With rising uncertainty permeating the investment landscape, how are investment professionals adjusting their portfolios in real time? Below are excerpts from a recent panel discussion with four Bernstein portfolio managers: Shri Singhvi—US Strategic Equities, Jim Tierney— Concentrated US Growth, John Fogarty—US Large Cap Growth, and James MacGregor—US Small and Mid-Cap Value. Note that this discussion took place prior to President Trump’s official announcement of reciprocal tariffs.
Q. How are you managing through today’s uncertain set of conditions?
Shri Singhvi: Our overarching philosophy is to keep the portfolio balanced, rather than make a big “risk on” or “risk off” call. But from a macro perspective, we are envisioning three possible outcomes. First, policy uncertainty could lead to stagflation and recession. In the second case, things get a little worse before they get better. In other words, we have more announcements coming—which may generate further anxiety—but beyond that, normalization, deregulation, and some tailwinds start to play out. The last scenario views this simply as a buying opportunity. While none of these three potential outcomes can be ruled out, the middle one is our base case. We see volatility persisting for a while, with some further degradation before the picture improves.
When we look at the recent sell-off, a lot of it is basically your highest-beta, highest-quality names. And there’s been a somewhat indiscriminate rotation into lower volatility, defensive, cheaper stocks. So, it tends to be more correlated with crowding than the fundamentals associated with the underlying businesses. In response, going into earnings, we reduced our exposure to certain winners that had gotten stressed while opportunistically adding back to names that have taken a significant hit because of the AI theme.
These drawdowns have also flagged certain businesses that we have historically followed, but not necessarily pulled the trigger on. In some cases, those names are down anywhere from 30% to 50%. We looked at them and recognize why they’re cheap. A lot of them are going to experience certain headwinds to their revenues and earnings. So, we decided not to own them. Ultimately, I’d say it’s a very dynamic environment—and we’re trying to stay very nimble and agile.
Jim Tierney: We manage a more concentrated portfolio that looks for high-quality growth names. With that in mind, I have three main thoughts. First, I think volatility is here to stay so you can’t be obsessed with it or follow the headlines day to day. You really have to look long term. I’m not getting overly obsessed about tariffs, because again, they could be going away. But you aim for a somewhat balanced portfolio. When I look at my portfolio, I want to offset those names that have tariff exposure with ones that may be positively correlated to tariffs or perhaps have no exposure.
Second, there are real policy shifts unfolding. The Department of Government Efficiency (DOGE) is very real, and you have to be very careful with holdings that may suffer from deep funding cuts. Whether it’s federal funding for healthcare or the loss of R&D dollars for pharmaceutical companies, you have to watch out. Like my colleague Shri pointed out, that has prompted us to trim some holdings.
Finally, I believe the best defense is a good offense. If you have secular growth businesses—whatever the ups and downs of the economy—that’s a great defense. The same goes for great management teams. Think back to COVID. Everybody hit a speed bump, but during the pandemic, the good management teams kept the car on the road while the bad management teams went into a ditch. I think you’re going to see the exact same thing here.
On that note, we’re constantly in touch with our management teams. We’re seeing them in person, whether they come here, or we go to them. One great company said to us, “We were predicting 4% organic growth in the quarter, now that’s going to be closer to 3%.” But then they emphasized, “We’re going to defend that and get our margins up and deliver the earnings that we promised.” So, it’s just really checking in on a more frequent basis. And where things are deviating in a meaningfully negative way, we’re happy to have a little bit more turnover in 2025, just like we did in 2024. Turnover is not a bad thing if you’re avoiding deteriorating situations.
John Fogarty: Uncertainty breeds volatility in the real world and in the market. As it relates to the intersection of those two, the wake-up call for our team came when we met with the C-suite of a secular growth company in the healthcare space several weeks ago.
Even though they’re not operating in an area that’s vulnerable, management started out by saying, “Don’t ask us anything about tariffs.” Their frustration was very uncharacteristic, but their point, I think, was the tariff situation changes constantly, and they deliberately want to avoid subjecting their customers or employees to change fatigue. One of the finest secular stories and best management teams out there, and sure enough, the stock has drawn down 20%. Uncertainty and volatility lead to lower valuations in the moment, but their mid- and long-term trajectory clearly is unfazed.
So, trust in the portfolio that you’ve selected, and just take a step back—particularly in large-cap growth. You know, we’ll look back at the Magnificent 7, and say, “That was a great momentum ride. But where was the respect for diversification?” Fast forward to today, you can’t count on the AI narrative that’s carried these markets to unhealthy levels of concentration over the last two years. In other words, bring on active management. Bring on a healthy respect for the benefits of defense and offense that comes with diversification. Within the Mag 7, we continue to be highly selective. We’re not calling the end of some of those unbelievable business franchises, but the indiscriminate rewarding of those names is behind us, in our view.
James MacGregor: Given my focus on small- and mid-cap value, I’d like to provide some background on small caps before discussing our approach. At the end of February, an analysis of the smaller-cap value indices revealed that the Russell 2000 Value Index experienced greater earnings growth compared to the S&P 500 Index. This contradicts the common belief that small- and mid-cap value investing faces challenges because larger-cap growth is perceived as a more dependable source of earnings growth.
So, it was a good backdrop. But what the last month or so has done is put a lot more of that volatility and anxiety about 2025 and 2026 earnings back into investors’ mindset—and those stocks have sold off accordingly.
I agree with my colleagues that the biggest issue here is not necessarily the policy outcome—it’s the policy volatility. The uncertainty appears to be impairing business decisions. When you talk to companies, the universal answer is that they think they have a lot of tools in their toolbox, but they’re waiting to see what the landscape looks like before coming to some decisions. They want to retain a lot of flexibility. And that's appropriate. But that also means that activity slows.
All of us are trying to avoid that underlying macro flavor in the portfolio. And what you've seen us do is continue to look at adding more idiosyncratic earnings stories. Now, there's no such thing as a stock that's 100% idiosyncratic. You're always going to have some flavor of macro associated with it. But you can try your best to find names that you think have more idiosyncratic flavor to them. We're looking for companies that are not dependent upon a specific outcome.
One key point I'd like to emphasize is that economic recovery often follows periods of distress, and this is typically when the asset class performs well. We're particularly focused on ensuring that investors don't miss out on even in the early stages of this recovery. Missing just the first four to six months of a small-cap rebound can significantly reduce the impact of the rally.