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At the 2025 Charles Schwab IMPACT Conference in Denver, Baird Funds President and Chief Investment Officer Emeritus Mary Ellen Stanek offered a nuanced view of the U.S. economy and valuable insights for financial advisors navigating the evolving fixed income landscape. In an environment marked by cooling inflation, persistent government deficits, and investor caution, Stanek’s disciplined and grounded perspective resonated strongly with the conference theme of strategic adaptation in uncertain times.
Stanek opened by acknowledging the mixed signals that characterize the late-2025 economy. “On average, when you look at the data—whatever we can get right now given the government shutdown—the economy seems to be coming along,” she said. “But when you look under the covers, by sector and demographic group, you see very different experiences. You really need to understand that to gauge both the opportunities and the risks.”
Her framing underscores a key message for advisors: despite positive headlines, the underlying picture is uneven. Some consumer segments and industries show resilience, while others feel pressure from persistent costs and slower growth. For financial professionals, this calls for a more selective and risk-aware approach when constructing portfolios.
Inflation: Still an Unwelcome Shadow
Inflation may have cooled from its post-pandemic peak, yet it remains a challenge for wealth preservation. Stanek cautioned that advisors cannot afford complacency.
“Inflation is one of those things that investors and advisors need to think about—it’s an enemy of their wealth,” she explained. “It’s not just about what you earn on an asset class or portfolio, it’s what you keep after inflation and taxes. Inflation has come off its hottest point, but there are still issues we need to pay attention to.”
Her emphasis on vigilance aligns with Baird’s long-held philosophy of balancing returns against real, after-cost performance. For advisors, this means building portfolios that not only generate yield but also sustain purchasing power over time.
To that end, Stanek pointed to the continuing relevance of high-quality bonds within a diversified framework. “We think bonds offer decent value as a potential protector for total portfolio performance,” she said. “But spreads are tight, so you need to be risk-aware.”
Interest Rates and the Value in Patience
After two years of elevated interest rates, advisors are eager to know what might come next. Baird’s outlook remains steady and disciplined, favoring balance over prediction.
“We think the fixed income markets right now offer decent values and income levels,” Stanek noted. “That said, we think bonds should be part of the portfolio solution. Liquidity is always one of those traits in a portfolio that you think is somewhat important—it becomes very important when markets get more volatile.”
Her point about liquidity carries additional weight as investors increasingly chase opportunities in private markets and alternatives. “There’s a lot of interest right now in private markets and the ‘alts,’ but make sure there’s still a portion of the portfolio that remains liquid, high quality, and well-diversified,” she advised.
These remarks reflect Baird’s investor-first ethos: maintaining flexibility and the ability to rebalance portfolios during market dislocations—a core advantage that advisors can translate into client confidence.
The Deficit Dilemma and Fiscal Policy Risks
Discussion soon turned to fiscal policy and growing federal debt—an area where Stanek urged vigilance. “You have to pay attention to fiscal policy,” she said. “Monetary policy gets a lot of the headlines, but fiscal policy is critically important. We are running significant deficits, and those deficits need to be financed.”
She pointed to rising interest costs at the federal level, and to how the average government debt, rolling over every three years, compounds the challenge. “We think yield curves will stay steeper because of it, with longer yields being higher than they otherwise would be to reflect the risk of these deficits.”
Such structural forces make it essential for advisors to weigh duration, credit positioning, and diversification more carefully. In this backdrop, selectivity across bond types—from municipals to investment-grade corporates—can help align client portfolios with both total return and income objectives.
Navigating Tight Fixed Income Markets
The 2025 bond market, as Stanek described, is “tight”—with limited dispersion across sectors. For disciplined fixed income managers, that environment calls for precision and patience.
“We stay duration-neutral to our portfolio benchmarks, and we’re very surgical about how we build portfolios,” she said. “Right now, we’re being very careful where we take risk and making sure we’re being paid enough in additional yield or potential return. Patience will be rewarded.”
That patience-driven mindset is not new for Baird; it’s a cornerstone of their investment culture. As Stanek put it, “We always say, ‘Patience, grasshopper,’ including to ourselves. Stay well-diversified and liquid so that when opportunities arise, you can take advantage of them.”
Income Generation: A Growing Priority
As demographics shift and the baby boomer generation moves deeper into retirement, investor priorities are evolving. “So many investors are now turning from building wealth to seeking predictable, high-quality income,” Stanek observed.
She urged advisors to address this transition directly in client conversations. “For high-tax-rate investors, pay attention to municipals. When you tax-adjust those yields, they look quite compelling. Build diversified income-oriented portfolios and take advantage of the opportunities.”
This pragmatic guidance echoes Baird’s commitment to helping advisors align portfolio construction with client life stages and tax realities. For wealth practitioners, it offers a clear narrative to frame the fixed income conversation heading into 2026: income as a stabilizer, not a sacrifice.
Looking Ahead: Opportunity Through Discipline
When asked what themes will define 2026, Stanek spoke with characteristic perspective and humility. “We like to say our approach is what you see is what you get,” she said. “It’s very understandable for investors, which is important for advisors communicating with clients.”
She cited technological evolution, capital expenditures around artificial intelligence and data infrastructure, and shifting geopolitical currents as potential drivers of both volatility and opportunity. But she emphasized that trying to predict each wave is less effective than maintaining a disciplined, transparent investment process.
“Trying to guess the direction of all of that is really difficult,” she said. “You’ll always get exogenous events that the consensus doesn’t expect, and then there’s a readjustment. So for the portion of the portfolio that investors typically use us for, stay focused, risk-aware, and patient.”
That philosophy, grounded in clarity and long-term perspective, remains central to how Baird serves financial advisors: through consistency, communication, and carefully calibrated exposure across taxable and tax-exempt fixed income solutions.
A Trusted Partner for Advisors
For advisors seeking a partner that prioritizes clarity, consistency, and investor alignment, Baird Funds offers a philosophy built for endurance—not rapid shifts. With multiple bond funds recognized on Morningstar’s “Thrilling 33” list and a reputation grounded in research, transparency, and active management discipline, the firm continues to stand out for its steady hand in volatile times.
As Stanek’s comments at Schwab IMPACT 2025 make clear, success in the next stage of the market cycle will depend on understanding the nuances beneath the surface—balancing yield and liquidity, income and flexibility, and patience with perseverance.
To learn more about Baird Asset Management’s investment approach and resources for advisors, visit Baird Asset Management.
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