As active managers, we are proud of the way we took advantage of the recent volatility. Our investment team worked tirelessly during this period to capitalize on a sharp market downturn, and our focused process performed exactly as intended.

Over the years, we have built a deep bench of high-quality companies that we track closely — our watchlist. Many of these companies stay on the list for years, and some we’ve never owned due to valuation, lack of a near-term catalyst, or excessive debt. But when brief windows of opportunity appear, we are ready. We know these businesses, understand their growth potential, and have a clear view of what represents a reasonable valuation. When the timing is right, our job is to act — and act decisively.

This quarter, we added several new high-quality businesses to your portfolios and increased position sizes in a number of existing holdings when the opportunity arose. While we didn’t anticipate such a swift and sharp rebound, we knew we were buying quality businesses at compelling prices.

Our fixed income strategies also delivered for clients, providing income and ballast during periods of market stress. We remain fully invested with a focus on high credit quality issuers.

A study by Ned Davis Research found that between 1995 and 2024, missing just the ten best days for the S&P 500 would have resulted in an ending portfolio worth 54% less than one that remained fully invested. Just ten days over a 30-year span made that much of a difference.

We know that market timing doesn’t work, and the data reinforces how crucial those best-performing days are to long-term performance. The takeaway is clear: staying invested for the long term is essential.

But to stay invested, you must own assets you’re comfortable holding through periods of uncertainty. Our strategies are designed with this in mind.

We focus on owning quality assets — businesses with strong management teams, low debt levels, healthy cash flows, and exposure to long-term secular growth trends. These types of companies not only tend to outperform over time, but also press their advantage during economic downturns. By having the confidence to stay invested, you avoid interrupting the powerful effect of compounding and ensure you don’t miss the market’s best-performing days.

From where we sit today, we are cautious heading into the second half of the year. Inflation, while down from peak levels, remains above the Fed’s target. The labor market is still strong, but the trend is weakening. Federal debt levels and deficit spending may continue to support higher interest rates. Further, the economic impact from tariffs remains unknown.

Despite these concerns, the S&P 500 now trades at a relatively elevated price-to-earnings ratio of 22.2 times forward earnings after briefly dropping to 18.0 times in April.

As valuations have risen over the past two months, we have selectively trimmed certain holdings and increased our cash position. This gives us the flexibility to reinvest when new opportunities arise — and as we’ve seen this year, sentiment can shift quickly.

We continue to see attractive opportunities in high-quality corporate bonds, offering both income and stability. On the municipal bond side, we were active buyers during the spring issuance season, finding high-quality, tax-free yield. Our preferred equity portfolios continue to generate strong tax-advantaged income for clients, though we remain selective in deploying new capital to that space.

On a positive note, Corporate America remains resilient. First-quarter earnings showed that many businesses expect to successfully navigate tariff challenges through supply chain reorganizations or price adjustments. This quarter will be the first to reflect the impact of tariffs on corporate earnings, and we are closely monitoring the data for meaningful signals.

From a business perspective, Sandhill continues to thrive. Assets under management and advisement reached an all-time high of $2.48 billion at the end of the second quarter. As we grow, our team of 28 professionals remains committed to delivering greater value to all of our stakeholders. Our annual Sandhill Summit takes place in August: a firmwide offsite that brings together all members of the firm. I look forward to collaborative workshops focused on
innovation and improving the client experience.

Warmest regards,

Rick Ryskalczyk, CFA
Co-Managing Partner, Portfolio Manager

_{Disclosure: This newsletter is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. The views expressed reflect the current opinions of Sandhill Investment Management (“Sandhill”) as of the date of publication and are subject to change without notice. Information from third-party sources is believed to be reliable, but its accuracy and completeness are not guaranteed. Sandhill is a registered investment adviser with the U.S. Securities and Exchange Commission and is independently owned and operated. This commentary includes general market observations and investment-related insights that are not intended to represent any specific investment strategy or account performance. Any performance data referenced is historical and should not be relied upon as indicative of future results. Certain statements may contain forward-looking views or expectations that are subject to risks and uncertainties and may not come to pass. All investments carry risk, including the potential loss of principal. For additional information, please contact Sandhill Investment Management at 716-852-0279.}