Still tarrified, or just a bump in the night?
The volatility seen in markets over the past month suggests investors were surprised at the tariffs imposed by the US on imports and fearful of their impact on the economy and company earnings. The remarkably rapid and sizeable recovery in shares by the end of the month implies investors expect US policy to swiftly turn supportive and the trade war to be resolved in short order. Milford’s diversified funds fared well through the volatility, cushioning against capital losses, outperforming underlying markets and in many cases finishing the month with positive returns.
Our views and broad positioning remain consistent with those over the past few months. We have had reduced exposure to US shares, choosing instead to invest in regions such as the UK and Europe. We have had increased exposure to bonds, expecting weaker global economic growth to boost bond prices. We have also held reduced US dollar currency exposure, with greater exposure to the Australian dollar, Euro and Japanese Yen. These broad positions served us well last month, and the volatility in all asset classes provided plenty of opportunities for us to manage these positions to boost performance for our funds.
Our stock selection also delivered some good performances. UK shares such as utilities company National Grid (+7.3%) and NatWest Group bank (+5.8%) continue to perform well alongside European names such as Spanish telecommunication operator Cellnex (+8.6%) and German energy utility E.ON (+10.4%). Australian shares outperformed last month, whilst NZ shares lagged. Some notable performers for us were lottery operator The Lottery Corp (+9.7%) and shopping centre owner Region Group (+12.1%).
Our lower-risk funds performed well last month as bond markets rallied together with income-style shares, such as many of those listed above. We increased our exposure to bonds earlier in the year, helping us to capture this performance. The forces shaping the global economy are shifting. This is a multi-year process and Trump’s trade war is a symptom. There will continue to be significant implications for markets and how we invest. Change can be unsettling and give rise to concern. However, we are optimistic about the opportunity set and are well placed to navigate a shifting investment backdrop going forward.