Reflections of the CIO...

It isn’t often that we can look back over a period as short as three months and say it was one which ‘changed the world’ but this was indeed one of those rare occasions. Markets had to absorb a breadth and depth of change in the economic, security and technological outlooks the like of which we don’t think has ever happened before, even in the Covid era.[1] The month of March and the opening days of April was another period of great turbulence, as the cosy assumption that President Trump’s tariff policies would be more ‘bark than bite’, morphed into ‘shock and awe’ at the extent of just how far his administration is prepared to go to advance the MAGA (Make America Great Again) agenda.

Market volatility amid geopolitical and economic rewiring

Unsurprisingly, markets found it hard to process this attempt at rewiring the global trade architecture in tandem with the rewiring of the NATO led security architecture, especially at a point in time when the global economy was meandering through one of its periodic bouts of uncertainty.[2] Stock and currency markets absorbed most of the shocks, with the dollar and US equities falling steadily throughout March. Rest of world equities performed much better, at least initially, but eventually they too started to give way as the mood steadily darkened ahead of ‘Liberation Day’ in early April (the day on which the US announced sweeping new tariff restrictions).

By the end of March, uncertainty about the economic outlook was at an all-time peak and expectations for profit and economic growth were being pared back steadily by analysts around the globe. The process of adjustment to a world in which it will be more cumbersome and expensive to do business is well underway and it is proving to be a bumpy ride.

This uncertainty in the investment outlook is also likely to persist well past the ‘clearing event’ of ‘Liberation Day’ in our opinion, not least because uncertainty and unpredictability is a clear characteristic of the new US administration. Given the amount of leverage in the financial system, market movements can be very sharp in the near term as sentiment waxes and wanes. This is also obviously a very fertile environment for headline writers who have ample opportunity to amplify whatever turns out to be the theme of the day. However, this amplification and leverage usually ends up just creating more heat than light, with the real longer term drivers of returns taking a while to show themselves.

Navigating Trump’s tariffs

Although much of the recent news and events may seem surprising, they were all reasonably well flagged in advance. The MAGA agenda on security and tariffs was clear for many months ahead of their launch, and, although there was always the chance of watering down the worst case scenarios, the shape of what transpired was visible before it happened. This visibility helped us, for example, to begin rebalancing equity positions away from their US dominance and increasing allocations to opportunities elsewhere around the world at the end of last year. Where possible, we also increased portfolio alternatives exposure at the same time, as a means of increasing diversification for the year ahead. Our thinking was that US assets had delivered excellent returns for many years and were now looking very expensive compared to the rest of the world, not leaving much room for any disappointments. The moves into alternative assets were based on the opinion that we couldn’t totally rely on traditional safe haven assets, such as government bonds, to offset risk taking elsewhere, given that these assets were being pressurised by a troublesome inflationary outlook. These adjustments have helped us navigate a tricky first quarter and we will likely be re-enforcing them as tactical opportunities present themselves in the near future.

Looking to the future: Investing during uncertainty

As we come to the ‘end of the beginning’ of the new Trump dominated era, we are struck by the fact that dealing with a ‘new’ set of uncertainties really isn’t so new after all. Uncertainty around economic policy will probably peak in the next few months and then fall. Economic growth could slow and may even result in a shallow recession. However, the combined effects of German (and Chinese) stimulus, lower oil prices and falling interest rates are powerful offsets to the risks that the US policy reset brings with it.

We have managed through many uncertain and volatile periods before, and the basic principles of our investment process don’t alter with news flow, however eye catching it may be. Portfolios will continue to be constructed with a high degree of diversification and liquidity, and an eye to the long term. These simple principles help us face the future with a good degree of confidence, keeping us open minded about how the next few months develop and alert to the numerous long run opportunities that shorter term periods of turbulence inevitably produce.

With thanks for your continued support,

The Saltus Asset Management Team, April 2025