| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Confluence Investment Management maintains a constructive outlook for the three-year forecast period, with recession likelihood remaining low due to supportive policy conditions. The firm expects economic growth to continue near trend, supported by dovish Fed policy that should benefit risk markets. However, inflation is anticipated to remain persistently above the Fed's 2% target, settling in the 2.5-3.5% range due to sticky services inflation and demographic constraints. The investment approach emphasizes risk management through diversified asset allocation strategies, with recent positioning favoring larger market capitalizations over smaller ones due to structural passive flow advantages. International developed equities have been increased given attractive valuations and expected fiscal support abroad. The firm maintains gold allocations across all strategies as a geopolitical hedge and inflation protection. Fixed income duration has been shortened with an underweight to corporate bonds due to tight spreads. Key risks include persistent inflation, trade policy uncertainty, and geopolitical tensions, while catalysts include expected market rotation toward broader participation and continued central bank gold purchases.
Confluence maintains a risk-managed asset allocation approach favoring larger market capitalizations and international diversification while positioning for a broadening equity market rotation away from narrow leadership, supported by dovish Fed policy and continued passive flows into US large caps.
Constructive outlook with recession likelihood remaining low over the three-year forecast period. Economic growth expected to continue near trend with policy support. Fed policy anticipated to lean dovish, supporting risk markets. Inflation likely to remain elevated above Fed target. Risk markets expected to enter rotation with broadening leadership away from narrow concentration.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 16 2026 | 2026 Q1 | - | asset allocation, diversification, Fed policy, gold, inflation, international, risk management | - | Confluence maintains constructive positioning with low recession risk over three years, expecting dovish Fed policy to support risk markets despite persistent above-target inflation. The firm favors large caps over small caps due to passive flow advantages, increased international exposure for valuation appeal, and maintains gold as geopolitical hedge while shortening fixed income duration. |
| Jan 6 2026 | 2025 Q4 | - | CashFlow, dividends, income, inflation, real assets | - | Confluence expects continued economic expansion driven by business investment and AI spending, with Fed rate cuts supporting markets. Portfolios favor large cap domestic and international developed equities while maintaining gold positions for geopolitical hedging. The firm reduced mid-cap exposure, emphasizing dividend-paying stocks and defense sectors. Fixed income positioning anticipates dovish Fed policy with intermediate-maturity focus. |
| Oct 6 2025 | 2025 Q3 | - | asset allocation, defense, dividends, Europe, gold, international, risk management | - | Confluence increased equity exposure as recession risks declined, rebalancing to 50/50 growth-value positioning while adding international developed market exposure, particularly Europe. Strategic allocations to gold maintained for geopolitical hedging. Economic expansion expected over three years supported by fiscal policy, though restrained by trade policy uncertainty. Avoiding small caps due to tariff headwinds while emphasizing dividends. |
| Jul 21 2025 | 2025 Q2 | - | asset allocation, diversification, portfolio, Recession, tariffs, uncertainty | - | After a volatile first half marked by tariff fears and recovery, Keller advocates for diversified portfolio construction over market prediction. Drawing on chaos theory, he argues financial markets are inherently unpredictable complex systems. His solution: build portfolios with assets that perform across different scenarios rather than betting on specific outcomes. |
| Apr 15 2025 | 2025 Q1 | - | gold, inflation, Manufacturing, Policy Error, Recession, tariffs, Trade Policy | - | Trade policy shift from 50 years of free trade toward protectionism creates policy error risk. Trump's tariff proposals were scaled back after market reaction, reducing recession probability. Manager expects short-term recession risk but long-term higher inflation as manufacturing returns. Investment strategy focuses on quality companies with pricing power, short-duration bonds, and gold exposure. |
| Jan 29 2025 | 2024 Q4 | - | asset allocation, Bonds, commodities, defense, equities, risk management, Trade Policy, volatility | - | Confluence maintains risk-constrained asset allocation favoring domestic equities over international exposure due to trade policy risks. The firm extends bond duration expecting Fed easing, transitions defense exposure to software technologies, and maintains gold as geopolitical hedge. Quality factors guide small-cap selection while elevated large-cap valuations present long-term normalization concerns despite near-term policy tailwinds. |
