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| Income Builder Model Portfolio |
| Monthly Portfolio Review: May 2025Publication date: June 2, 2025 |
| | | Current portfolio holdings |
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| | FOR SUBSCRIBER USE ONLY. DO NOT FORWARD OR SHARE. |
| | | May 2025 was an unusually strong month for stocks, as investors took comfort in President Trump’s moderating stance on tariffs and showed renewed interest in the AI theme. Technology stocks led the market, and cyclicals performed well, while stocks in defensive sectors generally underperformed. The Income Builder portfolio generated a total return of 4.9% in May. The portfolio was led by Carlyle Group (CG), up 18% after a reassuring earnings report, and Texas Instruments (TXN), up 14% with an encouraging outlook for end-market demand. Defensive real estate and utility sector positions within the portfolio declined modestly. We provide another update on Bitcoin dividend play STRK, which performed well in May with a 15% total return. While risks remain, we are encouraged by a number of positive developments as investors move beyond tariff concerns and refocus on important changes taking place across industries.
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| | | The Income Builder portfolio returned 4.9% in May, versus a 6.3% total return for the S&P 500 Index. On a year to date basis, the portfolio has generated a total return of -1.3%, versus 1.1% for the S&P 500 Index.
The top performing positions in the portfolio in May were Carlyle Group (CG), which returned 18%; Texas Instruments (TXN), which returned 14%; and Permian Resources (PR), which returned 7%.
The worst performing stocks this month were Crown Castle (CCI), which returned -5%; Mid-America Apartments (MAA), which returned -2%; and WEC Energy Group, which returned -1%. |
| A record-setting May
Last month, we talked about the extreme volatility that took place in April 2025 and the fact that stocks were only slightly down by the end of the month.
The strong recovery that kicked off right after Trump’s “90 day PAUSE” social media post, which first hit Truth Social around 1:30pm on April 9, continued through May.
The S&P 500 advanced 6.3% in May, while the tech-heavy NASDAQ Composite Index soared 9.7%.
It is important to emphasize: these are very large numbers for stock index performance in a single month. The average return in any month is typically less than 1%.
The last time the S&P 500 rose so much during the month of May was 1990.
This was also the best monthly performance result for the index since November 2023, which marked the start of a market uptrend that has since produced a total return of approximately 41% (10/31/2023 to 5/31/2025).
Although both the S&P 500 and the NASDAQ remain a few percentage points below their highest levels from February, they are roughly flat for the year. The S&P 500 is up 1.1%, while the NASDAQ has declined 0.7%. |
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| S&P 500 and NASDAQ CompositeTotal Return (12/31/24 - 5/31/25) |
| We noted last month the extreme swing in the CBOE Market Volatility Index (VIX), also known as the “fear index,” which measures expected volatility in the S&P 500 Index over the next 30 days.
The VIX spiked through 50 on April 8, the day before the tariff pause. The VIX reached levels in April that were only seen over the past 20 years during the height of the pandemic and the 2008 financial crisis.
In May, the VIX receded sharply. It ended the month below 20, which is within its normal trading range when markets are settled. |
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| CBOE Market Volatility Index (VIX)(Last 2 Years) |
| Tariff anxiety subsides
Stocks slid in early April, following Trump’s Liberation Day announcements, because investors were uncertain how far Trump would actually take tariffs. Tariffs on China were initially set at such high levels that trade between the two largest economies in the world would be effectively frozen.
It was widely understood that Trump viewed tariffs as a negotiation tool, and there would be room for compromise.
Yet he and key advisors (like Peter Navarro) were also speaking at the time about generating hundreds of billions of dollars of revenue through tariffs, implying they could stay in place at high rates.
Trump’s decision to pause on April 9 and subsequent moderations of his position (including another pause on tariffs on China that was announced May 12) have provided investors with a certain degree of comfort.
Trump’s tariff policy, wherever it ultimately lands, will probably be reasonable.
If the ultimate tariff outcome is moderate, this substantially reduces the perceived risk of a growth slowdown that could potentially lead to a recession. It also reduces the risk of a financial market calamity that could be triggered by a severe interruption of global trade.
Optimism returns
As worst case tariff scenarios get taken off the table, attention has returned to more positive things happening in the global economy, especially within the AI theme.
