Investment Update – April 2025

Read our latest Investment Update with our Head of Investments, Charlie Lloyd.

What happened in the markets?

Markets reacted badly to ‘Liberation Day’, with the US announcing that a baseline tariff of 10% would apply to imports from all countries excluding Canada and Mexico. In addition, most major trading partners excluding Canada and Mexico would face an additional tariff rate which varies by country, with most Asian trading partners facing higher tariffs than anticipated. The 10% minimum tariff will be imposed from the 5th of April, while the larger tariffs will be imposed from April 9. Vietnam (46% tariff), Taiwan (36%), and China (34%) have been hit particularly hard, and this takes the tariff on China to 54%, with a 20% rate already in effect. The UK has got off relatively lightly with only a 10% tariff.

The large 20% tariff imposed on the EU arguably represents the most significant incremental shock to the global outlook, although the implied increase is more moderate once accounting for product-specific exemptions. Nonetheless, this increase is only modestly tempered by the lack of additional tariffs on US imports from Canada and Mexico. If implemented fully, the effective US tariff rate will likely approach a 25% rate, a near-100 year high, whereas expectations were for a more modest 15%. The announced tariffs are, therefore a worst-case scenario for investors, despite markets factoring in some tariff anxiety in recent weeks.

This is an aggressive move by the Trump administration and ironically, some of the largest impact will be felt by US multinationals who make and sell products around the world. The share prices of Apple and Nike fell heavily following the tariff announcement for example, and US equities have underperformed European and Emerging Markets in the immediate aftermath of the news.

What’s next?

We expect the announced tariff rates to fall from current levels as negotiations take place in the coming days and weeks, although there is a risk that Europe
will announce retaliatory measures in addition to China. However, policymakers in these regions will be keenly aware of the fragility of their own economies, which may encourage a more diplomatic response whereby both sides can claim some sort of victory.

The immediate consequences are likely to be higher inflation and lower growth, although the initial market reaction suggests that growth concerns are dominating. Unsurprisingly, this is a poor outcome for equities, and this is where losses have been most significant across financial markets, although oil prices have also fallen heavily on news that OPEC members will shortly increase production. Government bonds have rallied, which somewhat softens the impact of weaker equity markets, but the moves have been tempered by the inflationary impact of tariffs, which may limit any response from central banks.

If negotiation does bring lower tariffs, then we can expect risk assets to respond positively, but the short-term uncertainty is already weighing on business and consumer confidence, which in turn impacts investment and consumption. This will reduce the profitability of corporates and pressure consumer expenditure as prices rise.

Whilst the initial market reaction has been severe, it has been somewhat orderly, and it will take some time to digest the full implications of the tariff announcements. US consumers will feel aggrieved if goods start to cost more, especially as the President campaigned on the issue of inflation, and we expect pleasing voters will become a necessity as we get closer to the US mid-term elections next year. The Trump administration has also promised tax cuts and deregulation, with the former being funded by tariff revenue, and the market will be hoping for some clarity on these pro-growth policy items in the not-too-distant future.

What have we done?

The most important thing at times like this is the diversification which comes from being multi-asset. All our funds have US equity weightings lower than the US equity weighting in global equity markets, and we have exposure to UK &global bonds and alternative asset classes such as infrastructure & gold.

Within our US equity exposure, we have diversified into an S&P Equal Weighted fund and have for some time held a US quality dividend growth ETF, these have held up somewhat better than the S&P 500 over recent weeks. We also reduced the weighting to the Sanlam AI fund in the higher-risk funds last year.

Our listed alternatives (Infrastructure) have held up better than broad equities; also in alternatives, gold was introduced into the VT Esprit Careful Growth Fund at the end of last year with a current weighting of 3%, whereas the other VTEsprit Funds have smaller weightings to gold.

Over the last couple of years, the bond exposure in our funds has increased notably and over the last year, we have focused our global government bond exposures on US Treasuries (GBP hedged), which have delivered stronger returns than other government bond markets this year. We’ve also recently purchased a position in European government bonds following the news that Germany would significantly increase fiscal spending and the subsequent jumping German bond yields. We’ve also opportunistically added to gilts in recent weeks.

Remain focussed on the long term

Trump’s disdain for orthodoxy and diplomacy is unsettling, and markets dislike uncertainty above all else, but we’d remind readers that the COVID-19 pandemic and the 2022 bond bear market are recent examples of market volatility that eventually gave way to better times. Taking short-term emotional decisions, such as moving into cash, would have been extremely costly in either case.

Each period of uncertainty brings its own unique challenges, leading investors to question whether they should remain invested. Today, we have high levels of government debt, rising geopolitical tensions, and a potential trade war, and the human instinct is to seek protection in such times. However, history shows that markets have overcome recessions, world wars, the inflation crisis of the 1970’s, several stock market crashes and the financial crisis in 2008.

With the recent tariff announcements subject to revision, either tomorrow, next week or next year, it’s extremely important to take a step back and focus on your long-term goals. A disciplined approach helps you navigate through the inevitable ups and downs of investing, and the reward for long-term investing should be higher expected returns, but if you have any concerns about your investments, please do not hesitate to contact your adviser.

Join our webinar

We are delighted to invite you to our next Webinar, where our Investment Team will be sharing updates and expert insights on, for example:

• The UK’s fiscal challenge
• Trump, tariffs and European defence spending
• The outlook for bonds and equities

Date & Time: 10^th April Time: 12.30 pm-1.15 pm, click here or below to register.

Do you want to learn more about how we invest?

Learn more about our investment process, our funds and the Investment Team here.

If you have further questions about investing with Shackleton or want to get in touch with our team, please contact us. We are always happy to help.

Important information:

This document is issued by Shackleton, which is a trading style of Shackleton Advisers Limited. Shackleton makes no warranties or representations regarding the accuracy or completeness of the information contained herein.  We have prepared the following document based on our view of the current market. Nothing in this document shall be deemed to constitute financial or investment advice in any way. We recommend you speak to your adviser before making any decisions.  This document shall not constitute an invitation or inducement to any person to engage in investment activity. Past performance is not a guide to future returns and the value of capital invested and any income generated from may fluctuate in value. 

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