Introduction: A Tumultuous Start to the Year
Spring 2025 has brought heightened uncertainty as U.S. trade policy takes a more protectionist turn. Proposed tariffs under the Trump administration have sparked renewed debates over globalization, economic sovereignty, and the impact on American industries. This backdrop has contributed to market volatility—particularly within small-cap equities—creating an environment where disciplined, research-driven investing is crucial.
Understanding the Tariff Landscape
The first quarter of 2025 saw the S&P 500 fall by -4.27%, while the Russell 2000—representing small-cap stocks—declined by -9.48%. This reaction reflects investor unease with proposed tariff changes aimed at:
- Generating $600 billion in tariff revenue
- Reducing federal spending by $1 trillion
- Retaining prior corporate tax reductions
While the policy seeks to reduce the fiscal and trade deficits—now hovering around $1.6 trillion and $1.7 trillion respectively—it introduces significant short-term friction into capital markets and the broader economy.
The Economics Behind Tariffs
Tariffs, by design, disrupt the balance of global trade. Economies benefit when each focuses on its comparative advantages. For instance, one country may possess low-cost energy for smelting aluminum, while another supplies raw ore. Through trade, both prosper.
However, tariffs imposed to protect legacy domestic industries often raise input costs, stifle competition, and discourage innovation. Shielded from global pressures, these industries may underperform and become less attractive to capital allocators. The unintended consequence? Reduced productivity, higher consumer prices, and weakened global competitiveness.
Macroeconomic Implications for Investors
Tariff-heavy strategies can lead to:
- Higher inflation, as import prices rise
- Elevated interest rates, due to inflationary pressure
- Slower GDP growth, as consumer spending tightens
Moreover, many American manufacturers are embedded in global supply chains. Lacking feasible domestic alternatives, they must absorb higher costs—compressing margins and potentially delaying growth initiatives.
At Ironwood Investment Management, LLC, we view these shifts not only as risks, but also as potential indicators for strategic reallocation and careful stock selection.
Strategic Tradeoffs: Revitalization vs. Innovation
Not all imports reflect lost domestic opportunity. For example, New England’s historical dominance in shoemaking has been replaced by a vibrant life sciences sector. Should policy focus on reviving legacy manufacturing, or supporting industries that are already competitive on a global stage?
This question sits at the heart of the tariff debate. A nuanced trade policy may help level the playing field. However, overly broad or misdirected protectionism could misallocate capital and suppress innovation in areas with long-term potential.
Market Reactions and Investor Perspective
Financial markets have been swift in pricing in policy uncertainty. For small-cap equities in particular, volatility has been pronounced. While the immediate effects may feel disruptive, they can also create windows of potential opportunity.
At Ironwood Investment Management, LLC, our strategy focuses on identifying High Ironwood-Quality (I-Q) companies—firms with resilient business models, seasoned leadership, and strategic flexibility. These companies tend to adapt faster, navigate turbulence more effectively, and may ultimately benefit from structural market shifts.
Why Work with Ironwood Investment Management, LLC?
With more than 25 years of experience, Ironwood Investment Management, LLC employs a consistent, research-driven investment approach designed to withstand various market conditions. Our Small Cap Core Strategy emphasizes:
- Bottom-up, fundamental equity research
- Investments in High I-Q companies with strong market positions
- Low-turnover portfolios that aim to capitalize on inefficiencies
By focusing on quality and long-term sustainability, we seek to position our clients for durable, risk-aware participation in evolving markets.
Take the Next Step with Ironwood Investment Management, LLC
To receive our full Spring 2025 Commentary Letter or to learn more about our investment strategies, reach out to us:
📞 Phone: (617) 757-7600
📧 Email: info@ironwoodfunds.com
🌐 Website: Ironwood Investment Management, LLC
Important Disclosures & Disclaimers
Performance Statistics – as of Q1 2025
Ironwood Investment Management®, LLC (Ironwood) is an independently managed investment advisory firm providing investment advisory services to institutional clients, mutual funds, and high-net-worth clients.
The firm is a registered investment adviser with the Securities and Exchange Commission. SEC Registration does not imply a certain level of skill or training.
Accounts in the Small Cap Core composite include separately managed, fully discretionary, fee-paying portfolios. Portfolios are invested in undervalued securities, the majority of which will have market capitalizations under $2.5 billion at cost, including securities with growth and/or value characteristics. Securities are considered undervalued when management believes the current share price does not accurately reflect the long-term economic value of the underlying company.
Ironwood Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Ironwood Investment Management, LLC has been independently verified for the periods January 1, 1999, through December 31, 2021. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis.
The Small Cap Core composite has had a performance examination for the periods July 1, 2002, to December 31, 2021. The verification and performance examination reports are available upon request. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
The creation date of the composite: July 2002. Performance inception date of the composite: January 1, 1999. Prior to July 2002, portfolios were included in the composite when at least 75% of the portfolio was invested in equity securities and when at least 75% of the portfolio was invested according to the investment style of the composite. Subsequent to July 2002, portfolios are included in the composite after the first full month of being fully invested.
Returns are presented gross and net of management fees and include the reinvestment of all income. Net returns are calculated based on the highest fee of 1.00%. Investment management fees are 1.00% on the first $25 million, 0.90% on the next $25 million, 0.80% on the next $50 million, and 0.75% over $100 million on an annual basis, and a client’s return will be reduced by these and other related expenses. The actual fee charged to an individual portfolio may vary by size and type of portfolio and may be negotiated. Actual investment advisory fees incurred by clients may vary.
The Russell 2000 Index consists of the 2000 smallest stocks in the Russell 3000 Index, representing approximately 8% of the U.S. equity market capitalization. The indices have been reconstituted annually since 1989. Ironwood returns and Index performance reflect reinvested interest income and dividends in U.S. dollars.
A list of composite descriptions and a list of limited distribution pooled fund descriptions are available upon request. Past performance is not indicative of future results. Policies for valuing investments, calculating performance, and preparing GIPS Reports are available upon request. Prior to May 2006, the Firm was known as Ironwood Capital Management, LLC.
Past Performance is Not Indicative of Future Results
The performance data provided in this blog reflects past performance, which may not be representative of future results. Investing in small cap stocks and other securities involves substantial risk, including the potential loss of principal. There is no guarantee that any investment strategy will be successful.
Forward-Looking Statements
This blog contains forward-looking statements, including expectations or forecasts about the performance of the market and specific securities. These statements are based on Ironwood Investment Management, LLC’s current beliefs and expectations but are subject to change without notice. Actual results may differ materially from those expressed or implied due to various risks and uncertainties, including market conditions, economic factors, and changes in government policy.
No Offer or Solicitation
This blog is for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities or investments. It is not intended to provide investment advice or to serve as a recommendation regarding any investment strategy. No client-adviser relationship is formed by reading this blog.
Conflicts of Interest
Ironwood Investment Management, LLC may hold positions in or recommend securities discussed in this blog. Clients should carefully review any investment strategy before committing to ensure it aligns with their investment objectives and risk tolerance.
Regulatory Disclosure
Ironwood Investment Management, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.