Navigating Volatility: The Total Return Securities Fund in Q1 2025

The first quarter of 2025 presented investors with a turbulent landscape, marked by tariff policy uncertainty, sharp declines in U.S. tech stocks, and divergent performance across global markets. Against this backdrop, the Total Return Securities Fund (ticker: STEW) and its peers, such as AGNC Investment Corp., demonstrated resilience through strategic allocations and disciplined risk management. This analysis examines their portfolio shifts, performance dynamics, and the macroeconomic forces shaping their outcomes.

Portfolio Strategy: A Concentrated Value Focus

The SRH Total Return Fund (STEW) employs a bottom-up, value-driven strategy, prioritizing undervalued securities of high-quality businesses. Its portfolio is highly concentrated, with a significant stake in Berkshire Hathaway Inc.—a position that underscores both opportunity and risk.

While this concentration amplifies exposure to Berkshire’s leadership and macroeconomic shifts, the fund’s sub-advisors argue it aligns with long-term value principles. The strategy also permits global flexibility, with allocations across equities and fixed income, though specifics on sector weightings remain undisclosed.

In contrast, AGNC Investment Corp. (ticker: AGNC), a mortgage-backed securities (MBS) specialist, focuses on Agency MBS and leveraged dollar roll strategies. As of Q1 2025, its $78.9 billion portfolio was 96% invested in 30-year fixed-rate Agency MBS, with a conservative 7.5x leverage ratio and $6.0 billion in unencumbered liquidity. This structure emphasizes duration management and capital preservation amid volatility.

Performance Dynamics: Value vs. Growth, and Liquidity as a Shield

The Q1 environment punished U.S. growth stocks. Tech mega-caps (the “Magnificent 7”) saw declines of over 10%, while European equities surged 12% and emerging markets gained modestly. Fixed income also offered refuge: core bonds rose 2.8%, driven by falling Treasury yields.

STEW’s value orientation likely insulated it from tech-driven losses, but its lack of exposure to outperforming international equities may have limited gains. Meanwhile, AGNC’s MBS portfolio benefited from widening spreads post-tariff uncertainty—a divergence from Treasury yields, which fell 17 basis points in late March.

AGNC reported a 2.4% economic return on tangible common equity, driven by a $0.44 per share net interest spread and $0.36 dividend payout. However, its tangible net book value (TNBV) per share dipped to $8.25, reflecting short-term spread pressures.

Key Risks and Strategic Trade-offs

1. Concentration Risk: STEW’s reliance on Berkshire Hathaway introduces leadership dependency, as Warren Buffett’s influence remains pivotal. A loss of his stewardship could destabilize the fund’s valuation.
2. Interest Rate Uncertainty: AGNC’s success hinges on Fed rate cuts, which are expected to stabilize MBS spreads. A delay in easing could prolong valuation headwinds.
3. Prepayment Risks: AGNC’s CPR (constant prepayment rate) rose to 8.3%, signaling heightened homeowner refinancing activity if rates decline—a double-edged sword that could reduce portfolio久期 but complicate income stability.

Data-Driven Insights: Liquidity and Leverage as Safeguards

AGNC’s $6.0 billion liquidity buffer (63% of tangible equity) and conservative leverage contrast sharply with aggressive MBS players. This discipline positions it to capitalize on widened spreads, as seen in April’s tariff-driven volatility.

STEW’s risk profile, however, lacks such transparency. Its non-diversified structure and reliance on a single stock warrant caution. Investors must weigh potential long-term gains against the 20-30% annual volatility typical of concentrated equity strategies.

Conclusion: A Mixed-Equity Balance Amid Uncertainty

The Total Return Securities Fund’s Q1 2025 performance reflects the trade-offs inherent in concentrated, value-driven strategies. While STEW’s Berkshire stake offers asymmetric upside, its lack of diversification exposes it to idiosyncratic risks. AGNC’s MBS focus, by contrast, leverages structural demand for fixed income amid geopolitical uncertainty—though its returns remain tied to Fed policy and interest rate trajectories.

Key Takeaways:
- Value vs. Growth: The outperformance of international equities and core bonds highlights the advantage of geographic and sector diversification.
- Liquidity as a Competitive Edge: AGNC’s conservative leverage and ample liquidity allowed it to navigate Q1’s volatility, underscoring the importance of capital structure discipline.
- Macro Over Micro: Both funds benefit from long-term trends—lower rates and global reflation—but face near-term risks from trade wars and inflation stickiness.

For investors seeking total return, the funds offer complementary exposures: AGNC as a defensive fixed-income play, and STEW as a high-risk, high-reward equity bet. However, the latter’s Berkshire-centric strategy demands a long-term horizon and tolerance for concentrated risk. In an era of policy uncertainty, prudence—and liquidity—remain paramount.