Q2 in Review: your update from the Investment Team

Introduction

Geopolitical disruption, economic policy shifts, and cautious optimism across global markets shaped the second quarter of 2025. From Trump’s ‘Liberation Day’ tariffs to the positive movement in European equities, this update provides a snapshot of how our portfolios performed and highlights the key developments shaping global economies, sectors, and sustainability trends.

At-a-glance summaries:

Alternatives
Gold continued to rise, supported by geopolitical and economic uncertainty. Infrastructure assets performed well, driven by demand for diversification and AI-linked projects.

Europe 
European equities gained on falling inflation and ECB rate cuts. High-yield bonds outperformed despite initial market volatility.

Asia and Emerging Markets
US tariffs caused volatility, with some recovery on trade progress. India lagged while South Korea saw a confidence boost from political change.

United States 
Trump’s tariffs triggered a selloff followed by recovery on strong earnings. New fiscal policies raised debt and inflation concerns, especially around green energy. US military action added complexity but little market disruption. The Fed held rates steady amid policy uncertainty and dollar weakness.

Sustainability 
US climate spending hit $1 trillion amid rising disaster costs. Norway launched the world’s first full-scale carbon capture project.

UK 
UK markets fell then rebounded after US tariffs, attracting global investors. Despite poor data, UK equities hit highs on value and income appeal.

Performance 
Holden & Partners’ portfolios delivered solid performance across all risk levels, outperforming benchmarks and showing encouraging signs in sustainable holdings such as TRIG.

Alternatives
Gold continued its rally, albeit at a slower pace than in Q1. The Morningstar Gold Index rose 6.83% in Q2, as some wondered how long this momentum could continue. The seemingly ever-present geopolitical tensions in the Middle East and Eastern Europe, combined with volatile bond and equity markets and macroeconomic concerns have joined forces to once again nudge investors towards the commodity in search of effective hedges.¹ More specifically, the uncertainty surrounding Trump’s fiscal plans, a weakening US Dollar and stubborn inflation figures have cast unease amongst investors,² which lent itself to gold’s ‘safe haven’ reputation.

Infrastructure had a positive quarter, broadly speaking. The S&P Global Infrastructure Index, which tracks a variety of infrastructure companies across various categories to represent global listed infrastructure, returned 3.66% over the quarter for sterling investors.³ Contributing factors include an increasing appetite for diversification amongst uncertain investors, as well as greater demand for projects such as battery energy storage, power generation and AI datacentres.⁴ This came despite slowing interest rate cuts.

Europe

Equity markets in the Eurozone performed strongly this quarter. The Stoxx Europe 600 ex UK index returned 5.85% over the quarter for GBP investors,⁵ and 3.41% for local investors.⁶ This continued the trend from Q1. Inflation in the Eurozone was down to 1.9% in May – the first time inflation has dipped below the ECB’s 2% target level since September 2024⁷ – which allowed the ECB to cut interest rates by 0.25% twice during the quarter.⁸ It is worth noting that gains were not spread across all sectors, with industrials, utilities, telecoms and financials vastly outperforming other sectors such as luxury items and healthcare seeing losses.⁹

The gains in Europe were symptomatic of a broader trend of investors rotating out of US markets, perhaps unsettled by Trump’s seemingly erratic policy direction, but also by positive fiscal developments in Europe.¹⁰ The Euro STOXX index has now returned 18.25% YTD ¹¹compared to a -3.72% return from the S&P 500 for sterling investors.¹² Defence stocks in particular have fared well due to renewed commitments to spending by European NATO members. German defence company Rheinmetall for example offered a 40% return for sterling investors over the quarter.¹³

Global bond markets received somewhat of a shock in the wake of Trump’s ‘Liberation Day’ tariff package, though much like their US counterparts, yield spreads on Eurozone bonds retraced to pre-Liberation Day levels soon after. High-yield bonds outperformed investment grades over the quarter.¹⁴

Asia and Emerging Markets

It was a mixed bag for Emerging Market equities in Q2. The shock of Liberation Day severely dented confidence as Trump’s sweeping and substantial tariffs threatened growth and earnings in emerging markets, many of which run a large trade surplus with the US. Fears were quelled somewhat by the following 90-day pause, offering an opportunity to renegotiate trade deals. Signs of progress on the US-China trade talk front made for a confidence boost, with Chinese equities up slightly on the quarter.¹⁵ While there has been somewhat of a tone down in rhetoric, and a climbdown from the tariffs initially being touted, attitudes have remained cautious as July 9th, the end of the 90-day pause, approached. Overall, the quarter was highly volatile for EM, with all eyes squarely on Washington.

India had another difficult quarter with themes largely the same as in Q1; earnings concerns and persistently high valuations¹⁶ following a rally in 2024 the main factors. South Korea offered substantial returns as several months of political turmoil seemed to come to an end, ¹⁷having started with the impeachment of former President Yoon Suk Yeol, who had, to the shock of many, including his own party, attempted to impose martial law at the end of last year. The election of new President Lee Jae Myung restored some much-needed confidence to the region.