AI is what propelled markets to new heights before markets started to price in tariff-related risk towards the end of February. Trump’s election only strengthened investor enthusiasm for AI-related stocks because of his clear commitment to promoting AI development through deregulation.
Possibly the most important thing the federal government can do to advance AI is to provide a regulatory environment that facilitates the construction of AI data centers.
The supercomputers housed in these data centers require vast amounts of electrical power. The federal government plays a critical role when it comes to permitting new power plants and related energy infrastructure, such as high voltage transmission lines.
Donald of Arabia
The Trump administration’s mid-May trip to the Middle East flipped the script on the market narrative.
After Liberation Day, investors perceived Trump as trying to withdraw from the global trading system and disengage from other nations.
Trump spent four days visiting Saudi Arabia, Qatar and United Arab Emirates, some of the most strategically important nations in the world by virtue of their vast energy resources and immense financial capacity.
Trump inked deals that not only solidified these trading and security relationships but substantially advanced the interests of U.S. technology companies.
Saudi Arabia committed to $600 billion of investments in the U.S., including a $20 billion pledge to fund data centers and AI-related infrastructure through a Saudi-backed tech concern called DataVolt.
U.S. companies will also be providing equipment for AI data centers in Saudi Arabia and other infrastructure projects.
Several American companies will benefit directly from these diplomatic efforts, including Oracle (ORCL), Alphabet (GOOGL), Salesforce (CRM), AMD (AMD), and GE Vernova (GEV).
NVIDIA (NVDA) was a particularly big winner.
NVDA announced a landmark deal with Saudi Arabia, primarily through the Saudi firm Humain (a subsidiary of the country’s nearly trillion dollar Public Investment Fund). NVDA will supply over 18,000 of its latest Blackwell AI chips for deployment in a 500-megawatt data center project.
NVDA will thereafter deliver several hundred thousand of its most advanced Graphic Processing Units (GPUs) to Saudi Arabia over the next five years as part of a broader plan to establish the energy-rich kingdom as a global leader in AI. |
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| Trump, Saudi Crown Prince MBS, NVIDIA CEO Jensen Huang (5/13/2025) |
| The Donald Trump that terrified the investment world in early April—erecting trade barriers and disrupting global commerce—transformed within a matter of weeks into a high-tech dealmaker, securing long-term opportunities for some of America’s most important companies.
After the trip, there was some pushback on national security grounds related to all this deal activity and the proposed deployment of advanced American technology in the Middle East.
The chief concern is that China, through its relationships with these countries, could obtain NVDA GPUs and other valuable intellectual property.
AI and Crypto Czar David Sacks, who was part of the delegation on the Middle East trip, offered a strong defense. There will be robust safeguards on the technology provided, which in the case of GPUs are in fact large and heavy pieces of equipment that cannot be readily smuggled.
The deals also mean that these Middle East players will be standardizing around American technology, rather than Chinese technology. This is an especially important point given that AI as an industry is just in its infancy. |
| | The question is, who do we want these countries to partner with? If we reject them, we’re going to drive them into the arms of China, and China would love to sell the chips to these countries. We will create a Huawei Belt and Road if we don’t enable their AI dreams and aspirations, so I think it’d be a major mistake to reject them. - David Sacks (5/20/2025) |
| | Good earnings, too
In addition to positive shifts on the political front, several earnings reports came through in May that reignited investor interest in the AI theme.
At the very end of last month, after the market closed on 4/30/2025, Microsoft (MSFT) announced strong earnings results that were driven to a large extent by AI adoption. The shares rose nearly 8% the next day.
On May 22, Intuit (INTU), a diversified software provider with a market cap in excess of $200 billion, also reported solid earnings growth and lifted guidance, which sent shares up more than 8% the next day.
INTU, in contrast with a company like NVDA, is not an AI supplier but rather uses AI to make its various products and services more effective and efficient.
INTU’s CEO Sasan Goodarzi declared that the company is “redefining what's possible with AI by becoming a one-stop shop of AI-agents and AI-enabled human experts to fuel the success of consumers and small and mid-market businesses.”
On May 28, NVDA also reported strong results that sent the shares up sharply the next day.
