The Boyar Value Group’s 2nd Quarter Letter 2025

Boyar Value Group argues that while the S&P 500 trades at elevated valuations of 22x forward earnings—well above its 16.5x long-term average—small-cap stocks have become unusually cheap on a relative basis. The Russell 2000 has underperformed the S&P 500 by 136% to 54% since May 2019, pushing small-cap valuations to multi-decade lows on an enterprise value to EBIT basis, a gap not seen since the dot-com bubble aftermath. The managers believe this setup favors small caps if interest rates ease and domestic manufacturing expands, as smaller companies carry floating-rate debt and generate most revenues domestically. The first half of 2025 was volatile. President Trump's April "Liberation Day" tariff announcement—proposing a 10% universal tariff and reciprocal rates up to 50%—sent the VIX to 52.3, its highest since early pandemic days, and the S&P 500 fell 19% from its prior high before tariffs were paused. The quarter recovered sharply, with the S&P 500 gaining 10.9% in Q2 and reaching +6.2% year-to-date, aided by trade relief, a resilient labor market near 4% unemployment, and corporate earnings that rose 12.7% in Q1. Moody's downgraded the U.S. credit rating from Aaa to Aa1, citing persistent deficits and political dysfunction. International equities surged 19% year-to-date, boosted by an 11% decline in the U.S. dollar—its worst start to a year since 1973. The managers note that while a weak dollar helps U.S. exporters and amplifies returns for international investors, it also raises import costs and may reflect concerns about fiscal discipline. Sentiment has turned decidedly bullish, with 56.4% of analyst ratings at "buy"—the highest since early 2022, just before a 25% decline—and gold up 20% in Q1 plus 5% in Q2. Despite these risks, the managers remain focused on finding undervalued individual stocks with strong balance sheets and durable competitive positions, noting that since 1950 there has never been a 20-year period in which U.S. equity investors failed to earn at least 6% annually.