| Sep 30 2024 | 2024 Q3 | - | asset allocation, Bonds, Fed policy, Geopolitical, Mid Caps, risk management, small caps, volatility | - | Confluence maintains risk-constrained asset allocation strategies with defined volatility limits, favoring small and mid-cap domestic equities over large caps due to attractive valuations. Strategic overweights include Energy, Defense, and cybersecurity driven by geopolitical tensions, plus uranium for energy transition. Gold positions hedge uncertainty while long-duration Treasurys provide policy risk protection. |
| Jul 17 2022 | 2024 Q2 | - | asset allocation, diversification, Fed policy, Geopolitical, inflation, mid cap, risk management | - | Confluence maintains risk-managed asset allocation strategies with overweight mid-cap equities for attractive valuations, defensive positions in gold and defense sectors due to geopolitical tensions, and expects continued economic growth without recession. The firm reduced small-cap exposure while introducing quality factors, shifted to neutral growth/value bias, and anticipates increased volatility around elections despite constructive market outlook. |
| May 15 2024 | 2024 Q1 | - | AI, Bull Market, Caution, monetary policy, risk management, Valuations | - | Confluence Investment Management takes a cautious stance amid current market euphoria, emphasizing risk management over return chasing. With investors showing amnesia about bear markets and AI driving valuations to new highs, the firm prioritizes understanding downside probabilities before committing capital, positioning to be bold when others become cautious. |
| Jan 23 2024 | 2023 Q4 | - | Business Analysis, long-term, Market Volatility, Philosophy, value | - | Confluence emphasizes value investing fundamentals, using market volatility as opportunity rather than obstacle. The manager distinguishes between price and value, seeking outstanding businesses at attractive prices when emotional market swings create disconnects from intrinsic worth. Patient capital and disciplined analysis drive the approach, treating stocks as business ownership stakes rather than trading vehicles. |
| Oct 19 2023 | 2023 Q3 | - | asset allocation, defense, Geopolitical, inflation, nuclear, Onshoring, Recession, value | - | Confluence positions for mild recession followed by recovery through risk-constrained asset allocation strategies. Extended duration via long-term Treasuries for geopolitical safety while maintaining domestic equity value bias with cyclical overweights. Reduced international exposure, added uranium producers for nuclear energy opportunity. Expects Fed easing as conditions slow, favoring domestic over international markets given elevated geopolitical risks and structural inflation pressures. |
| Jul 18 2023 | 2023 Q2 | - | asset allocation, gold, inflation, Japan, Onshoring, Recession, risk management, value | - | Confluence positions for mild recession then recovery with elevated equity exposure managed through value bias and short duration bonds. Added Japan overweight on reform momentum while avoiding China. Maintains sector tilts toward Aerospace, Mining, Energy, and Industrials for onshoring benefits. Gold held as geopolitical hedge. |
| Apr 17 2023 | 2023 Q1 | - | Banking, Fed policy, long-term, Quality, valuation | - | Regional banking crisis from duration mismatch caught markets and Keller off-guard, but Fed tightening cycle likely ending soon due to banking stability mandate. Markets rose despite bank troubles because rate hikes expected to pause. Key lesson: impossible to time markets on news, better to focus on quality and valuation for long-term success. |
| Jan 30 2023 | 2022 Q4 | - | - | - | |
| Oct 31 2022 | 2022 Q3 | - | - | - | |
| Jul 30 2022 | 2022 Q2 | - | - | - | |
| Mar 31 2022 | 2022 Q1 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
GoldGold continues to attract demand from central banks and serves as a store of value amid geopolitical uncertainty. The firm maintains gold allocations across all strategies as an inflation hedge and portfolio stabilizer. Continued foreign central bank purchases and reserve diversification away from US dollar dependence are expected to sustain demand. |
Gold Central Banks Inflation Hedge Geopolitical Reserve Diversification |
InflationInflation is expected to remain above the Federal Reserve's 2% target over the forecast horizon, settling in the 2.5-3.5% range. Persistent higher inflation is driven by sticky services inflation, demographic constraints on labor supply, and elevated fiscal support. Tighter immigration policy may constrain labor force growth, placing upward pressure on wages. |
Inflation Services Labor Supply Fiscal Support Immigration | |
RatesThe Fed is expected to lean more dovish as growth cools, with monetary policy becoming more accommodating despite persistent elevated inflation. The broader rate environment is unlikely to return to the low-rate conditions of the prior decade due to fiscal-driven debt issuance and tariff-related inflation risks. |
Fed Policy Dovish Rate Environment Fiscal Debt Tariffs | |
Trade PolicyTrade policy uncertainty has weighed on corporate hiring and capital expenditure plans. Tariff-related cost pressures are expected to create headwinds for US small caps through margin compression and limited pricing power. Geopolitical challenges and supply-chain disruptions present intermittent upside risks to inflation. |
Trade Policy Tariffs Small Caps Geopolitical Supply Chain | |
