April 2025 Newsletter

To Our Valued Clients: We find ourselves in the midst of an unsettling moment. While quarter-end results are typically a benchmark for reflection, they now feel distant given the dramatic movements in equity markets during the first week of April. For many investors, the emotional whiplash of these swings has been just as intense as the financial headlines. In times like these, clarity and perspective become more important than ever.

Current Conditions

At the center of the current market instability are the newly announced tariffs that the U.S. placed on the rest of the world and their subsequent ripple effects across global trade and the world economy. While markets had hoped for clarity following the April 2nd ‘Liberation Day’ announcements, the outcome provided more uncertainty. If these tariffs remain in place, they will increase costs to corporations and consumers alike, dampen demand, and push the global economy toward recession.

Equally damaging to equity markets is the uncertainty itself. Will these tariffs be negotiated down? Will other countries retaliate? Will companies pass the added costs to consumers or absorb them at the expense of profitability? Will supply chains need to be dramatically reconfigured? These unknowns weigh heavily—because, more than anything else, markets dislike uncertainty.

What we do know is this: between Thursday and Friday, the market experienced its fifth worst two-day decline since 1950. These types of sharp drops are exceedingly rare—only five other 10%+ two-day declines have occurred in that span. The good news? In every single instance, markets were significantly higher one, three, and five years later.

On average, those forward returns were +37%, +57%, and +131%. History, it turns out, is a powerful ally.

Zooming out is difficult when we are constantly bombarded by headlines, market alerts, and noise on social media. The Fear & Greed Index—a widely respected measure of investor sentiment—is
currently in Extreme Fear. It has only registered this low twice before: during the height of the Global Financial Crisis in 2008 and at the onset of the pandemic in March 2020.

While fear is understandable, history suggests this is a time to be opportunistic. As Warren Buffet famously said, “Be fearful when others are greedy and greedy when others are fearful.”

Our Response

Our Research Team remains fully immersed in these dynamic markets. With decades of combined experience, our exclusive focus is on investment management. This allows us to respond quickly, think deeply, and act decisively. We have made targeted portfolio adjustments and view this period not with alarm, but with intention.

Given the elevated market valuations earlier this year, we entered 2025 with an above-average cash position. While we have already begun putting some of that cash to work, we remain well positioned to take advantage of continued market dislocation.

In areas where we believe the forward outlook has structurally shifted, we have acted. For example, we decreased our exposure to research-focused life sciences companies earlier this year when we saw a meaningful policy shift at the US Department of Health and Human Services.

Times of dislocation also offer the best opportunities to buy great businesses at attractive prices. We have rotated into high-quality names like J.P. Morgan in our Large Cap Yield Strategy, as well as Arista Networks and Trane Technologies in our Concentrated Equity Alpha Strategy, where we see long-term value amid recent stock pullbacks.

J.P. Morgan is the largest and highest quality bank in the market. Arista is a leading provider of data center networking and switching equipment. The company has been taking share in its core markets for years and is seeing continued growth due to the acceleration in AI-related data center spend. Trane is a leading provider of commercial HVAC equipment and services. The HVAC industry continues to benefit from long-term structural demand, driven by rising global temperatures, improved indoor air quality standards, and a growing push for energy efficiency.

We continue to emphasize quality above all else. The companies that we favor have strong balance sheets, resilient business models, and solid organic growth potential. In our Concentrated Equity Alpha Strategy, every company is at or below 2x leverage, with many holding net cash positions. Leverage, defined as net debt divided by EBITDA (a measure of operating profitability), reflects a company’s reliance on debt. The higher the leverage, the more vulnerable a business may be during periods of economic stress. We intentionally focus on companies with low leverage—typically 3x or below—and believe our portfolios are well positioned in the current environment.

Periods of uncertainty are when the best companies can press their advantage, take market share, and reinvest when others are forced to pull back. They seize the day and come out stronger.

Broadly, valuations have become more attractive. The S&P 500 is trading at 18x forward Price/Earnings (P/E)—down from 22x P/E at the end of last year and is now below the 10-year average. While valuations could pull back further, excessive valuations have been wrung out of the market.

The Role of Bonds

There is good news in the world of fixed income: stability remains. In the last market downturn in 2022, bond prices fell alongside equities as interest rates spiked – there was nowhere to hide. Today, with interest rates at more normalized levels and growing expectations for future Federal Reserve rate cuts, bonds are once again serving as the portfolio stabilizer they are designed to be.

Our Corporate Bond Strategy is off to a strong start this year, and the broad bond market is also positive year-to-date. With an average duration of just 2.9 years and high credit quality, we are well positioned in this environment.

It is also worth remembering the upside of owning individual bonds rather than a mutual fund or Exchange Traded Fund (ETF). You have full transparency into what you own, and you are not subject to forced selling during periods of market stress. We hold bonds to maturity, trade selectively, and maintain control—exactly how fixed income should function.

Looking Ahead

Modern equity markets have weathered the Great Depression, World War II, Black Monday, the Dot-com Bubble, 9/11, the Global Financial Crisis, and the COVID-19 pandemic. We are confident they will endure and recover from this period as well.

This is a highly fluid and rapidly evolving environment. While we cannot predict the exact path of short-term returns, we remain confident in the strength of the companies and therefore the stocks that we hold in our portfolios. We work tirelessly to adapt and stay ahead, and we continue to see long-term opportunity through the lens of our disciplined approach.

