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Written by: Victoria Hasler | Hargreaves Lansdow
- Global stock markets are assessing the impact of Trump’s tariffs.
- Impact on the US stock market could be positive for smaller companies over the long term.
- Bonds are still attractive for investors and gold is on a great run.
- Three fund ideas for market volatility.
The UK got away relatively lightly with ‘just’ 10% tariffs, as President Trump announced sweeping tariffs across its trading partners, with the EU facing 20% tariffs and Japan and China 24% and 34% respectively. Markets did not respond well, with Asian markets falling sharply on opening, although recovering a little as the day progressed. US futures tumbled and other global stock markets also look set to open down.
Back in November we wrote our outlook for 2025 and highlighted that President Trump would mean volatility for markets. The themes we highlighted at the start of the year remain relevant and in some ways are more compelling given the heightened volatility in markets.
It’s also important to remember that timing markets is notoriously difficult. For long term investors, while shorter term volatility in markets can be very uncomfortable often the best course of action is to sit tight and ride it out.
Bonds
We’re bullish on bonds. Given the uncertainty in markets, and the potential for tariffs to increase inflation, rate cuts are likely to be slower than expected. But with the 10-year gilt and US Treasury yields both still above 4%, bonds are still as attractive as they were at the start of the year.
Taking a long-term view, yields could lower to below 4% in future – of course nothing is guaranteed though. By looking at bonds now, there’s potential for capital gains in the future, as well as being rewarded with inflation-beating income in the near term, and the potential to diversify portfolios.
US smaller companies
The 47th US President’s impact on the US stock market could be positive for smaller companies. Trade tariffs favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused, though investing in them carries more risk.
Trump has also proposed cuts to corporate taxes, which is positive for companies’ earnings – and therefore could be beneficial to stock prices. Personal taxes, including income tax, are also expected to be lower under a Trump administration, which could boost consumption and raise economic activity – again good for domestically-focused smaller companies.
Smaller companies may be more susceptible to market volatility than their larger counterparts though, so this is not a trade for the faint-hearted, or those with shorter investment horizons. Year to date, US smaller companies have been caught up in the wider market volatility and have performed worse than their larger counterparts on the whole. Once tariffs are in place, however, we think the more positive story could start to come through.
Gold
In times of uncertainty one investment which tends to do well is gold. This is because it often acts as a safe haven. In the first three months of 2025, gold rose by 14.70%. While we wouldn’t necessarily expect returns to continue at this pace, the uncertain outlook combined with increased buying from central banks, particularly in emerging markets, means that the commodity may well continue to enjoy support.
Fund Ideas
Some fund ideas to fit with these themes:
1. Invesco Tactical Bond
The Invesco Tactical Bond fund is co-managed by Stuart Edwards and Julien Eberhardt. They can invest in all types of bonds, with few constraints placed on them. The performance of the fund hinges on their ability to interpret the bigger economic picture, and they can alter the fund's investments based on what they see. They aim to shelter the fund when they see tough times ahead and seek strong returns as more opportunities become available.
We think this is a good fund for exposure to the wider bond market. It takes away the hassle of deciding which type of bonds to invest in and when, because the managers are given the discretion to make these decisions for you. Over the long term the aim is to deliver a total return, through the combination of capital growth and income, rather than focusing purely on generating a high yield.
2. Artemis US Smaller Companies
The Artemis US Smaller Companies fund seeks out smaller companies with good potential for their share price to grow relative to the risk of the business. We like the way the manager considers how the US economy is performing to identify sectors that are benefiting from trends, as well as the areas that are finding things tough. We believe this should help the fund take advantage of new or changing policies which Trump puts in place.
The fund aims to deliver long-term growth by investing in smaller companies based in the US. Smaller businesses are often among the most innovative and offer lots of growth potential.
3. Troy Trojan
The managers of the Troy Trojan fund look to take advantage of the attributes of gold without putting all their eggs in one basket. Rather than trying to shoot the lights out, the fund aims to grow investors' money steadily over the long run, while limiting losses when markets fall.
The fund is focused around four 'pillars'. The first contains large, established companies the managers think can grow sustainably over the long run. These sorts of companies often outperform the broader market during difficult times. The second is made from bonds, including US index-linked bonds, which could shelter investors if inflation rises. The third pillar consists of gold-related investments, including physical gold, which has often acted as a safe haven during times of uncertainty. The final pillar is ‘cash’. This provides protection when markets stumble, but also a chance to invest in other assets quickly when opportunities arise.
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