Monday Club – 23/06/25: Your weekly Wealthwise digest

Investment round-up

‘Goldilocks bull’ – BoA fund manager survey

Fund manager sentiment returned to “Goldilocks bull” levels in May, according to the Bank of America’s latest global fund manager survey. Sentiment is now as optimistic as it was before ‘Liberation Day’. Cash levels held by global fund managers dropped to 4.2% from 4.8% the previous month.

Henderson and Fidelity European trusts merge

The Henderson European Trust is set to merge into Fidelity European, subject to shareholder approval. The combined fund would hold net assets of over £2.1bn. Fidelity co-managers Sam Morse and Marcel Stötzel would continue to manage the combined portfolio.

Greenwood steps back from MIGO

Nick Greenwood will step down as co-manager of the MIGO Opportunities trust after more than 20 years managing the strategy. He will remain at AVI and act as a consultant on the trust. Charlotte Cuthbertson and Tom Treanor will co-manage the trust.

Evelyn cuts MPS equities exposure

Evelyn Partners has cut the equities exposure in its Active Managed Portfolio Service (MPS), favouring bonds and alternatives. The rebalance is the first in a year, and was primarily driven by updates to the Dynamic Planner asset allocation framework.

Investors raise AI allocations

Global assets in artificial intelligence and big data funds have surged more than sevenfold over the past five years, reaching $38.1bn by the end of the first quarter of 2025, according to a report from Morningstar. Chinese investors in particular have contributed to their growth.

In focus: Not so exceptional

Donald Trump’s tariff regime has received a generally frosty reception from economists, with most concluding it will serve to slow growth, raise inflation and deter investment in the world’s largest economy. For the time being, though, such signs of weakness have yet really to materialise in the economic data. Could the US economy prove more resilient than widely expected?

At first blush, there can be little doubt the US economy is deteriorating. On Friday, the Conference Board’s Leading Economic Index – a forward-looking indicator for US economic growth – fell 10 basis points to 99.0 last month after a downwardly revised 1.4 percentage-point drop in April. This is its largest fall since the start of the Covid-19 pandemic and mirrors the pessimistic take of many economists.

The accompanying statement noted: “The Conference Board does not anticipate recession, but we do expect a significant slowdown in economic growth in 2025 compared to 2024, with real GDP growing at 1.6% this year and persistent tariff effects potentially leading to further deceleration in 2026.”

Since the US president began introducing tariffs on ‘Liberation Day’ at the start of April, the conclusion among economists is the policy will deliver a big macroeconomic shock to the US economy, with an impact on growth and inflation. Some have even suggested a recession is plausible. Trump has backed off from the more extreme tariff levels, however, and concluded trade deals with key economies such as China, which has helped mitigate the damage.

There are of course those who would argue the uncertainty is just as damaging. Equally, even though Trump has backed away from his most extreme positions, tariffs have still risen. “Our expectation – albeit not one we have a lot of conviction in – is we will reach a level where tariffs are not as high as was suggested on 2 April, but they will be higher than they were before,” says Chris Iggo, chief investment officer at Axa Investment Management.

“Meaningful level of import tariffs can be expected, with some addition tariffs on targeted areas such as steel and aluminium. We wait to see what the discussion between US and China will bring.” He adds: “It is fair to say that growth will not be as strong and inflation will probably be a little bit higher than the baseline forecast at the beginning of 2025.” That said, Iggo acknowledges this has not yet been seen in the economic data – for example, while he expects to see an impact on consumer spending, retail sales have been relatively resilient.

US retail sales dropped by 0.9% in May, but this was largely caused by consumers raising spending on big-ticket items, such as cars, ahead of the implementation of tariffs. The Commerce Department said demand was softening but was supported by continued jobs growth. Oxford Economics meanwhile argues the impact is delayed, not avoided, and there is likely to be a more marked slowdown in the second half of the year. All in all, it is a murky picture.

Eyes on earnings

On employment levels and business profitability, Iggo says, the US economy has also shown itself to be resilient thus far. Jobs growth is still positive, with the US adding 139,000 jobs in May and the employment rate remains steady at 4.2%. Annual wage growth continues to tick along at 3.9%.

“Important for investors is that corporate earnings remained relatively strong in the first quarter,” Iggo says. This was essentially a pre-tariff period, of course, but he adds: “Companies say there is more uncertainty because of tariffs but, so far, there have not been significant revisions to earnings growth or forecasts or evidence of credit deterioration in the corporate bond markets.”

For his part, Lothar Mentel, chief investment officer at Tatton Investment Management, points out that rate cuts are likely to remain on hold. “Trump is not wrong that the US economy could do with some rate cuts – even if his 2% figure is pie-in-the-sky stuff,” he says.

“Growth is weakening and companies are struggling to pass on costs. But the Fed is unable to cut rates now, because Trump’s tariffs and deportations of foreign-born workers are a dangerous recipe for inflation. These factors might be outweighed by weaker growth, but the pandemic taught the Fed not to underestimate the long-term impacts of these kind of shocks.

“The medium-term trend is towards lower US rates – as the Fed’s ‘dots plot’ projection shows – but Trump has put them in purgatory. It is heartening, at least, that monetary policymakers are staying level-headed through the threats. We should also bear in mind that the Fed is much more than just Jerome Powell, and his colleagues on the committee are hardly more slash-happy than the chairman.” Nevertheless, rates are still high, and there is ample scope to cut should the economy take a more significant downturn.

Does the inherent resilience of the US economy make a compelling case for the country’s equities? Probably not. A lot of the problems the asset class was facing have not gone away. It remains concentrated in a handful of stocks and, as Orbis Global Cautious fund manager Alec Cutler points out, some of the largest companies in the US, such as Apple and Tesla, are still in the eye of the storm on tariffs. These technology giants are still expensive on most measures. Passive flows continue to support them but the elastic looks stretched.

It is worth noting here that a number of the top-performing fund managers in the IA Global sector over the past three years – funds such as Ranmore Global Equity, Orbis Global Equity and Ninety One Global Special Situations – have a value tilt, few or no ‘Mag Seven’ holdings and are only lightly invested in the US. Equally, fund flows appear to be turning at the margin. The weakness of the dollar makes US exposure far more risky for non-US investors.

The US economy may be more resilient than the worst predictions suggest but its sheen of ‘exceptionalism’ has gone. It is unlikely to grow faster than many of its peers, which makes the high valuations for its stockmarket ever harder to justify. Equally, we are only in the foothills of the potential damage wrought by the tariff regime. There could be worse to come.

Read more on this from the Conference Board here, from Invesco here and from J.P. Morgan AM here