The third quarter of 2025 reflected a continuation of many of the same themes that defined the first half of the year, persistent inflation, narrow equity leadership, and elevated fiscal spending, but with a clear shift toward decelerating growth data and rising expectations for a 2026 rate-cut cycle. Market sentiment oscillated between optimism surrounding AI-driven capital investment and caution over sticky services inflation and widening deficits. Despite these crosscurrents, risk assets finished the quarter higher, powered again by a concentrated group of technology leaders.
Against this backdrop, the Hilton Tactical Income Strategy composite returned 3.89% gross / 3.77% net, underperforming the benchmark* by approximately 21bps. This relative shortfall was largely driven by non-ownership of several non-yielding, high volatility mega-cap AI leaders, notably NVDA (-54bps), TSLA (-27bps), and Broadcom (-20bps), which we cannot hold in material weights due to their lack of income distribution and / or requirement to maintain a consistent portfolio volatility. With these adjustments, relative performance reflected both the benefits of disciplined risk management and the cost of underexposure to a handful of long-duration AI equities that once again dominated returns. Despite these structural headwinds, the strategy performed relatively well, capturing the majority of market upside through disciplined exposure to dividend-supported AI enablers and high-carry credit positions. Year-to-date, the Tactical Income Strategy composite has delivered 7.50% gross / 7.11% net versus 9.32% for the benchmark, maintaining a defensive posture with an attractive forward yield and below-average volatility.
The quarter unfolded amid clear signs of cooling in labor and consumption, but inflation progress remained uneven.
Overall, the third quarter reinforced a regime of "higher-for-longer" nominal rates but slowing real growth, favoring short-duration carry and high-quality income over speculative beta exposure.
Portfolio activity followed a disciplined progression aligned with evolving macro signals along with specific stock / sector fundamentals. Overall, we held our equity exposure relatively constant with the average weight at 46.5% for the quarter, while continuing to increase our duration and diversify out of several of our floating rate fixed income securities in anticipation of fed rate cuts. Cash and Fixed Income weights remained at similar weights from last quarter as we see no signs of potential slowdowns in AI-spending and fiscal stimulus, which continue to fuel US equity markets. While inflation and employment data remain a concern, we believe the current backdrop supports cash-generative equities tied to AI spend and short to mid-duration high-carry credit over long-duration government paper.
The following specific asset adjustments were made to the portfolio during the quarter.
By quarter-end, the portfolio reflected a deliberate slight overweight equity exposure near 47.3% duration at 3.2 years, and a forward yield of 4.3%. These adjustments positioned the strategy for continued resilience through potential late-cycle volatility.
Composite (Gross): +3.89% vs. Benchmark*: 4.10% vs. Secondary Benchmark: 3.72%
Performance: The strategy produced a positive total return for the quarter, supported by income carry and selective equity strength, though it modestly trailed the benchmark* due to its underweight in high-duration technology, many of which we cannot own due to our yield and volatility mandate. As for our secondary bench, the Morningstar Moderately Conservative Index, we modestly beat the Index by 16bps for the second quarter, however, YTD we remain behind. As mentioned in last quarter’s letter, our secondary bench holds a significantly larger portion of non-US equities in both developed and emerging markets, which have outperformed US markets year to date.
Quick Snapshot of 3Q Attribution:
We continue to expect a slow-disinflation environment with elevated fiscal support and selective AI-driven capex strength. The Tactical Income portfolio remains positioned for balanced participation:
As we approach year-end, the strategy’s balance of quality income, selective equity risk, and tactical flexibility should allow us to capitalize on opportunities while maintaining our hallmark of steady compounding through uncertain macro conditions.
*Primary Benchmark = 40% SPX TR Index / 60% Bloomberg Intermediate US Govt/Credit TR Index Value Unhedged
Hilton Capital Management, LLC (“HCM”) is a Registered Investment Advisor with the US Securities Exchange Commission. The firm only transacts business in states where it is properly notice-filed or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.
The views expressed in this commentary are subject to change based on market and other conditions. The document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Sources include: Bloomberg and INDATA (our portfolio accounting and performance system). There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The S&P 500 Total Return Index, often referred to as SPX TR, is a version of the S&P 500 index that includes both capital gains and dividends. Unlike the standard S&P 500 Price Return Index (SPX), which only reflects changes in stock prices, the SPTR reinvests dividends paid by the companies in the index, providing a more comprehensive measure of investment performance. We believe that this makes it a better benchmark for evaluating the actual returns an investor might receive.
The Bloomberg Intermediate US Government/Credit TR Index Value Unhedged Index is a broad-based benchmark that measures the non-securitized component of the Bloomberg US Aggregate Index with maturities less than 10 years. It includes: investment-grade, US dollar-denominated, fixed-rate Treasuries, government-related securities, and corporate bonds. The "Total Return (TR)" aspect means it includes interest income and price appreciation. "Unhedged" indicates that it does not use currency hedging, which is relevant for international investors.
The Morningstar Moderately Conservative Index represents a diversified portfolio of: global equities, bonds, and traditional inflation hedges such as commodities and TIPS (Treasury Inflation-Protected Securities). It is designed for U.S. investors seeking slightly below-average exposure to equity market risk and returns. The portfolio maintains a static allocation, typically targeting around 40% equity exposure, making it suitable for moderately conservative investment strategies.
The composite performance information contained herein is unaudited, was calculated by HCM and is shown on both a gross-of-fee and net-of-fee basis. The performance results herein include the reinvestment of dividends and/or other earnings, and the net-of-fee performance results are shown net of the actual advisory fees paid by the client accounts in the HCM Tactical Income Composite. In addition, actual client accounts may incur other transaction costs such as brokerage commissions, custodial costs and other expenses. Accordingly, actual client performance will differ, potentially materially, particularly given that the net compounded impact of the deduction of investment advisory fees over time will be affected by the amount of the fees, the time period, and the investment performance. For additional information about the composite, please contact us - info@hiltoncm.com
All investing involves risks including the possible loss of capital. Asset allocation and diversification does not ensure a profit or protect against loss. Please note that out- performance does not necessarily represent positive total returns for a period. There is no assurance that any investment strategy will be successful. All investments carry a certain degree of risk. Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited.
Additional Important Disclosures may be found in the HCM Form ADV Part 2A, which can be found at https://adviserinfo.sec.gov/firm/summary/116357.