Q2 2025 Newsletter

Dear Investors,

The second quarter of 2025 started off with a wild ride.  A fast drop of 19% in the market was followed by one of the fastest recoveries in history to new all-time highs.  This market has reminded me of one of the great truths of long-term value investing, which is that we should take a step back and ignore the short-term noise.  Investing in solid businesses has never been about the whims of the market, but rather about the long-term fundamentals of great businesses.

One of the good things about the recent market dip is that is provided us an opportunity to make some large purchases.  In the second quarter we increased our positions in Google (GOOGL), Alexandrea Real Estate (ARE), and we bout a 2% speculative position in Reddit (RDDT).  I expect all of these companies to do very well over time, especially given their current valuations.  If fact, the whole portfolio continues to perform well from a fundamental perspective.  The stock prices of the portfolio underperformed the broader market a bit in Q2, but I have no concerns when looking at the individual companies.

The rapid rise in the market after the 19% dip has brought several challenges for us.  The biggest challenge is that the market is running hot and is quite expensive, leaving few opportunities for great purchases.  We were fortunate to put all of our available cash to work in the dip, but as the market screams higher we will be accumulating cash until we can find good deals once again.  Things appear “rosy” at the moment, but I would not be surprised to see a large drop in the market in the next 1-2 years simply due to the lofty valuations we are seeing today.  The odds are certainly favor a continued rally in the short-term, but history has taught us that no rally can continue indefinitely.  We plan to be prepared to buy when fear, and therefore the deals, inevitably return.

Portfolio Update

There have been several changes in the portfolio since Q1 2025, the largest being purchases in existing positions as well as the addition of Reddit as a 2% speculative position.  All of these additions have performed well since their purchase, and I have a great deal of optimism about their future.  Several positions were either trimmed or eliminated as well, the largest being a trim in Meta.  I still believe in the long-term story of Meta; however, its price has run up very quickly over the past few years, and it has become a much more expensive stock.  The exact portfolio breakdown can be found in the chart below.

I follow each of these companies closely, and I would like to make a special note about our largest holdings.  Enterprise Product Partners (EPD).  I am particularly optimistic about the next two years for EPD as they will see significantly decreased CAPEX needs, and they have stated that they will be actively looking to increase the distribution (basically dividend) and buybacks more meaningfully in the near future.

Google is a very different story to EPD, but it is also very exciting.  Google is the cheapest of the “Magnificent Seven” stocks, and I believe it is one of the best positioned to benefit from AI.  Not only is Google a leader in AI, but there are clear tailwinds in many of Google’s businesses, such as YouTube, Cloud, Waymo, and even search has shown a remarkable resilience as it continues to grow.  The next few years will be exciting to watch for Google.

META has skyrocketed off its 2022 lows.  The company continues to show remarkable growth and strength in its business and they are also investing heavily into AI.  There is a lot to be excited about with META, but its PE ratio of 28 has caused me to pull back on this company a bit.  It was a much more exciting prospect near a 10 PE, but much of the growth is now being priced in.

Finally, I would like to discuss Alexandrea Real Estate (ARE).  This is a high-quality leader in medical Labs & Offices.  This sector has been hit hard in recent years, causing the stock to drop from a high of $224 to a low of under $70.  This dramatic collapse typically coincides with a company in danger of bankruptcy or something similar.  This is absolutely not the case with ARE.  Alexandrea Real Estate REIT is navigating several challenges, such as increased competition, a fear of AI reducing lab space, and tariff threats to pharmaceuticals.  I believe they are not only navigating through these issues well, but they are positioning themselves to come out stronger on the other side.  There is a lot of potential for ARE over the next several years for those who are patient.

Conclusion

Much of our portfolio is in a “wait and see” mode with many promising signs for the next several years.  I am excited to see how each company executes, and as always, I will be vigilant in following their execution.  The overall market continues to be more expensive than I would like, but there will still be many opportunities in the years to come.

God Bless,

Robert Boyd, III

CEO of The Stewardship Fund