Despite losing out on billions of dollars of potential sales as a result of new export restrictions to China, NVDA’s guidance for next quarter’s revenue was above expectations, driven by broad-based demand for its industry-leading AI technology. |
| Tech leads the way
Given the positive tech-related news flow, it may come as no surprise that Technology was the best performing sector within the S&P 500 Index in May, advancing 10%.
Tech is the largest sector, representing more than 30% of total market capitalization, and helped fuel the overall 6% increase in the index.
Industrial stocks, many of which are geared towards the AI buildout, also performed well, advancing 9%. Tech platform companies Amazon (AMZN) and Tesla (TSLA) are classified as Consumer Discretionary and drove performance in that sector, which rose 8%.
As investors rotated into growth and cyclicals with a more bullish outlook for the economy, more defensive sectors like Consumer Staples (+1%), Real Estate (+1%), and Health Care (-6%) were laggards. |
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| | Risks do remain
Trump has definitely not given up on tariffs entirely. Negotiations under the leadership of Treasury Secretary Scott Bessent appear to be going well, but investors should be prepared for negative headlines and setbacks.
While stocks performed well in May, markets had to absorb a credit downgrade on the United States from Moody’s, which we discussed in the 76report (Moody’s Downgrade: Minor Event but Useful Reminder).
Moody’s was the last of the three major credit rating agencies to have awarded the U.S. the highest rating within its classification system. The downgrade is largely symbolic, in that it did not lead to any forced selling, but highlights a problem that is not simply going away on its own.
The U.S. continues to bear the burden of unsustainably large federal debt and growing entitlement liabilities. Congress seems to have limited appetite to address it.
Yields on 10-year Treasuries ended May around 4.4%, roughly in the middle of the range in which yields have traded throughout 2025.
Any upward pressure on long-term rates, potentially driven by bond investors demanding higher returns as compensation for the bleak fiscal outlook, could have a negative impact on stock prices. |
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| 10-Year Treasury Yield - Last 12 Months(Source: FactSet) |
| On the other hand, the likeliest solution to the long-term fiscal problem is some variation of Quantitative Easing (QE), where the Fed essentially prints money to monetize the debt and prevent interest rates from rising to a level that imperils the U.S. economy.
After significant volatility in April, Bitcoin reached new highs in May, getting to just below $112,000 on May 22. Among the variables driving up the price of Bitcoin is the prospect of potential dilution of the U.S. dollar via monetary policy.
As bond investors become increasingly wary of the real value of the fiat money with which they will be repaid in the distant future, capital continues to flow into Bitcoin as a hedge.
Like Bitcoin and gold, stocks represent claims to real economic assets and are therefore a long-term hedge on dollar debasement. As more dollars circulate in the economy, companies have greater flexibility to raise prices to grow their earnings. |
| | | The top performing positions within the portfolio in May were Carlyle Group (CG), which delivered an 18% total return; Texas Instruments (TXN), which delivered a 14% total return; and Permian Resources (PR), which delivered a 7% total return.
The worst performing stocks were Crown Castle (CCI), which returned -5%; Mid-America Apartments (MAA), which returned -2%; and WEC Energy Group (WEC), which returned -1%. |
| CG shares suffered disproportionately as stocks sold off from mid-February to early April but recovered nicely in May.
CG’s first quarter earnings results, released on May 8, showed continued strength in asset gathering and soothed shareholders concerns that volatility would lead to a slowdown in this area. |
| TXN is not a direct AI play. The company is the market leading provider of analog semiconductors, relatively simple devices that are used for sensors, power management systems and many other applications.
TXN is, however, a downstream beneficiary of AI. The company’s chip sets will be in high demand as AI-powered products, from self-driving cars to industrial (and even consumer) robots, come to market in the years ahead.
Management spoke very recently at the Bernstein Strategic Decisions Conference in New York and expressed confidence that its core automotive and industrial end-markets have returned to a growth trend.
TXN is also at the tail end of a multi-year investment program in new capacity, which has depressed cash flow. These investments coincided with a temporary reduction in unit sales resulting from vast Covid-era inventory buildups.
Customer inventories now appear to be largely depleted. TXN now finds itself in the position of having already made the bulk of the investments required to meet future automotive and industrial demand, just as it returns.
