Monday Club – 07/04/25: Your weekly Wealthwise digest

Investment round-up

Rainbow joins SJP

Former Schroders head of UK James Rainbow joined St James’s Place on 1 April as CEO of wealth management, a newly created position.

Retail investors lose confidence

Retail investors withdrew £563m from funds in February, with the majority of the outflows coming from equity funds. Despite the volatility, US sectors such as the IA North America and IA North American Smaller companies received inflows of £415 and £81m throughout February.

Wealth planner announces restructure

Wealth management firm Hurst Point Group has brought its Argentis and Hawksmoor businesses under a single executive management structure. The firm said the move reflected growing collaboration between the two divisions.

BlackRock launches active ETFs

BlackRock has expanded its iShares Enhanced Active ETF range with the launch of two new European-listed fixed income strategies – the iShares $ Corp Bond Enhanced Active Ucits ETF and the iShares € Corp Bond Enhanced Active Ucits ETF.

Investment trust veteran retires

Peter Hewitt, manager of the £148m CT Global Managed Portfolio Trust, will retire from fund management in October. He has managed the investment trust since its launch in April 2008. Read more from the AIC here

In focus: On the hoof

“I have no idea what’s going to happen next. And neither do any of you. And neither do your parents. Because there’s a horse loose in the hospital. It’s never happened before. No-one knows what the horse is going to do next – least of all the horse. There are no experts. They try to find experts on the news. They’re like, ‘We’re joined now by a man who once saw a bird in the airport.’ We’ve all seen a bird in the airport. This is a horse loose in a hospital …”

US comedian John Mulaney’s splendid analogy for the first Trump presidency seems even more apt today. ‘Experts’ have spent the days since ‘Liberation Day’ desperately trying to sketch out various ideas of what could happen next in the wake of the president’s tariff announcements – but, well, no-one has seen a horse loose in a hospital before.

Of course, there is a plan of sorts. The aim is to reduce the US’s trade deficit. Or, as Trump put it: “For decades, our country has been looted, pillaged and plundered by nations near and far, both friend and foe alike. American steelworkers, auto workers, farmers and skilled craftsmen – we have a lot of them here with us today – they really suffered gravely. They watched in anguish as foreign leaders have stolen our jobs, foreign cheaters have ransacked our factories, and foreign scavengers have torn apart our once-beautiful American dream.”

So now the US president wants to “reduce our taxes and pay down our national debt” and “supercharge our domestic industrial base” because “jobs and factories will come roaring back into our country – and you see it happening already.”

Still, the ultimate outcomes are largely unknowable. While investors now know the opening level of tariffs for individual nations, Trump has made clear these numbers are all open to negotiation and could go up or down depending on how willing countries are to give ground on whatever particular issue the President decides is important. Some 50 countries have subsequently approached the US to start those kinds of negotiations.

Equally, the ultimate impact on demand is unpredictable. To what extent will a 20% tariff dent demand for an Aston Martin versus, say, beer? It is possible to make broad generalisations about companies that will be hit – those with long and complex supply chains, say, or those that rely on importing to the US. Over the past month, when tariff speculation was at its height, the hardest-hit sectors have been information technology, communication services and financials, while utilities, consumer staples and energy have proved more defensive. In this respect, it has been a traditional ‘risk-off’ market.

Against this backdrop, can fund managers do anything except wait and hope? Economic orthodoxy suggests everything is about to become more complex to navigate. “The immediate consequences of this are likely to be higher inflation and lower growth – a combination that is not a positive one for equity markets,” observes Mike Fox, head of equities at Royal London Asset Management.

“It will reduce the profitability of corporates and put pressure on consumer expenditure as prices increase. This will inevitably take some time to work through for markets, and many companies will need to adjust their profit expectations for the coming year.” Nevertheless, he believes this is part of a fundamental re-ordering of the global economy, which should bring significant investment opportunities in the longer-term. “Understanding this re-ordering and the economic framework that will come out from it will be critical,” he adds.

