The first quarter of 2026 was defined by a rapid shift in market leadership, a more fragile geopolitical backdrop, and rising concern that the macro environment could prove less supportive for risk assets than investors had expected entering the year. Against that backdrop, the Hilton Tactical Income Composite generated a return of -1.22% gross / -1.33% net versus -1.74% for the benchmark*, outperforming by roughly 52 basis points during a quarter in which both equities and core fixed income experienced pressure.
Relative performance was driven primarily by asset allocation. The strategy carried an average overweight to equities, commodities, and cash, while remaining meaningfully underweight fixed income versus the benchmark*. That positioning contributed positively overall, more than offsetting modest negative security selection. Importantly, the quarter also highlighted the value of maintaining multiple levers inside a multi-asset income strategy: when the opportunity set became less attractive, we were able to rotate away from spread-sensitive credit and portions of equity exposure, shorten duration, and build liquidity without abandoning the strategy’s income orientation.
By quarter-end, the strategy had shifted to a more defensive posture than it held at the end of 2025. End-of-quarter positioning was 41.4% equity, 54.0% fixed income, 3.2% cash, and 1.3% commodities. We believe that evolution accurately reflects how the opportunity set changed as the quarter progressed: we entered 2026 with a more constructive stance on growth and equity breadth, but exited the quarter with a greater emphasis on liquidity, duration control, and downside resilience.
A quarter that began with optimism around broadening equity leadership and a constructive U.S. growth backdrop became progressively more difficult as geopolitical and inflation risks re-asserted themselves. Early in the quarter, we saw scope for better participation outside the most crowded U.S. mega-cap leadership cohort. That view informed several January reallocations toward international dividend equities, equity-income exposures, and select cyclical industrial names. However, as the quarter progressed, the escalation of the Iran conflict materially changed the portfolio construction problem.
The key macro change during the first quarter of 2026 was not simply higher uncertainty, but a growing risk that the uncertainty would feed directly into inflation expectations, energy markets, and duration-sensitive assets. Rising concern around crude supply disruption and the potential for a more prolonged commodity shock increased the probability of a stagflationary backdrop: slower growth, stickier inflation, and a less supportive environment for both credit and longer-duration fixed income. In response, we reduced mortgage-backed securities, lowered exposure to spread-sensitive high yield and bank loans, and increased short-duration Treasury exposure through SGOV (iShares 0-3 Month Treasury Bond ETF) while selectively adding intermediate Treasury optionality earlier in the quarter through VGIT (Vanguard Intermediate – Term Treasury ETF).
From an equity-market perspective, the quarter was marked by rising dispersion beneath the surface. While broad indexes struggled, several of the strategy’s higher-quality technology, healthcare, energy and consumer holdings held up comparatively well and supported relative results. At the same time, more defensive and traditionally stable sectors such as Consumer Staples, large-cap technology and portions of Industrials underperformed within the strategy, reflecting both stock-specific issues and the challenge of balancing income generation with downside protection in a rapidly shifting macro environment.
Credit positioning evolved meaningfully during the quarter. We began 2026 with a willingness to modestly reduce Treasury exposure and add equity risk where we believed breadth was improving. By quarter-end, however, we had moved in the opposite direction on several fronts: we exited high-yield and floating-rate credit exposures, increased Treasury and cash-like holdings, and built a materially larger cash and cash equivalent exposure. In our view, maintaining liquidity in a multi-asset income strategy is not a passive decision; it is an active choice to preserve future optionality when the distribution of outcomes becomes less favorable.
The Tactical Income Composite outperformed its benchmark* by 52 basis points during the quarter. Relative attribution shows that asset allocation contributed roughly +68 basis points. In other words, the portfolio-level framework added value even though not every individual position or sector did so.
Composite (Gross): -1.22% (Net: -1.33%) Benchmark*: -1.74% vs. Secondary Benchmark**: -0.73%
Average exposures were 48.2% equity, 45.9% fixed income, 4.2% cash, and 1.7% commodities, versus benchmark averages of roughly 40.0% equity and 60.0% fixed income. That active mix mattered. Overweight equity contributed positively to relative performance during the quarter, as did elevated cash and the modest covered call gold (i.e. IGLD) position. The largest allocation detractor was the underweight to fixed income, though that was more than offset by positive contribution from the other sleeves.
At the sector level within equities, relative strength came primarily from Information Technology, Consumer Discretionary, and Health Care. Technology was helped by selective exposure to holdings such as Analog Devices, Taiwan Semiconductor, and Cisco, while Consumer Discretionary benefited from positions such as TJX and McDonald's and the strategy’s non-ownership in Tesla. Healthcare also contributed positively, led by Quest Diagnostics, Johnson & Johnson, AstraZeneca, Merck, and Amgen. These results support our view that even in a difficult quarter, selective ownership of cash-generative, competitively advantaged businesses can still drive relative resilience.
