfolio. While we are proud of our long-term performance track record, we believe one additional important thing that sets us apart happens well before performance ever enters the conversation. It starts with how we get to know you, and specifically with the personalized Investment Policy Statement (IPS) that forms the foundation of every relationship we build.
This document is a clear reflection of your goals, your time horizon, and your tolerance for risk. We have observed through many market cycles since 1992 that almost everyone feels comfortable taking on more risk when markets are rising. However, the real test comes when volatility arrives and markets fall. That is when you need a portfolio designed and diversified so you can keep living your life, sleep well at night, and avoid the natural temptation to sell at the wrong moment.
That is why we invest a significant amount of time at the outset of all client relationships to determine the right mix of equities and fixed income for your unique situation. We use a range of tools to help identify the appropriate asset allocation, the mix of stocks, bonds, and cash in your portfolio, that supports steady withdrawal income and long-term planning. This allocation is documented in your IPS and is amended from time to time, through mutual agreement, as your goals change. At the start of each week, your portfolio manager reviews your individual asset allocation to ensure it remains aligned with your IPS. From there, we thoughtfully rebalance your portfolio over time as valuations change, markets move, and your personal circumstances evolve.
When markets fluctuate, we always return to that original asset allocation as our guide. As we have discussed many times, we periodically trim stocks that have grown above their model weight and valuation, and take advantage of losses in stocks that have declined in value. We seek to offset gains with losses to mitigate tax consequences throughout the year. Our treatment of capital gains and losses is also captured in your IPS because it plays an important role in accomplishing your long-term goals as part of one coherent strategy. We will coordinate with your CPAs and estate attorneys to bring that strategy to life.
Through it all, our approach stays consistent. We rely on our valuation-driven process and rigorous, bottom-up research on every company we consider for your portfolio. We believe this discipline is a meaningful part of the Cardinal Capital experience: from helping craft an IPS that truly reflects your goals and risk tolerance, to shaping an asset allocation designed to help you reach those goals, to knowing every holding in your portfolio inside and out in pursuit of strong, long-term, risk-adjusted returns.
Our priorities remain clear: first, our portfolio performance: to beat each respective benchmark over the long term with significantly reduced risk; second, the responsible growth of capital. That is why we remain so focused on thoughtful asset allocation, careful portfolio construction, and positive risk-adjusted returns. We have a fiduciary duty to manage your wealth as our highest priority.
As always, thank you for the continued trust you place in our team. We are grateful for the opportunity to be your partner in building, growing and protecting your family’s wealth, and we welcome the chance to review your Investment Policy Statement and asset allocation to ensure they continue to reflect where you are in your life and goals.