DefenseThe firm retains exposure to advanced defense and security-related technologies amid ongoing geopolitical tensions. Defense-sector overlays are maintained across multiple strategies as geopolitical uncertainty remains elevated and defense spending continues. |
Defense Security Technologies Geopolitical Tensions Defense Spending | |
DividendsThe firm continues to hold dividend-oriented ETFs across both large and mid-cap allocations as dividend income can serve as a reliable cushion in the higher-volatility environment expected. Dividend-paying overlays are maintained across multiple strategies. |
Dividends Income Volatility Cushion ETFs | |
| 2025 Q4 |
GoldGold continues to be held across all strategies as a strategic asset and geopolitical hedge. Central banks remain steady buyers, supporting gold's role as both a store of value and inflation hedge. Ongoing geopolitical tensions and global shift away from US dollar dependence keep demand firm. |
Gold Central Banks Geopolitical Hedge Store of Value |
AITechnology investments have been especially strong as the AI boom continues, providing a steady base for GDP growth. The AI boom is driving business investment and supporting the domestic economy over the forecast period. |
AI Technology Business Investment GDP Growth | |
Defense SpendingThe firm maintains exposure to advanced military technologies amid ongoing geopolitical tensions. Europe is likely to experience growth on the back of increased investment in defense and infrastructure. Defense sector positioning is maintained across multiple strategies. |
Defense Military Geopolitical Europe Infrastructure | |
InflationInflation is likely to settle closer to 3%, reflecting structural pressures of deglobalization, demographic constraints, and sustained fiscal support. Anticipated fed funds rate cuts will stimulate the economy while inflation remains around 3%, above the Fed's long-term target. |
Inflation Fed Deglobalization Demographics Fiscal | |
RatesAnticipated fed funds rate cuts will stimulate the economy and address weakening labor markets. Monetary policy is likely to be accommodative over the coming year with the Federal Reserve signaling willingness to ease monetary conditions. A more dovish Fed chair is expected to prioritize employment resilience and debt sustainability. |
Fed Rate Cuts Monetary Policy Dovish Employment | |
| 2025 Q3 |
GoldGold maintained across all strategies as strategic allocation for geopolitical hedging and inflation protection. Persistent central bank accumulation highlights gold's relevance as both reserve asset and inflation hedge. Rising geopolitical tensions and global efforts to diversify away from US dollar dependence expected to sustain demand. |
Gold Central Banks Geopolitical Inflation Reserve Asset |
EuropeEurope positioned to benefit from substantial fiscal initiatives including increased defense spending and Recovery and Resilience Facility driving investment into defense, infrastructure, and strategic manufacturing. Easing regulations around fiscal stimulus have enabled previously unlikely policy actions. International developed small cap value stocks particularly well-positioned for infrastructure and defense spending. |
Europe Fiscal Stimulus Defense Spending Infrastructure Recovery | |
Defense SpendingMaintained exposure to advanced military technologies given continued geopolitical tensions. Europe's increased defense spending through fiscal initiatives creates opportunities. International developed small caps with high allocations to industrials and materials well-positioned for defense spending. |
Defense Military Geopolitical Advanced Technologies Industrials | |
DividendsContinued emphasis on dividend-focused ETFs in large and mid-cap allocations as dividends become more important as volatility rises. Domestic equity positioning maintains emphasis on dividend-paying sectors across multiple strategies. |
Dividends ETFs Volatility Income Large Cap | |
Trade PolicyUS shift toward more protectionist trade policy has accelerated global diversification and prompted capital allocation toward regions with independent growth prospects. Tariff policies expected to create headwinds for US small caps due to higher costs and margin compression. Global trade realignment benefits international developed small caps less exposed to cross-border disruptions. |
Trade Policy Tariffs Protectionism Global Diversification Small Caps | |
| 2025 Q2 |
Trade PolicyTrump's initial high tariff regime caused market volatility, but markets recovered as investors believed the tariffs would be used as negotiating tools rather than permanent policy. The uncertainty from tariff pauses and restarts initially raised recession risks. |
Tariffs Trade Recession |
Risk AppetiteThe manager emphasizes building portfolios that can handle different scenarios rather than trying to predict outcomes. Investment approach focuses on diversification across asset classes and stocks that perform well in different environments rather than concentrated bets. |
Diversification Portfolio Uncertainty | |
| 2025 Q1 |
Trade PolicyPresident Trump proposed extensive tariffs on April 2 that would have slowed global trade and raised recession probability. The tariffs were paused for 90 days on April 9, leaving only a 10% base tariff and high tariffs on China. This policy shift represents a fundamental change from 50 years of free trade policies. |
