Investment Update – May 2025

What happened in markets?

Global equities continued to recover in May as global trade tensions moderated. US equities performed strongly, with the MSCI USA Index returning 5.40%. Large US stocks helped lift the entire market, particularly NVIDIA, who reported better than expected revenue and the stock rose over 20%.

The market environment was more challenging for bonds with yields rising across the developed world which pushed their prices down. UK Gilts returned -1.19% and US Treasuries returned -0.59% driven by a combination of inflation and fiscal concerns. In the US, questions around the national debt rose to the fore as Trump pushes to pass his ‘Big Beautiful Bill’.

Elsewhere, the Bank of England cut interest rates, but cited sticky inflation and tariff uncertainty as key barriers to quicker reductions in rates. The ECB hinted at another rate cut in June given the economic growth on the continent is still weak. Gold was marginally weaker over the month, while oil prices were marginally higher.

*All returns in Sterling. Source: Morningstar direct

What did we do in the funds?

We modestly increased risk exposure in the VT Esprit funds as trade tensions eased and the likelihood of extreme market outcomes diminished. This included redeploying some excess cash into existing portfolio positions and allowing equity weights to drift higher. Notably, we added high yield corporate bonds through the iShares $ High Yield Corporate Bond ETF, as we find their overall yields attractive—particularly in comparison to equities.

Despite these selective increases in risk, the funds remain well diversified, maintaining exposure to government bonds, gold, and infrastructure—assets we believe are well-suited for more risk-averse environments.

What is the outlook?

Equity markets have essentially recovered all of their tariff-related weakness, with markets finding relief in the apparent desire of Donald Trump to make deals as well as factors which may have limited his actions, in particular the negative reaction from the bond market. US economic data remains broadly resilient, although much depends on how the recent tariff turmoil has impacted the economy, which should appear in economic data over the coming weeks, and the extent to which trade deals can actually be done.

Recent events have shown the importance of diversification as some investors have begun to question the ‘unique’ importance of US assets to global investors. Whilst US assets continue to have many unique characteristics, many of which cannot be found in other markets, the extent to which US assets have dominated global investment returns over recent years may not be repeated in the coming years. Our strategies remain well diversified by geography and currency.

Despite the uncertainty, we find several reasons to remain positive. The US economy has shown
resilience in the face of several shocks in recent years, which may help it withstand any tariff related impacts, whilst corporate fundamentals would appear robust. Furthermore, the large fiscal expansion being seen in Europe should support that region, and we believe bonds continue to offer attractive yields, particularly in high yield and emerging market debt.

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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.