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With tariffs and trade policy making headlines once again, we want to share our perspective on these developments and how we are responding. If you have any questions, please talk to your adviser.
Global market reaction: With tariffs higher than many anticipated, raising effective rates to the highest level since the 1930s, markets have unsurprisingly reacted negatively. These initial changes to tariffs have sparked further volatility. To put this volatility into the longer-term context, this chart shows that despite drops in the FTSE All-Share index, over the course of the year, returns have finished positive in 27 out of 39 years.
Ongoing adjustments: The baseline tariffs are due to begin on April 5th, with higher tariffs on specific countries coming into effect on April 9th. We expect continued discussions and potential changes as negotiations unfold, which will help clarify the situation over the coming weeks. It is unclear whether tariffs are being used as a bargaining chip or as a long-term policy. While some countries may secure lower rates through trade and security agreements, tariffs are likely to stay elevated overall. If these tariffs remain at their current levels for an extended period, the impact on global growth could be substantial. We are therefore monitoring this situation very closely.
Interest rate expectations: As expected, the uncertainty has led to discussions around interest rates. It is still unclear how Central Banks will manage interest rates. The initial reaction from markets is that the scope for interest rate cuts this year has widened, however, this depends on various factors.
Market resilience: Although some sectors are more affected by these tariffs than others, we continue to recommend investing in a diversified portfolio, along with sufficient cash deposits for short-term needs. We’re observing that certain sectors, such as defence, food retailers, utilities, pharmaceuticals, real assets, and those with inflation-linked revenues, with TRIG being one example, which have performed relatively well despite broader market volatility.
Long-term perspective: It’s important to stay focused on the bigger picture. While short-term volatility might feel unsettling, history has shown that markets tend to adapt and recover over time. Countries and companies will adjust to changes, as they always have. During this time, it is likely that opportunities will emerge that we may choose to take advantage of.
Portfolio changes: At this stage, we are not looking to make substantial changes because our portfolios remain well-balanced by region and by sector, with significant exposure to bonds and infrastructure in most portfolios. We have previously made changes in this regard, including an equally weighted US tracker, increasing allocation globally, etc.
The unpredictable nature of the Trump administration highlights the need for diversification. We are cautious about making decisions that may need to be quickly unwound due to the erratic decision-making we are witnessing. The situation we are observing now may be completely different in just a few months. The short-term volatility is unsettling, but it is part of investing. Over the long term, equity markets provide higher inflation-adjusted returns than cash and other asset classes.
