Nathan Sweeney, Chief Investment Officer of Multi-Asset

This latest round of tariffs has been in the making for decades. Since 1987, Donald Trump has been discussing the unfair treatment of the US in trade negotiations, but this move now throws open the floodgates, forcing parties to the negotiating table.

The table below shows the tariffs the White House calculates each country charges on US imports – and the reciprocal levies unveiled by Trump. Notably, the tariffs are set at only half rates, implying that if retaliation follows, the US could move to impose fully reciprocal tariffs, further escalating tensions.

Ironically, while tariffs are often seen as a barrier to trade, they could ultimately lead to more free trade if negotiations force better terms between countries. Each nation will approach this differently, depending on how much they stand to lose or gain. However, in the grand scheme of things, the US is less exposed to economic damage compared to other nations, given the size of its domestic market and its ability to shift supply chains more easily than some of its trading partners.

How we are positioned for an uncertain world

In our multi-asset portfolios, we have maintained a positive stance on government bonds for some time, primarily expressing this through long-duration UK gilts. One of the key unknowns surrounding the new tariffs is their impact on US inflation, which in turn leaves the Federal Reserve’s next move open to debate. Given this uncertainty, we have chosen to hold our long-duration position in UK government bonds rather than their US counterparts.

In the corporate bond arena, we remain underweight high-yield bonds. Companies at the riskier end of the spectrum are likely to struggle if growth slows or if cost pressures intensify – and that is before factoring in any specific tariff-related impacts.

In equities, we are overweight UK stocks. With a 10% tariff hit, the UK has emerged relatively unscathed, and the door remains open for negotiations that could see some of these tariffs rolled back. Historically, UK equities have also demonstrated resilience in periods of uncertainty.

We have also been increasing exposure to infrastructure, a sector that tends to perform well in risk-off environments due to its defensive qualities and inflation-linked revenues. Additionally, our diversified portfolios have equity exposure in Europe and Asia, which have delivered stronger performance this year compared to the US market.

The power of diversification

This period of heightened uncertainty shows why diversification remains key. By spreading exposure across asset classes, geographies and sectors, we position portfolios to navigate shifting market dynamics. While tariffs introduce new uncertainties, a well-diversified portfolio helps to mitigate risk and capture opportunities across global markets.

We will continue to monitor the situation, but this news, while unsettling, does remove a significant unknown that had been hanging over markets for some time. Greater clarity is generally a positive in the calculations of investors.

Bonds

James Athey, Co-Manager, Marlborough Global Bond fund

The announced tariffs are significantly more punitive than investors expected. Of course, we must consider that what we know today may not be the steady state as trade partners choose to try and negotiate (better for risk assets and the economy) or retaliate (worse for risk assets and the economy).

This is a stagflationary shock for the US and, as such, how the Federal Reserve will respond is unclear. For now, the market is running with the idea that this is definitely bad for growth and to the extent that the Fed will respond with lower interest rates. This assumption is open to question.

Outside of the US it is likely to be a disinflationary negative growth shock. And, as many non-US dollar currencies are appreciating, this will further increase the downside pressure on prices (via lower import prices). It therefore seems more likely that these central banks will be able to respond with easier monetary policy.

From a bond perspective, the likelihood has increased of falling yields and steeper yield curves. Bonds that offer inflation protection, such as US Treasury Inflation-Protected Securities (TIPS), should be beneficiaries.

Trades we are running include increased exposure to higher duration bonds (those that are more sensitive to interest rates) and bonds that provide inflation protection. We are underweight corporate bonds and government bonds from Eurozone nations apart from Germany.

Equities

Rory Dowie, Portfolio Manager

Equity markets fell across the board this morning as investors reacted to the tariffs. At the time of writing, Japan was down c. 3%, Europe c. -2%, Hong Kong c. -1.6% and China -0.6%.

The tariff rates are remarkably high. Back-of-the-envelope calculations suggest Vietnam may face tariffs above 10% of its GDP. Trump is now near his campaign proposal of 60% China tariff rates, 34% on top of the existing 20% that has already been enacted. It is likely the impacts will go beyond simply economic. We may well see foreign policy implications and non-US countries shunning US products and companies.

First quarter earnings start next week. We will be closely assessing company commentary on tariff impacts, with rising input costs and potentially lower demand. However, as we have seen historically, US companies have levers to pull to protect earnings.

We anticipate that the Q1 earnings numbers will come in ahead of expectations, though we are increasingly concerned about potential guidance downgrades for the rest of the year on the back of this news.

We continue to favour high-quality companies with robust supply chains and economies of scale. These large businesses will have more mechanisms to offset tariff impacts.

Looking ahead, key questions include whether other countries retaliate or de-escalate through negotiation and whether a very negative market reaction will provide a catalyst to bring forward US fiscal stimulus, perhaps in the form of lower corporate or individual income taxes.

It will also be interesting to see how companies deal with higher costs and softer demand. Responses are likely to be different across sectors, and the commentary accompanying first-quarter earnings should give us some visibility here.

We will be on the lookout for potential opportunities. It is interesting to note that medicines are, so far, exempt from tariffs.

‍

‍

This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.