I can’t control the wind but I can adjust the sail

“I can’t control the wind but I can adjust the sail”

–Ricky Skaggs

Looking back on 2025, the market is best described as a tale of two markets. During the first quarter, fear and uncertainty prevailed as investors worried about the unknown impact of tariffs on consumers and corporations, leading to a 15% decline for the S&P 500 into early April. However, as initial tariff proposals were softened the market bounced off its April bottom. The second half of the year investors turned their attention to the massive growth in spending on artificial intelligence (AI), data centers and the energy needed to power all the data which drove the market to finish up 17% for the year. In this year end note, we will review our actions during the year and our outlook for the New Year.

With a cautions view going into 2025, we trimmed several positions, which protected clients from much of the market decline early in the year. As we continued to focus on risk management, we remained well diversified and limited our position size for each stock. This led to what we considered to be an appropriate risk adjusted return for our equity portfolios in 2025. We view “the market” as being over concentrated in a handful of stocks and overweight in a few industries, primarily technology and communication services. As of year-end, 60% of the gains in 2025 can be attributed to those two sectors. This concentration increases the risk in the overall market, which we continue to manage by maintaining a well diversified portfolio.

In the fourth quarter we sold our positions in Fiserv, Zoetis and Meta. We established new
positions in Intercontinental Exchange (ICE) and JP Morgan (JPM); two well-run businesses with outstanding management, strong cash flows, and attractive valuations. We also initiated a position in Broadcom (AVGO) and added to Alphabet (GOOG) and Nvidia (NVDA) which increased our overall exposure to AI capital spending, an area we think will remain elevated.

Looking forward, we remain optimistic that our long-term focus on owning businesses that
generate solid cash flow will continue to produce strong risk adjusted returns over time. Since Ayrshire Capital’s inception in 2011, we have generated compounded equity returns after fees in excess of 10% annually. The adjustments we made in 2025 should position portfolios well for the evolving economic landscape. Technology remains the main factor supporting capital spending in the US economy and is projected to continue to expand at a double-digit pace. Tariffs will remain a wildcard, but company managements have done a great job navigating this unknown. Inflationary pressures have not emerged to the extent expected but remain a potential headwind. While valuations appear stretched based on historical metrics, we have never seen a period where companies are as profitable as the current market leaders are, generating record profit margins. Lastly, expected interest rate cuts by the Federal Reserve in 2026 should provide a tailwind for stocks.

As always, we thank you for your trust and confidence and look forward to speaking with you in the New Year.

Sincerely,

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