Market moves this year have swung between policy optimism and uncertainty, with a turbulent April giving way to the S&P 500’s best May since 1990. Volatility is unpredictable, but a well-constructed portfolio focused on quality companies can help you weather storms and capture gains during rallies. While large-cap tech stocks stole the limelight over the past two years, this year’s market shifts demonstrate how diversifying into quality and less-volatile domestic and international stocks can strengthen your portfolio amidst dynamic market conditions.
When uncertainty or volatility spikes, it’s natural to feel the urge to protect your portfolio. Some might consider shifting from stocks to bonds but pulling back from equities after a market dip can hurt long-term returns, as we’ve seen this past month. Instead, we believe that building portfolios with high quality stocks is a smart way to balance long-term growth with risk management.
Quality stocks have historically performed better during market downturns, experiencing less severe declines than the broader market, while capturing a substantial portion of gains during market upturns.[i] This blend of resilience and growth makes quality a cornerstone for lasting success. These companies shine with strong fundamentals—think steady cash flows, high returns on capital, and management teams prioritizing financial health over risky expansion. Their sustainable profit margins, driven by what Warren Buffett calls “economic moats” like scale or barriers to entry, support attractive valuations and fuel consistent growth.
Our investment approach starts with valuation, but the stocks we select often have lower betas, meaning they move more steadily than the broader market. This delivers high-quality, stable stocks that help smooth the ride during sharp declines (10% or more), when fear of losses can tempt hasty decisions.
Diversification is a vital strategy for navigating market cycles with confidence. By spreading investments across different company sizes, investment approaches, industry sectors, and geographic regions, including international stocks—we aim to enhance performance consistency and reduce portfolio volatility. While growth stocks have driven market growth over the past three years, value stocks and diverse sectors provide unique opportunities throughout a full market cycle, helping your portfolio adapt to changing conditions.
International equities have outperformed U.S. stocks year-to-date in 2025, offering valuable diversification benefits. We carefully balance U.S. and international holdings to align with your goals and seize global opportunities. For example, we recently added Dassault Systèmes to our international portfolio. Dassault is a leading French software company known for its innovative 3D design and simulation solutions. With its attractive valuation and strong business fundamentals, Dassault Systèmes is well-positioned to contribute to long-term performance, and we’re excited about its potential in our diversified strategy.
At Cardinal Capital, we’re committed to crafting portfolios that balance growth and stability, helping you thrive no matter what the market brings. Thank you for your trust! We’re here to discuss your portfolio and tailor it to your needs—please reach out with any questions.
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1 As an example, in 2017, Cardinal Capital’s small-cap portfolio was recognized by Informa’s PSN and received Bull & Bear Master Award for its three-year rolling period performance, achieving an upside capture ratio of 104% and a downside capture ratio of 39% for the period ending December 31, 2016. These metrics reflect our focus on constructing portfolios with quality companies aimed at capturing market gains while mitigating losses during downturns. Past performance is not indicative of future results, and all investments carry the risk of loss, including the potential for loss of principal.
