To paraphrase country rock group Alabama’s 1985 hit, you can’t keep a good market down. The fear that gripped the markets after President Trump’s April 8th “Liberation Day” tariffs has given way to a more measured approach to trade rhetoric. This shift allowed the S&P 500 Index to appreciate +14% during the second quarter, bringing its year-to-date return to +6.2%. Since April 8th, international equities, as measured by the All-Country World ex-US Index, rose 23.4%, benefiting from dollar weakness, lower foreign interest rates, and increased spending promises from European countries. Year-to-date, this index has outperformed most benchmarks, with an eye-popping return of +17.9%.
Recent inflation reports have been relatively benign, hovering around the mid-2% level, and U.S. unemployment remains near 4%. As a result, fixed income markets have posted modest gains in the low-to-mid single digits. However, uncertainty about tariff-induced inflation in the second half of the year persists. The recent run-up in stock prices has left the S&P 500 trading at elevated price-to-earnings ratios near the upper end of their 10-year range. Given the uncertainty surrounding second-half growth, a pause in the rally seems likely.
From a macroeconomic perspective, there is no clear direction for the economy. On one hand, The Conference Board’s Leading Economic Indicators index has signaled a slowdown for several months. On the other, their Consumer Confidence Index—tracking consumer attitudes towards current business and labor market conditions—rebounded to 97.2 from its April low of 85.7. While these results are encouraging, other data is mixed: manufacturing activity has declined slightly, and consumer spending has remained flat-to-down, though some reports show an uptick in items potentially affected by tariffs. Residential real estate transactions are down from six months ago, and new home construction is slowing. Bank loan demand and capital spending plans are also showing mixed signals. On balance, most economists remain cautiously pessimistic about second-half growth, citing higher prices and slowing economic activity.
As we go to print with the Summer edition of our newsletter, all eyes are on Federal Reserve Chair Jerome Powell to determine if and when the Fed might lower its target rate for short-term bank borrowing from 4.5%. So far, Powell has been reluctant to cut rates, voicing concerns about tariffs and their potential impact on prices and employment.
Fund Updates
Through June 2025, the Quaker Growth & Income Fund (QGI) posted a year-to-date return of +5.65%, as compared to the blended benchmark return of +6.74% (see footnote on page 2 for a definition of the benchmark). Net of fees, the QGI’s performance was +5.25%. Over the past six months, active managers struggled to keep up with their respective benchmarks, as the “magnificent seven” (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms) reasserted their dominance in the market. Additionally, a rally in low-quality small-cap stocks that our managers do not own, outperformance of international military stocks, and a lack of exposure to some larger money-center banks contributed to underperformance.
The fund’s strongest relative performance came from its fixed-income exposure, especially to global bonds and real estate investment trusts (REITs). The majority of the underperformance stemmed from the large-cap allocation, with large-cap value stocks trailing the S&P 500 by the widest margin.
The Quaker Growth & Income Fund will pay its next semi-annual distribution in December 2025, at a rate of $1.21 per unit, slightly down from $1.22 per unit paid in June 2025. The distribution is calculated using a trailing three-year rolling average of the fund’s unit value. It represents a 4.0% annualized distribution rate, which is approved annually by the Friends Fiduciary Investment Committee and Board of Directors. This rate is set at a level deemed sustainable over the long term, while preserving the purchasing power of the fund’s principal. As always, constituents may take more or less than the semi-annual amount, and withdrawals can occur at any time throughout the year.
Other Funds
The Quaker Index Fund appreciated +5.02% in the first half of 2025, compared to the S&P 500 Index’s +6.20%. The fund invests in roughly 80% of the S&P 500 names, excluding companies that do not comply with Friends Fiduciary’s Quaker guidelines. The absence of Meta Platforms (parent of Facebook), JPMorgan, Goldman Sachs, and Philip Morris International meant that Communications Services, Financials, and Consumer Staples sectors created the greatest drag on performance.
The Quaker Green Impact Fund posted a YTD return of +7.92%, versus the benchmark’s +8.32%. The fund has allocations to two impact managers who invest in companies focused on issues that impact globe like climate change, resource efficiency, and alternative energy. Although sentiment toward many of these companies has recently been negative, these solutions-focused companies are an integral piece in meeting increasing energy and efficiency demands. The secular growth drivers for these companies are as strong as ever, and we remain committed to the Fund’s goal of addressing some of the world’s most pressing environmental and social challenges.
Friends Fiduciary’s two fixed-income funds, the Quaker Core Bond Fund and the Short-Term Investment Fund, performed well against their respective benchmarks over the past six months. The Quaker Core Bond Fund posted a return of 3.99%, compared to 4.02% for the Bloomberg Aggregate Bond Index. The Short-Term Investment Fund posted a return of +2.99%, compared to +2.92% for its Bloomberg 1-3 Year Government/Credit Index.
Conclusion
While concerns persist over the economy and markets in the second half of 2025, we recognize the resilience of the U.S. consumer. So far, employment and inflation data remain stable, with the unemployment rate at 4.1% and year-over-year inflation at +2.7%. We remain cautious, however, about how the full impact of tariffs and ongoing geopolitical tensions in Ukraine and the Middle East might affect these positive trends. As always, we are committed to an investment philosophy that emphasizes quality and diversification, to moderate the inherent risks of investing.
Thank you for your continued support.
Richard Kent, CFA
Chief Investment Officer