US

Global markets saw significant volatility in Q2, and the U.S. were centre to it all. The blanket approach to tariffs announced on Liberation Day sparked a sharp selloff across global equity markets. U.S. equity indices saw large corrections from their previous highs, and the 10-year Treasury yield fell by over 75 basis points from its January peak,¹⁸ however, the subsequent pause to tariffs calmed markets. This, along with strong Q1 corporate earnings and a resilient economy, spurred a recovery throughout the rest of the quarter, with the S&P 500 finishing 10.9% up over the quarter in Dollar terms.¹⁹

Trump formally introduced his tax and fiscal spending bill, featuring many deep tax reforms, benefitting middle and upper-income households, while also dialling back support for green energy. It raised concerns over the growing U.S. debt and how its final form will look.
The U.S. stepped up their involvement in the Middle East following direct conflicts between Israel and Iran. Operation “Midnight Hammer” featured several strikes against Iran’s nuclear facilities, the success of which remains unclear at the time of writing. Despite some movement in the price of oil, the reaction in equity markets was surprisingly muted.

All the above continues to make the Federal Reserve Chair, Jerome Powell’s job much trickier. Tariffs, the tax and spending bill, and tensions in the Middle East have the potential to stoke inflation. Because of the this, The Federal Reserve continued to hold interest rates steady over the period, to the President’s chagrin, who continues to call for interest rate cuts and the resignation of the Fed Chair.

The uncertainty surrounding Trump and his policies is beginning to look more certain, which has perhaps given markets the ability to ‘shake off’ much of the news flow. The world’s reserve currency weakened against a host of other currencies, with the Dollar Index falling 7% over the quarter.²⁰ While several factors are at play, it might suggest a growing lack of confidence in how the U.S. is conducting policy – domestically and abroad.

Sustainability

Over the year ending May 1st, it is reported that the United States has spent nearly $1 trillion on disaster recovery and other climate-related needs, equating to around 3% of the country’s GDP. With various weather events such as Hurricane Helene, Hurricane Milton, and the Los Angeles wildfires at the start of the year, disaster-related spending has increased significantly. The largest drivers of this trend in the U.S. are rising insurance premiums, which have doubled since 2017, disaster repair costs, and federal aid.

While extreme weather events have always occurred naturally, the risks are intensifying due to climate change, which increases both the severity and frequency of such events. The rise in insurance premiums acts as a “stealth tariff,” as these costs are not included in official inflation figures, thereby placing an increasing burden on both economies and households, diverting funds that might be better spent elsewhere.²¹

Norway has introduced the world’s first full-scale value chain for carbon capture and storage (CCS), marking a historic step in the fight against climate change. This technology involves capturing carbon dioxide (CO₂) from industrial processes, then transporting and storing it in a secure underground location, preventing its release into the atmosphere.

The Longship project includes CO₂ capture from Heidelberg Materials’ cement plant in Brevik and the planned facility at Hafslund Celsio’s waste-to-energy plant in Oslo, with storage 2,600 metres beneath the seabed near Bergen. Initially, 1.5 million tonnes of CO₂ will be stored annually, with approved plans to increase this capacity to over 5 million tonnes per year.²²

UK

The start of April saw large selloffs across global equity markets in the wake of President Trump’s substantial, if telegraphed, ‘Liberation Day’ tariff package, and the UK was no exception. The FTSE 100 plummeted 10.23% in the first week of April,²³ with the 250 falling 8.71%, ²⁴as Trump announced across-the-board 10% tariffs on all UK exports – UK exports to the US totalled almost £200bn in 2024.²⁵

Since then, the UK market has benefitted from investors rotating out of US stocks amid uncertainty and volatility caused by Trump’s various and constant policy announcements.²⁶ The UK market has long been neglected due to the prevailing theme of US exceptionalism, but in this less certain period, cheap valuations, high dividends and defensive names in the FTSE 100 seem to have attracted investors.

Later in the quarter, announcements of trade agreements with the EU, India and the US ²⁷ further boosted sentiment as the FTSE 100 fully recovered from it’s difficult April to hit record highs in June. This came despite the economy shrinking,²⁸ inflation figures (3.4%)²⁹ remaining well above target (2%), and the impact of Labour’s October budget coming into play, while the Bank of England maintained its one-cut-per-quarter pace. This, another reminder that the economy and the stock market do not always move in step with one another. The FTSE 100 ended the quarter with a return of 3.19%,³⁰ while the FTSE 250 returned 12.52%,³¹ aided by its lower exposure to suffering sectors Energy and Healthcare.

Performance

Our portfolios saw good returns across the board from the lowest risk to the highest risk. With returns ranging from 2.65% to 6.73% and all portfolios beating their respective benchmarks. Q2 has seen a slight outperformance of sustainable portfolios vs conventional, which is continuing the trend in the recovery of the sustainable portfolios.

The Renewable Infrastructure Group (TRIG), an investment that has been struggling and under our scrutiny, has shown signs of turning things around, indicating that our patience and enhanced due diligence is yielding results. As always, we continuously monitor and assess both the portfolios and other potential investment opportunities.