We appreciate the trust you place in us—especially in times like these. Our entire team remains fully engaged in navigating today’s challenges and uncovering tomorrow’s opportunities. We are here to guide you through uncertainty with perspective, discipline, and care. As always, your Investment Advisor is available to discuss at any time. Please do not hesitate to reach out.

Warmest regards,

Rick Ryskalczyk, CFA
Co-Managing Partner, Portfolio Manager

 

 

Disclosure: This commentary is for informational purposes only and does not constitute specific investment advice, recommendations, or offers to buy or sell any securities. Sandhill Investment Management (“Sandhill”) is a registered investment adviser with the Securities and Exchange Commission. Statements reflect Sandhill’s views as of the commentary date and are subject to change. Forward-looking statements, including economic and market projections, are speculative and not guarantees of future performance. Past performance is not indicative of future results, and all investments carry risks, including the potential loss of principal. References to specific securities, such as Intuitive Surgical, Palo Alto Networks, and Apple, are for illustrative purposes only and do not constitute recommendations or guarantees of future performance. Economic and market discussions are based on publicly available information believed to be reliable but are not guaranteed for accuracy or completeness. Investors should carefully evaluate their investment objectives, risk tolerance, and financial circumstances before making decisions and consult their advisors to ensure any investment strategy aligns with their individual needs and goals. For a complete list of firm composites and strategy presentations, please call 716-852-0279.

Other Resources
July 9, 2025
July 2025 Newsletter
To Our Clients: When I wrote my last letter three months ago, we were unknowingly just one day away from a market bottom following a 20% correction. Our investment team had recently deployed much of the remaining cash in your equity accounts. Investor sentiment was at extreme lows as markets digested the implications of tariffs on corporate earnings and the broader economy. Fast forward to June 27, and the S&P 500 had climbed more than 25% off that bottom, returning to all-time highs. This marked the second-fastest rebound from a bear market low to a new high in the last 75 years (1982 was slightly faster). It has been a volatile year, to say the least, but one that highlights the value of true active management.
January 10, 2025
January 2025 Newsletter
As I take up the pen for our quarterly newsletter, I want to begin by introducing myself. My name is Rick Ryskalczyk, and I have had the privilege of being part of Sandhill for the past fourteen years. During that time, it has been an honor to work closely with the twenty-eight members of our firm and witness the remarkable dedication and trust that underpin the relationships we have built with you. I also want to acknowledge the exceptional work of Edwin M. Johnston, who set a high standard for thoughtful communication over many years. While my writing style may differ, it is my intention to bring a fresh perspective while assuring you that our commitment to the principles that guide your investments remains steadfast. In this letter and subsequent quarterly newsletters, I will provide updates on our proprietary strategies, share insights on the market, and outline how we are positioning for the future. I look forward to continuing the dialogue and sharing this journey with you. As one of the longest-tenured partners at the firm, I have seen Sandhill grow and evolve – with one underlying goal: to add genuine value for our clients. We now have hundreds of clients, and the value that we provide to each of you can come in different ways. This idea of adding value is crystallized with our mission statement: To provide <strong>financial comfort</strong> and <strong>security</strong> through <strong>trusted execution</strong>. Our goal is to provide you comfort in knowing that we understand your unique situation and to be stewards of your trust that our team will execute a path to help you achieve your goals. Our firm’s success is entirely dependent on the success of our clients. We are dedicated to an ongoing pursuit of excellence and continuously refining our strategies to create and deliver greater value for you, our clients.
October 2, 2024
October 2024 Newsletter
I am pleased that we are enjoying another strong year on the investment side. Over the past twenty-one months, the equities in our flagship CEA product are up 58.0% net of fees. Over the last twenty-one months, the CEA composite is up 54.0% net of fees (this includes the return of the cash held in CEA accounts). More on this later. This will be my last newsletter. It has been a privilege to write to you every quarter. I have written these quarterly missives for twenty-two years. In the advent of Sandhill, these quarterly letters were our best piece of marketing material. I have received a lot of feedback on the letters over the last two decades. I repeatedly heard that the letters exhibited common sense, allowed clients to gain a better understanding of how their money is invested, and delivered complete transparency with regard to Sandhill’s investment performance and operational capabilities. Most of all, I believe the letters highlighted what is important. What is not important. Information – often complex – was made consumable. I also believe the letters gave a true sense of Sandhill’s capabilities and the lengths we go to in order to generate market beating returns and protect our clients capital. Competence and trust. A powerful combination. It is time for a new voice. That voice will be Rick Ryskalczyk. Rick is as capable as they come. A true talent and Sandhill is lucky to have him. He is a co-managing partner and has recently been promoted to co-portfolio manager. Rick has worked for Sandhill for fourteen years and been a partner for eleven years. He came up through our ranks as an equity analyst and has one of the best knowledge sets of the U.S. capital markets of anybody that I have met in our industry. You will enjoy what he has to say. Rick is a meaningful equity owner of Sandhill and has every interest in driving this business forward successfully. I will remain lead portfolio manager. I will also remain the largest equity holder of Sandhill. I remain committed to the firm and serving you – our clients. That said, there is a lot of talent running around Sandhill and it is time that we bring some to the fore.