The second quarter delivered a two-act drama: (1) early-April tariff angst that briefly rewarded our defensive posture; followed by (2) a decisive risk-on rotation once the narrative switched towards the One Big Beautiful Bill Act and the Administration’s average tariff rate of ~10 %, well below the market worst-case fears.
We leaned into the turn - raising headline equity weight to 46 % (beta-adjusted ~41 %), but our quality-and-income bias left us -173 bp behind our 40 % S&P 500 / 60 % Bloomberg Gov-Credit Intermediate (“BGCI”) benchmark for the quarter. Year-to-date we trail by -162 bp. The shortfall stems almost entirely from under-ownership of megacap, non-dividend AI bell-weathers (NVDA, AVGO, PLTR) and other long-duration growth winners (AMZN, TSLA). Furthermore, our caution on duration extended beyond equities: we also kept the fixed-income sleeve anchored <3 years, a stance that cushioned us against the back-up in yields but surrendered roughly 80bps of relative performance to the primary benchmark* towards the end of the quarter. With this, we continue to hold the line: core PCE looks sticky at +2.5% and 6-7% budget deficits argue for structurally higher real rates, so the term premium still feels too thin to justify moving out the curve.
Our conviction remains that inflation stays elevated, however, continued fiscal stimulus supports healthy employment, moderately higher rates, and strong AI-spending. As such, our 2Q trades followed a disciplined “short-duration, higher-carry” roadmap: we began the quarter by exiting or trimming private-credit equities and preferreds (ARCC, OWL, ADI, GBDC, PFF, JBBB) and parking proceeds in cash and intermediate Treasuries as tariff risk spiked, however, once average tariffs looked capped near 10 %, we redeployed into structured securities and short high-yield credit, lifting BKLN, SHYG and JPIE while simultaneously selling VGIT/SCHR and trimming IEI to keep portfolio duration short. Later in the quarter, we rotated equity exposure toward catalyst-rich money-center banks (initiating WFC and BAC) as the curve continued to steepen.
The quarter’s defining feature was a “higher-but-contained” cost-of-capital regime: Treasury yields rose in parallel with sticky inflation and widening budget deficits, yet cross-asset volatility and credit spreads stayed remarkably well-behaved.
Therefore, with inflation sticky, deficits persistent and the term premium still rebuilding, rates are likely to stay “higher for longer,” even as abundant liquidity and the softer-than-feared tariff profile continue to support risk assets, albeit with a market breadth that remains unusually narrow and valuation-dependent.
At quarter-end, we increased our overall equity exposure to 46% from 43%, while diversifying our fixed income exposure into senior bank loans, asset backed securities, and high-yield credit. Cash levels declined modestly to 1.8%. These moves reflect a deliberate increase in smart-beta portfolio risk based on our view that declining trade uncertainty, robust AI-spending, and continued fiscal stimulus mixed with unsustainable budget deficits and sticky inflation could favor cash-generative equities and short-duration, high-carry credit over long-duration government paper.
The following specific asset adjustments were made to the portfolio during the quarter.
Within the Fixed Income side of the portfolio, we began the quarter in capital-preservation mode, liquidating or trimming higher-beta credit (PFF, JBBB) and parking a temporary sleeve in intermediate Treasuries (VGIT) while tariff uncertainty peaked. As the One Big Beautiful Bill proposals came out, negotiations converged on a manageable ~10 % average tariff and credit spreads re-tightened, we redeployed that duration into short-maturity, high-carry instruments:
Later in the quarter, with the curve bear-steepening, we trimmed IEI twice (now 2.7%) to prevent unintended duration creep and used part of the proceeds to re-establish a small 1% sleeve in preferreds (PFF) - lifting portfolio yield ~10 bp without meaningfully extending interest-rate risk. Net of all moves, the fixed-income book now carries an indicated yield of ~5%, an average duration of ~2.9 years (vs. 4.1 yrs for the primary benchmark), and a bias toward floating-rate structures that should benefit if sticky-services inflation keeps the Fed on hold.
Our equity moves followed the same three-step cadence that guided the broader portfolio, lifting gross equity weight from 43% to 46%.
By quarter end, our equity sleeve now leans towards cash-returning AI infrastructure, catalyst-rich banks, inflation-resilient energy mid-stream, and a renewed exposure to a private-credit manager (OWL), all funded from lower conviction or tariff-sensitive positions.
Following a solid start to the year, the Hilton Tactical Income Strategy faced a markedly narrower, “AI-winner-takes-all” tape in the second quarter. While the portfolio gained in absolute terms, it lagged both of its benchmarks. The key drag came from our quality-income bias in equities, specifically the portfolio’s under-weight to a handful of megacap, non-dividend names (NVDA, AVGO, PLTR, AMZN, TSLA) that dominated index returns in 2Q. Previously favored “tariff winners” such as MCD and TSCO also reversed as policy uncertainty faded, and speculative growth leadership re-asserted itself. On the fixed income side, our deliberate sub-3-year duration posture protected capital as rates rose but forfeited gains when rates fell towards the quarter end. Year to date the strategy generated a gross return of 3.47% / net return of 3.21% compared to 5.09% for the primary benchmark and 7.01% for the Morningstar Moderately Conservative benchmark.
Composite: +3.63% vs. Benchmark: +5.36%
Underperformance Driven by megacap-AI concentration and foregone long-duration bond carry.
As the following chart illustrates, the strategy kept pace through April but trailed from mid-May onward, when just six AI-centric names accounted for nearly 70% of the S&P 500’s quarterly gain. Our beta-adjusted equity weight rose to ~41% (gross 46 %), yet our focus on dividend support meant we owned none of the index’s runaway leaders, costing a combined 82bp. Meanwhile, the benchmark’s 60% allocation to intermediate, with holdings in long-dated Treasuries, captured an additional 60 bp of price return as the curve bull-steepened into quarter-end.
Composite: +3.63% vs. Benchmark: +4.95%
Underperformance driven by benchmark’s significantly higher international-equity weight and longer-duration fixed-income tilt.
The Morningstar Moderately Conservative Index benefited from its larger non-U.S. equity stake, where European cyclicals rallied on fiscal-stimulus hopes and from a 4+ year aggregate bond duration that out-earned our short-bond sleeve. Even so, our portfolio’s indicated yield of nearly ~4.75% and disciplined risk budget leaves us confident in forward risk-adjusted return potential, particularly as AI capital spending broadens beyond a narrow cohort and as steeper curves reward our floating-rate and short-HY credit positioning moving into 3Q.
Since quarter-end we have kept our equity weight moderately above neutral (gross ~46 %, beta-adjusted ~41 %) while preserving a sub-three-year fixed-income duration. This balanced stance reflects a macro mix we regard as constructive yet two-sided:
In short, we expect a “growth-with-sticky-inflation” regime through year-end. By pairing quality, dividend-supported equities with short-duration, high-carry credit, and by maintaining dry powder, we are positioned to capture upside from secular AI adoption and a steeper curve yet retain the agility to lean in if volatility delivers better entry points.
*Primary Benchmark = 40% SPX TR Index / 60% Bloomberg Intermediate US Govt/Credit TR Index Value Unhedged
Important Disclosures:
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.
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