On the other side of the ledger, Consumer Staples, Industrials, Communication Services, and Financials detracted from relative results. Among the more notable stock-specific detractors were Unilever, McCormick, Siemens, Xylem, FANUC, Ares Management, Wells Fargo, Bank of America, and portions of our Communication Services exposure including Meta. Furthermore, as broader equity markets wobbled, our position in the Goldman Sachs S&P 500 Premium Income ETF (GPIX) also lagged. We view these outcomes less as a sign of strategy drift and more as a reminder that in any given quarter, a diversified income strategy will inevitably carry some holdings that lag while others offset them. What mattered in the first quarter of 2026 was that the broader strategy remained balanced enough for the allocation framework to dominate the result.
Activity in the strategy during the quarter can be understood in three phases: an early-quarter re-risking driven by a more constructive growth view, a mid-quarter rotation toward diversification and higher-quality idiosyncratic equities, and a late-quarter de-risking as geopolitical and inflation risks intensified.
The trades listed herein encompass all transactions executed under the strategy during the first quarter (January 1 – March 31). This update is intended to offer a complete and transparent reflection of trading activity for first quarter of 2026.
We entered the year with a more constructive near-term view on the U.S. economy and a belief that equity leadership could broaden beyond the narrowest AI-linked cohort. That informed a series of January trades designed to increase equity participation while keeping the strategy aligned with its income mandate.
As the quarter developed, we sharpened the strategy around a mix of quality cyclicals, select international exposure, and higher-conviction stock-specific ideas while beginning to reassess the risk-reward in lower-quality credit and alternative asset managers.
The quarter’s final phase was defined by risk management. As the Iran conflict escalated and the probability of a more persistent energy and inflation shock rose, we deliberately shifted the strategy toward higher liquidity, lower duration, and reduced international and cyclical risk.
Looking ahead, we believe the investment landscape is shifting from a regime defined by narrow, liquidity-driven leadership to one increasingly shaped by macro uncertainty, capital discipline, and cross-asset dispersion. At the end of 2025, we expected a gradual broadening of equity leadership as capital became more selective. While that dynamic is still unfolding, the path has become more complex. Rather than a smooth rotation, markets are now being driven by episodic macro shocks, particularly around geopolitics and commodities, resulting in more frequent and less durable shifts in leadership
We continue to view artificial intelligence as a durable secular tailwind, but the market is clearly transitioning into a more discriminating phase. In 2025, AI functioned as a broad-based driver of returns. Today, outcomes are increasingly tied to monetization, balance sheet strength, and near-term cash flow visibility. While spending intentions remain strong, higher funding costs and greater scrutiny around returns are beginning to differentiate winners from those reliant on long-duration expectations. As a result, we remain constructive on AI exposure where it is supported by pricing power and earnings durability, while more cautious on capital-intensive or highly levered expressions of the theme.
At the same time, the macro backdrop has evolved in a way that increases the importance of income durability and real asset exposure. The probability of a more stagflationary-leaning environment has risen, driven by geopolitical tensions, commodity volatility, and persistent fiscal pressure. Unlike our 4Q outlook, which assumed a relatively stable disinflationary path, the current environment presents a wider range of outcomes. Inflation risks are more sensitive to supply-side dynamics, and policy flexibility may be more constrained, particularly in the face of energy-driven price pressures.
This has important implications for both rates and portfolio construction. While we still expect an easing cycle over time, the path is likely to be uneven, with periods of rate pressure interspersed with risk-off rallies. In this environment, duration should be actively managed rather than treated as a static allocation. Shorter-duration income, high-quality credit, and selective exposure to Treasuries provide both yield and flexibility, particularly as correlations across asset classes become less reliable.
Within equities, we remain constructive over the medium term but more measured in the near term. The opportunity set is improving as dispersion increases, but the tolerance for error has declined. We continue to favor high-quality businesses with strong free cash flow, pricing power, and the ability to sustain earnings through a more volatile macro backdrop. Income-oriented equity strategies remain particularly attractive, as they allow for participation in upside while helping to dampen volatility and maintain consistency of returns.
Overall, the key shift from our fourth quarter of 2025 outlook is not a change in long-term conviction, but a recognition that the path forward is less linear and more sensitive to macro developments. In this environment, we believe successful portfolio construction will rely less on directional positioning and more on maintaining balance, flexibility, and diversified sources of income. Preserving capital during periods of stress while retaining the ability to re-risk opportunistically remains central to our approach as we navigate what we expect to be a more volatile, but ultimately more opportunity-rich, market environment.
Sincerely,
The Hilton Tactical Income Investment Team
*Benchmark = 40% SPX TR Index / 60% Bloomberg Intermediate US Govt/Credit TR Index Value Unhedged
**Secondary Benchmark = Morningstar Moderately Conservative Target Risk Index
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.