- Further signs of the start of a rotation away from the US
- Liontrust Multi-Asset portfolios well positioned for short-term equity moves
- Our fixed income allocation has acted as a counterweight to stock markets
Investing is never easy. There are periods in history where, with the benefit of hindsight, markets were relatively becalmed but even those periods are not plain sailing when you are in the thick of it. I would be surprised if, with the benefit of hindsight, these past few months are ones we would categorise as “easy”.
If there is a reoccurring theme thus far in 2025, it is change. We have seen a change in tone geopolitically and a redrawing of decades-long political alliances, with the US retrenching from its role of global defence backdrop, and tit-for-tat tariffs, some actual, many threatened, have provided challenges for politicians, business, consumers and, in turn, investors.
March has been a salutary reminder that, even if you had perfect foresight on the path of events, the chances are you would not also have a great deal of luck predicting the markets’ response to them. Take, for example, “America First”: an initiative that puts the US’ interests firmly front and centre and yet the main beneficiaries of this policy have so far been European and UK stocks. There are some good reasons for this, of course, most notably the valuation gulf between US stocks and the rest of the world coming into 2025. The Trump trade that kicked off in October last year saw the US market, and most notably technology names, rally on anticipation of an accommodating political backdrop. The mega cap technology names, in particular, were at extremely high valuations from an historical perspective and their catalysation at the tail end of 2024 served to only make them even more expensive compared to the rest of the world.
Valid concerns over tariffs
Over the course of March, we saw these US technology names underperform and their prices return to the sort of levels they traded at before the Trump trade kicked them on. Have the fundamentals changed? Ultimately, not a lot and certainly not enough to explain the price moves in Europe or the US for that matter. What has changed is sentiment. Essentially, the marginal buyer of these assets has decided they are happy to pay a bit more for European stocks and a bit less for those in the US. There are valid concerns that tariffs may impact growth and inflation but it is possible for companies to do well in an environment with a little less growth and a little more inflation as long as consumers are not too spooked to cease spending and accumulate savings.
European markets have also benefited from the continent having to focus more on ensuring its own security, and that of Ukraine, in the face of Trump’s threats and indeed actions. Germany reached a record high after its Parliament approved €1 trillion of spending on defence and infrastructure, raising investors’ expectations of improved economic growth.
Positioning of the funds and portfolios
Equity markets sold off in March and that will impact the performance of our funds and portfolios. In terms of the Liontrust Multi-Asset team’s positioning, we are relatively well placed for the moves over the short term. The US market remained the laggard over the month with returns of -8.0% in GBP terms. Europe ex UK, Japan and Asia ex Japan all returned circa -3.0% in GBP terms, and the UK and emerging markets returned -1.8% in sterling terms. We have been less constructive on the US than others, scoring the large cap stocks as 3 out of 5 in our Tactical Asset Allocation (TAA), whereas we are positive on most other equity markets, scoring them a 4 out of 5. Our circumspect view of Europe ex UK stocks will have provided a modest relative performance benefit over the month. Over 12 months, equity markets remain firmly in positive territory with the UK the standout performer over the year with returns of 12.2% in sterling terms. We have scored the UK market a 4 out of 5 on our TAA scores for well over 12 months and so the funds and portfolios have been well positioned for this outperformance.
Our fixed income allocation provided a meaningful counterweight to the gyrations of the stock markets with the higher quality issuers (such as the US government) holding up well. Our credit allocation, and high yield in particular, saw spread widening put pressure on prices over the month. As buyers of yield, rather than spreads, we were aware spread levels were relatively low but we felt, and still believe, that the overall yield levels available from high yield (9.7% for global at one point) represent an attractive long-term opportunity. Over the past 12 months, most fixed income asset classes have returned a modest positive return in sterling terms with the high single digit return from high yield debt a stand-out.
It may be that the moves so far in 2025 are the start of a rotation that we believe has been long overdue. The supremacy of the US stock market has been remarkable over the past decade or so and this level of outperformance has not, in history, gone without a pullback at some stage. While sentiment can have a very powerful impact on investment markets over the short term, over the medium to long term, fundamentals should assert themselves. We are confident that a proven, robust and repeatable process applied in a disciplined and patient way remains the most reliable approach to generate returns for investors.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds and Model Portfolios managed by the Multi-Asset team may be exposed to the following risks:
- Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value;
- Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss;
- Liquidity Risk: If underlying funds suspend or defer the payment of redemption proceeds, the Fund's ability to meet redemption requests may also be affected;
- Interest Rate Risk: Fluctuations in interest rates may affect the value of the Fund and your investment. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result;
- Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time;
- Emerging Markets: The Fund may invest in less economically developed markets (emerging markets) which can involve greater risks than well developed economies;
- Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates;
- Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices.
The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
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