Tariffs Manufacturing Protectionism China Recession |
InflationThe manager expects inflation to run hotter than accustomed due to trade policy changes. Historical analysis shows that restricted competition from trade protection leads to restricted supply of goods, which results in inflation. The trade-off for bringing back manufacturing jobs will be higher inflation. |
Supply Competition Manufacturing Trade Policy | |
GoldGold is recommended as part of an investment strategy for the high-inflation era that the manager expects. This reflects lessons learned from the previous high-inflation period and represents a defensive positioning against currency debasement and economic uncertainty. |
Inflation Currency Defense Precious Metals | |
| 2024 Q4 |
Trade PolicyThe new administration's trade policies create uncertainty for international markets and prompted the firm to exit international developed equities. Potential trade actions could create volatility across global markets with complex economic impacts from tariffs. |
Tariffs International Dollar Policy |
DefenseThe firm transitioned aerospace and defense exposure from military hardware to advanced defense technologies including AI, robotics, and cybersecurity. Defense positions maintain a bias toward software over hardware across strategies. |
Cybersecurity Software Military Technology | |
GoldGold is maintained across all strategies as a time-tested hedge against geopolitical uncertainty and market volatility. The firm views gold's historical safe-haven status and continued central bank demand as supporting long-term value potential. |
Safe Haven Geopolitical Central Banks Volatility | |
UraniumThe firm continues exposure to uranium miners driven by evolving energy demands from advanced technologies including AI. Uranium producers remain in the portfolio despite exiting the broader energy sector overweight. |
Energy Nuclear Technology Miners | |
| 2024 Q3 |
Energy TransitionThe firm maintains strategic exposure to uranium miners driven by the global energy transition and nuclear power development. They continue to hold positions in uranium producers across multiple strategies as part of their energy transition thesis. |
Uranium Nuclear Energy Storage Renewable Components Grid Upgrade |
Defense SpendingConfluence maintains overweight positions in Aerospace & Defense and military hardware across all equity strategies. This positioning is driven by Middle Eastern geopolitical tensions and sustained defense spending requirements. |
Defense Aerospace Defense Electronics Defense Components Government IT | |
CybersecurityThe firm holds strategic exposure to cyber-defense as a portfolio component across multiple strategies. This positioning reflects ongoing cybersecurity threats and the need for enhanced digital security infrastructure. |
Cybersecurity Software Data Privacy Identity IT Services Enterprise Software | |
GoldGold positions are maintained across all portfolios as a hedge against geopolitical risks and financial uncertainty. Despite record high prices, the firm believes additional Fed rate cuts and central bank purchases could push prices higher. |
Gold Miners Gold Royalties Critical Minerals Precious Metals Safe Haven | |
| 2024 Q2 |
OnshoringHeightened geopolitical tensions and deglobalization continue to foster restructuring of supply chains, supportive for the domestic economy. The trend of reshoring continues to bolster investments in domestic capacity construction, a multi-year process that will result in increased domestic manufacturing capability. |
Supply Chain Manufacturing Domestic Capacity Investment |
DefenseConfluence maintains exposure to the military-industrial complex through investments in military hardware and cyber-defense. They retain overweights in Aerospace & Defense across multiple strategies due to geopolitical tensions. |
Military Hardware Aerospace Geopolitical Overweight | |
Energy TransitionThe firm maintains overweight position in Energy sector and Uranium Miners due to sustainable energy transition policies. They see long-term opportunities in clean energy demand and uranium production. |
Uranium Clean Energy Sustainable Transition Miners | |
GoldGold is retained as a hedge against elevated geopolitical risks and presents opportunity given increased price-insensitive purchasing by international central banks. Central banks are positioning gold as a reserve asset in fear of continued weaponization of the US dollar. |
Hedge Central Banks Reserve Asset Geopolitical Dollar | |
CybersecurityConfluence maintains overweights to Cybersecurity across multiple strategies as part of their exposure to the military-industrial complex and defense-related investments. |
Defense Security Technology Overweight Military | |
| 2024 Q1 |
Risk AppetiteThe manager emphasizes that the market today seems more excited about future gains than the possibility of loss, with investors having amnesia about bear markets after extended bull runs. Rising stock prices anesthetize investors against concern that something could go wrong, creating an environment where risk management becomes critical. |
Risk Management Bull Market Valuations Downside |