Royal London’s early analysis suggests there is a move towards a multi-polar world, where three economic regions – North America, Europe and Asia – trade more within themselves than with each other. “Investing regionally as opposed to globally will be a skillset many investors will have to learn and relearn,” says Fox. “Globalisation is not completely gone – but in a way that it hasn’t for some time, it may now matter which markets a company is listed on and operating in.”

Fox now expects a re-acceleration of the re-shoring trend in the US as companies have to manufacture there to access it as a market for selling their goods. Europe will continue to look a more attractive place to invest with fiscal stimulus driving economic growth and greater political cohesion, he argues, while Asia, led by China, will also form its own economic block.

“Countries such as China, Japan and South Korea – historically foes – are now coming together to respond to the US,” says Fox. “As these and many other Asian countries begin to trade more with each other, it will create new economic linkages and opportunities for companies that operate there.”

In terms of shorter-term action, investment managers are generally taking down risk and gravitating to more defensive parts of the market. “We had already acted to reduce risk last month – first by cutting overall equity exposure to neutral, and by underweighting corporate bonds, where spreads had become historically tight,” says Guy Monson, chief market strategist at Sarasin & Partners.

“We are holding the proceeds in cash, giving us flexibility to add to positions if market declines become excessive. We also continue to hold strategic positions in gold across balanced mandates. Within our equity exposure, our quality tilt is clear. We have been actively reducing our exposure to consumer names, given concerns around the impact of the US administration’s policies on employment and inflation.

“Finally, our new ‘security’ theme positions us for opportunities arising as global politics and economics fragment. These could include food and other natural resources, relative tariff ‘winners’, cybersecurity, and national champions. We also maintain exposure to companies that help mitigate and limit climate disruption.”

Amid all this, it is still possible to find cheerleaders for mega-cap technology – albeit a slimmed-down ‘Magnificent Six’ rather than the Magnificent Seven, given most now exclude Tesla. “Over 80% of the share price returns for the Magnificent Six come from earnings,” points out William Van Der Weyden, investment analyst on the Guinness Global Innovators fund.

“This compares with the broader market, where the expansion in valuation multiples accounts for nearly 60% of returns. Our analysis suggests these stocks have a relatively similar revenue outlook to that seen historically.” He believes recent share price falls, if anything, make the case even stronger.

The problem is that, even if this half-dozen are still good companies, they have become the embodiment of the US market. As such, they are likely to remain volatile in the near time. They will be a source of liquidity for investors moving out of US markets as well as a natural target for reciprocal tariffs from global governments.

Amid all the focus on equities, let’s not forget fixed income. Bond yields have slipped as equity markets have slumped – for example, the US 10-year bond dipped below 4% in early trading on 4 April. There has been speculation that depressing bond yields and dollar strength is part of the White House’s plan, providing a de facto stimulus to the economy, and then rolling back on the tariffs in the nick of time. If so, however, this is a precarious game to play and the damage to the US economy may already be irreversible.

“The chances of a recession in the world’s largest economy have now increased to the point where the market thinks it is likely,” argues Richard Carter, head of fixed interest research at Quilter Cheviot. “How Trump spins this, and the fact these tariffs will add to the inflationary fire, is anyone’s guess.

“Treasury yields have fallen sharply, as investors take flight and look for safe-haven assets. This would suggest the Federal Reserve will need to put additional rate cuts on the table to look to prevent that recession being triggered – but, should it face inflation rising too, it is in somewhat of a bind. Any hint of stagflation puts the soft landing that was achieved post-Covid very much in doubt.”

For his part, Greg Wilensky, head of US fixed income at Janus Henderson, believes the Fed will prioritise its full employment mandate by cutting rates more aggressively if it faces a scenario of higher unemployment coupled with higher prices. “In our view, fixed income investors are on the right side of the Fed in the present environment,” he adds.

While economists and investors may for the time being have to base their analysis on having once seen a bird in the airport rather than a horse loose in a hospital, it is difficult to build a positive outlook for the months ahead. It may be a case of hunkering down until the worst is over and the horse chances upon an exit.

Read more on this from Fidelity here, from Guinness Global Investors here and from Janus Henderson here