What's happened?
President Trump announced broad tariffs on trading partners on what he termed “Liberation Day”. This included a 10% baseline tariff on imports from all countries (excluding Canada and Mexico), effective from 5 April 2025.
Additional substantial tariffs were announced on major trading partners including the EU, Japan and China. These are to be implemented from 9 April 2025.
If these tariffs take effect alongside previously announced levies, such as a 25% tariff on car imports, then the overall US effective tariff rate could soar above 20%, reaching the highest level in over 100 years.
Market response
This global trade shock has led to immediate and significant market reactions:
- Equities fell on both 3 April and 4 April. In sterling terms, global equity indices fell nearly 9%, with the dominant US market falling a similar amount. While losses were broad based, there was clear regional dispersion, with UK markets falling just under 6.5%. However, all markets experienced further declines on the morning of April 7.
- Government bond markets enjoyed healthy gains as investors sought their perceived safety at a time of higher economic uncertainty and risk. Gilts delivered a positive return of over 1% for the 2-day period.
- Currencies moved sharply in response to the changing backdrop. A rotation away from US assets contributed to weakness in the US Dollar. Gains were led by the Japanese yen, typically a defensive currency, and the euro.
The WS Aegon funds have been positioned with an equity weighting close to neutral but with a preference for non-US markets. They have held an overweight in gilt risk to provide some protection against weakness in riskier assets. While their equity exposure led to losses during the sharp sell-off, this structure will have helped mitigate the impact in the short term.
What comes next?
We believe the announced tariffs will significantly impact global economic growth, including in the US, and add to inflation pressures.
In the short term, there remains a high level of uncertainty, with a range of possible short-term outcomes, from trade retaliation that exacerbates the trade conflict to President Trump diluting his plan following negotiations with countries. He has done this earlier in the year following the announcement of tariffs on Colombia, Mexico and Canada, and Treasury Secretary Scott Bessent has indicated that there is potential for countries to negotiate lower tariffs.
How we’re responding
Given the wide range of potential short-term outcomes, we continue to take a long-term, valuation-based approach to managing the WS Aegon funds.
We believe we are in a time of profound global policy change, fraught with uncertainty. This presents both risks and opportunities, and we continue to take a balanced, diversified approach. This includes avoiding expensive equity markets, notably the US, which we believe may be more exposed to change, and maintaining an overweight position in government bond risk that we think can provide resilience during any economic downturn.
Market volatility can be a nerve-wracking experience, not just for investors but also for financial advisers managing their concerns.
Watch our Steadying the ship webinar where Anthony McDonald, our Head of Portfolio Management, and Tom Mathar from the Centre for Behavioural Research, offer practical techniques to help you to shift clients' focus away from short-term market fluctuations and toward their long-term goals.
Capital at risk.
Anthony McDonald is manager of Aegon’s Risk-Managed Portfolios.