The strategy returned -0.3% in July, underperforming the broad market return of +2.2%.
As shown in the attribution chart below, the largest source of underperformance came from stock selection, which detracted -1.3%. Size & style allocation detracted -0.2%, and interaction effects contributed an additional -0.9% drag.
In July, we adjusted our size and style positioning based on both long-term trends and short-term technical signals.
Large Cap Allocation: We increased our Large Growth weighting to 60%, with Large Value at 40%. This tilt reflects a continuation of the dominant growth trend in large caps, which remains clearly intact as shown in the SPYG/SPYV chart.
Non-Large Cap Allocation: Within small and mid-caps, we now favor Value at 70%, with Growth at 30%. The trend here is less clear, but we’re maintaining a value bias given recent pullbacks in SMID growth.
Overall Size Positioning: The portfolio remains positioned 80% large / 20% non-large, consistent with our outlook and risk tolerance.
These positioning decisions modestly helped performance in July versus our prior configuration. However, our continued underweight to Large Growth — the best-performing segment of the market — was a relative headwind compared to the broad benchmark.
July’s most significant performance drag came from stock selection, as our signals remain out of sync with current market behavior.
Our multi-layered stock selection process emphasizes companies with strong fundamentals and positive earnings and revenue surprises, using both traditional and AI-driven models.
Since April’s tariff reversal, the market has entered a sharp recovery phase, favoring highly speculative or previously distressed stocks — many of which score poorly in our models.
This type of risk-on, fundamentals-light environment typically calls for our “Recovery Signal”, which we use selectively in these phases.
We chose not to activate the Recovery Signal this month. Our rationale: While the market’s speculative streak has been strong, our long-term metrics suggest it won’t persist long enough to justify broad turnover in a tax-aware strategy.
We track several indicators to determine when high-risk rallies may be durable:
Dow Jones U.S. Thematic Market Neutral Low Beta Index: Near long-term lows, indicating continued speculative appetite but suggesting limited further room for expansion.
High Yield Credit Spreads: Currently around 3.0% — close to historical lows — showing little sign of stress in credit markets.
These suggest continued calm for now — but also raise caution. Historically, when these measures are this compressed, the upside for highly speculative, risk-on stocks is often limited. While the broader market can continue to climb, it tends to eventually revert toward more fundamentals-driven behavior.
While short-term rallies are always tempting to chase, we remain focused on long-term consistency and tax efficiency. Our positioning is designed to navigate through this speculative environment without losing sight of durability and quality — even when short-term trends diverge from fundamentals.
As of July 31, 2025, the Size & Style Responsive Tax-Aware strategy has returned 6.59% YTD, compared to the Russell 3000’s 7.95%. While the strategy trails YTD, it continues to demonstrate strong consistency over longer timeframes, with competitive results across 1-year, 3-year, 5-year, and since-inception periods.
Performance Table
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