Insight Focus | Trump’s tariffs - active management in a shifting landscape

On 4 April we published an initial response to new US import tariffs covering how they work and framing them within broader market dynamics. It’s important to understand that tariffs compound an already complex outlook. You can read it here.

Active investment management is a key part of our approach. In times such as these, many clients understandably experience an urge to ‘do something’, and many investment and fund managers may feel the same. Depending on the mandate, our teams have been assessing opportunity, risk and reward at the portfolio level. Our analysts are working tirelessly to assess what these tariffs – if they stick – mean for the fortunes of different sectors and individual companies. Some of this work results in trading activity, but some does not, and it’s important not to interpret the latter as being passive or inactive. Sometimes doing nothing and taking stock may be the best thing to do – keeping your head when others are losing theirs. This is true for all investment mandates.

We’ve experienced extremely volatile equity markets recently, rivalled only by the Global Financial Crisis in 2008 and the Covid-19 pandemic in 2020. Heuristics may explain this – old fashioned fear and greed – as well as other investment houses running different strategies to ours being forced to sell positions as market falls triggered stop-losses or margin calls.

Fake news that Trump was considering a 90-day tariff reprieve was an extreme case in point. This delusion sent markets initially soaring before slumping on 7 April. Individual stocks experienced wild peak-to-trough price moves. That many investors so readily considered this fallacy credible is a direct consequence of President Trump’s brinkmanship. It offers a salutary warning for anyone wanting to make knee-jerk reactions, as on a whim or a word things can change - and boy, how they did. One post from Trump on Truth Social on 9 April confirming a 90-day reprieve for all but China propelled equity markets to some of the largest one-day gains on record.

We may be past ‘peak-tariffs’ and countries may now think that their best strategy is to hang tight and ride out the storm. Just how much damage has been done to corporate earnings and confidence will take time to understand. The risk of a global recession may be lower today but the world’s two largest economies – the US and China – going head-to-head in a trade war cannot be good. A 145% tariff on China suggests that apart from exerting maximum pressure on China on issues including Russia/Ukraine and the Panama Canal ports, Trump wants US businesses out of China, full stop.

Trump’s shift from targeted tariffs to broader ones (excluding China) may seem more moderate compared to just a few days ago. However, when China is factored in, the total projected revenue from tariffs remains similar, as does the overall impact on US consumers and the global economy. As long as economic policy continues to be driven by inconsistent and poorly executed political strategies, we should expect ongoing surprises and market volatility.

Given recent events, equity markets could have fallen even further. It’s positive that we have a 90-day breather but in no way are we out of the woods.

In the madness, there may be opportunities – fire-sales of quality companies caught in the downdraughts. Yet there is also the potential for companies to gap down further on little – or fake – news and so we advise caution. Market dynamics are extremely complicated, with the added jeopardy that tariffs still may not stick in their current form.

It’s important to note that our clients are already invested in what we believe are quality companies with strong balance sheets, resilient earnings and proven management teams. We are not immune from macroeconomic headwinds, but we are starting from a position of relative strength. In multi-asset portfolios, we would remind clients that high quality bonds provide both a decent starting yield and a shock-absorber that should zig-and zag differently to equities, moderating any further falls. They also provide optionality: a place to hunker down in a near-cash investment and wait until we need money to buy securities with attractive valuations. Some managers may be reserving cash for opportunities and deploying it. Alternatives such as gold, infrastructure or property may supplement these core holdings and provide inflation-protection too. Multi-asset portfolios are designed to be all-weather portfolios, and our teams can use different levers and toggles to respond to market turmoil.

Resisting the urge to take radical action, such as selling out, may be challenging especially when emotions are running high. Doing so means deciding when to sell and when to buy again - two difficult, if not impossible, decisions. It’s almost certain that you would miss the very best trading days as they typically follow the worst – it’s easy to miss a rally and diminish future returns. Long-term structural trends such as the adoption and monetisation of artificial intelligence, the uptake of obesity drugs, or the enduring need for consumer staples, have not gone anywhere - valuing them has become more complicated.

Our teams have great experience of managing market crises and we believe that doubling-down on tried and tested methods is the best compass to navigate a way through the fog: time in the market, not timing the market; diversification and sticking to your long-term goals. Resist the news, stay focused and reassess your financial plans if you feel you need to. Our investment team remains laser-focused on fundamental analysis and will continue to assess economic data and company fundamentals to select what we believe offer the best risk-reward opportunities for our clients.

 

This article was written at 08:00 on 11 April 2025.