AIArtificial Intelligence is mentioned as a new productivity enhancer that, combined with extraordinary monetary support memories, has given the market all it needed to take valuations to new highs. |
Productivity Valuations Technology | |
| 2023 Q4 |
ValueThe letter emphasizes buying businesses at attractive prices when Mr. Market offers them below intrinsic value. The manager seeks to identify outstanding businesses and wait patiently for attractive entry points, distinguishing between price and value through disciplined analysis. |
Value Investing Price Discovery Business Analysis Patient Capital Intrinsic Value |
| 2023 Q3 |
InflationInflation has fallen recently but is expected to remain volatile due to structural forces like deglobalization and labor market tightness. The manager expects inflation volatility to be elevated within the forecast period, with potential for reacceleration above the Fed's 2% target. |
Deglobalization Labor Fed Monetary Policy Structural |
OnshoringRe-shoring of manufacturing capacity is identified as a significant longer-term mega-trend supporting domestic economic activity. This includes domestic reindustrialization and shortening supply-chains, driven by geopolitical tensions and supported by the CHIPS and Inflation Reduction Acts. |
Manufacturing Supply Chain CHIPS Act Reindustrialization Geopolitical | |
NuclearThe manager introduced a uranium producers industry ETF, citing the changing nature of baseload energy production and policies creating opportunities for nuclear energy. Green energy policies have set ambitious goals while new technologies cannot currently produce energy to needed scale and consistency. |
Uranium Baseload Green Energy Supply Demand ETF | |
ValueThe manager maintains a value bias across all market capitalizations, viewing earnings growth sustainability as more attractive in value equities with modest valuation multiples. They anticipate being in the early stages of a value outperformance cycle despite growth's year-to-date outperformance. |
Earnings Valuations Outperformance Growth Multiples | |
DefenseThe manager retains their Aerospace & Defense position, noting that remilitarization is accelerating as increased conflicts are seen globally. This positioning reflects the geopolitical environment and defense spending trends. |
Remilitarization Conflicts Geopolitical Aerospace Spending | |
| 2023 Q2 |
InflationConfluence expects inflation to moderate near-term but re-accelerate later due to structural factors like deglobalization and aging demographics. They believe the new inflation regime will be higher than the ZIRP period but lower than pandemic levels. |
Inflation Monetary Policy Structural Deglobalization Demographics |
AIAI and machine learning have boosted investor optimism and extended the expansionary cycle in domestic large cap stocks. The concentration rally has formed around AI themes, contributing to elevated valuations in large cap stocks. |
AI Machine Learning Technology Large Cap Concentration | |
OnshoringRe-shoring of manufacturing capacity and shortening supply chains is a mega-trend supporting domestic economic activity longer-term. Geopolitical tensions support international polarization into regional blocs, prioritizing supply reliability over lowest cost manufacturing. |
Onshoring Manufacturing Supply Chain Geopolitical Domestic | |
GoldGold exposure is maintained across strategies for its benefits as a low-correlation asset and potential haven during economic turmoil. Gold can act as a hedge against geopolitical risk and benefit from US dollar weakness while serving as a reserve asset for global central banks. |
Gold Haven Geopolitical Dollar Central Banks | |
ValueConfluence maintains a value bias across all market capitalizations, viewing the sustainability of earnings growth as more attractive in value equities. They anticipate being in the early stages of a value outperformance cycle despite growth's year-to-date outperformance. |
Value Growth Earnings Outperformance Cycle | |
JapanAdded country-specific overweight to Japan as shareholder-friendly reforms are taking hold and capital flows are moving out of the rest of Asia into Japan, potentially leading to earnings multiple expansion. |
Japan Reforms Capital Flows Multiple Expansion Asia | |
| 2023 Q1 |
Credit StressRegional banking crisis emerged unexpectedly due to duration mismatch from borrowing short and lending long. Several mid-size banks failed or nearly collapsed when depositors wanted money back as long-term securities dropped in value due to rising rates. Manager admits he did not anticipate this specific banking problem. |
Banking Duration Deposits Treasuries Crisis |
RatesFed tightening cycle expected to end soon due to banking crisis, as maintaining safe banking system is primary mandate over fighting inflation. Rising rates directly caused the banking troubles through duration mismatch on long-term securities. |
Fed Interest Rates Tightening Inflation Policy | |
QualityManager emphasizes quality and valuation as best determinants of positive long-term results across all strategies. Believes focusing on quality investments increases probability of good performance over longer periods rather than trying to time markets relative to daily news. |
Valuation Long-term Investment Analysis Performance |
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