The vast majority of this new capacity is located in the United States, which makes TXN a supplier of choice as high tech manufacturing is on-shored. |
| | I mean, you do want to control your destiny. And semis are now everywhere. They are in energy, they are in medical, they are in aerospace and defense, they are in data centers, they are in EVs and robotics. So it is a fabric of our economy, and I think you want it to come from dependable sources. - Haviv Ilan, CEO of TXN (5/30/2025) |
| | PR shares recovered somewhat as oil prices modestly advanced in May following sharp declines in April. The portfolio’s other oil and gas exploration and production play, Diamondback Energy (FANG), delivered a 3% return for the month. |
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| NYMEX Crude Oil - Last 12 Months |
| While energy price fluctuations will inevitably have a major impact on the performance of energy stocks, especially E&P names, we continue to view PR as a particularly attractive opportunity within the sector.
PR reported solid first quarter earnings in May, with production volumes slightly ahead of expectations. The company also disclosed a $600 million bolt-on acquisition within its territory.
Capital efficiency is key to the PR story.
With oil prices lower, PR has modestly reduced its capital spending forecasts. Meanwhile, amidst the volatility in April, the company repurchased 4.1 million shares at an average price of $10.52 per share, meaningfully below current levels.
PR also strengthened its balance sheet and retired approximately $175 million of debt during the quarter through internally generated cash flow.
Even with oil around $60 per barrel, PR appears substantially undervalued on a discounted cash flow basis. Naturally, any improvement in oil prices from current low levels would boost PR’s cash generation potential and drive upside in the share price.
PR is a relatively small player with an attractive footprint in a desirable geography and trades at discounted valuation metrics relative to larger peers. As such, the company remains a likely long-term take-out play.
From a dividend perspective, the most recently declared base quarterly dividend of $0.15 translates into an attractive 5% yield.
Portfolio laggards CCI, MAA and WEC declined modestly in May, which we attribute to broader sector performance rather than company-specific factors. May 2025 was a month for technology and cyclicals, rather than more defensive real estate and utility business models.
STRK update
Strategy 8% Convertible Preferred Stock (STRK) is not officially part of the Income Builder Model Portfolio at this time, but we intend to continue to provide updates as needed given the high level of interest in this security among dividend-oriented investors.
STRK was initially offered to investors on January 30, 2025 at $80 per share. STRK’s closing price was $103.16 as of May 31 and $104.49 as of June 2.
As a reminder, we initially flagged STRK as an opportunity for subscribers on March 18, 2025, when the shares closed at $84.97 (STRK: High Yield with Bitcoin Upside).
The investment has performed well in a short amount of time. Total return from the date of that report through June 2 has been 23%, versus 6% for the S&P 500.
In May, both STRK and STRF (the higher yielding non-convertible version of the security) outperformed MSTR (the common shares), returning 15% and 13% respectively. MSTR actually declined by about 3%. |
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| We believe fixed income investors are increasingly warming to the Bitcoin overcollateralization story—the idea that Strategy intends to hold ample reserves of Bitcoin on its balance sheet such that only a severe collapse in the price of Bitcoin would endanger its ability to make dividend payments.
We do not have a strong explanation as to why STRK and STRF performed well, while MSTR common stock modestly declined. We would point out that the buyers of these securities generally represent different classes of investors, so relative performance may vary.
The effective yield on STRK is now 7.7%, which remains attractive. To the extent Strategy can continue to bring down the effective yields on STRK and STRF, this means it will be able to buy more Bitcoin at lower cost.
There is an interesting feedback loop with STRK. As borrowing costs decline for Strategy, MSTR in theory becomes more valuable, which improves the value of the embedded MSTR call option within STRK.
To the extent there is high market acceptance for STRK and STRF, this is very positive for MSTR.
STRK above $100 per share is less compelling than it was back in March, but we continue to view it as an attractive security with a high dividend yield and long-term participation in Bitcoin upside via MSTR. |
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| | Digital Realty Trust (DLR) |
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| | Diamondback Energy (FANG) |
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| | Mid-America Apartment (MAA) |
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| | The 76research Income Builder Model Portfolio is intended for income-oriented investors and managed to generate an overall yield that is materially higher than broad equity indices. The portfolio includes stocks with above average dividend yields from a cross section of industries. While investments are screened for their income and income growth characteristics, specific holdings are chosen based on valuation and general business quality, growth and risk considerations. |
| | FOR SUBSCRIBER USE ONLY. DO NOT FORWARD OR SHARE. |
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