Fund Manager Updates April 2025
In a landscape marked by economic uncertainty and shifting market dynamics, fund managers are offering a range of perspectives on the most promising investment strategies for the months ahead. From cautious optimism to bold bets on emerging sectors, their insights provide a valuable snapshot of how the industry’s key players are navigating volatility and identifying opportunities. Here’s what they’re saying—and what it could mean for investors.
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The extent to which tariffs are passed on to end consumers will vary between industries and specific companies and an assessment of potential impacts will form a part of our detailed bottom-up analysis.
Our focus in the strategy remains on cash generative, globally diversified businesses with strong competitive advantages which support pricing power and earnings resilience, whose outlook is not heavily driven by external macro or political factors. We would expect our permanent focus on businesses with the ability to pass through a higher proportion of increased costs through to end customers to provide relative protection, as would be the case in periods of higher inflation.
It is typical for opportunities to present themselves in volatile markets. We're looking at ideas but mindful that this is a rapidly moving environment and there will be second order impacts to consider that aren’t immediately obvious. For example, it is interesting that the USD isn’t providing its usual flight to safety benefits. This is the first time in at least 15 years where the USD has depreciated at the same time as equity markets have fallen >10%.
In the context of portfolio holdings, not all US revenues earned by companies from tariff targeted countries will be impacted. The portfolio has considerable exposure to service revenues generated in the US by ex-US businesses eg. RELX. It is unlikely services would be subject to tariffs in addition to products. Also, where our non-US businesses do sell products into the country, as globally diversified businesses they typically also have local operations, rather than importing. For example, Japanese tyre manufacturer Bridgestone has a significant number of its manufacturing plants based within the US, therefore reducing their exposure to tariffs. Amongst portfolio holdings most in focus, we would include Legrand, a European domiciled seller of capital goods in the US. For its US operations, approx. 45% of COGS are imported, of which 20% is from China and 10% from Mexico. However, we remain confident in the company’s pricing power and long-term thesis. Legrand is a direct beneficiary of electrification trends through its electrical infrastructure products and services as well as enjoying exposure to the fast-growing data centre vertical. A relatively small percentage of end product costs can confer pricing power and help to explain the resilience of returns through different macro conditions.
The portfolio continues to exhibit a defensive profile and target lower drawdowns in more difficult market environments. This could therefore be expected to offer relative protection if geopolitical and other market risks lead to increased volatility.
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The price of gold has broken a series of records recently — there were 40 new highs in 2024. The dollar gold price rose by 19% in the first quarter of this year, the biggest quarterly increase since 1986.
These gains reflect the role of gold as a safe-haven asset in times of uncertainty as well as a portfolio diversifier. Dollar weakness and the inflation outlook also has helped to lift demand.
However, the gold market is lacking broad-based participation from investors, in my view. The price gains over the last year mostly reflect buying from a narrow group of derivatives traders including hedge funds, and from central banks, which have been bulking up their holdings for the last three years.
At the time of writing this commentary, long-only investors haven’t participated in this rally in the way they did in an earlier bullish period for monetary metals, 2009-2012, when central banks were ramping up quantitative easing. For now, mainstream investors remain mostly on the sidelines and, we believe, under-allocated to gold, silver and gold and silver mining stocks.
I believe this will change and I have seen some early indications of this. In the volatile days after the US unveiled its tariff plans on April 3 (President Trump called it Liberation Day), a handful of mining shares rose. Some generalist investors started to nibble on the sector even as the metals prices themselves fell. The narrative in the market then was that because gold, silver, and other metals were exempted from the reciprocal tariffs there had been a sudden reversal on the arbitrage trade of monetary metals into the US, which had been happening through Q1.
The price of silver rose 18% in Q1, the most since Q4 2022, though it has fallen back somewhat to its 2023 trading range. Looking at the gold-to-silver price ratio, I think that silver is overdue for a rebound. Silver, which is an important component used in industry, also is in a material supply shortage.
I believe that in the coming days and weeks asset allocators will be forced to stop sitting on their hands and to think about what investments may work for the rest of the year. In my view, the mining companies are performing too well at the operating level to be ignored any longer, especially within this more dramatic market backdrop where many other equities are a pain trade.
Miners most often gain momentum in bullish periods for monetary metals. Because they have fixed costs, a ramp up in gold and silver prices tends to feed straight into the mining companies’ profitability and cash generation. At the moment, they are throwing off a lot of cash, they are paying dividends, and they are undervalued versus history based on metrics such as price to cash flow.
We believe the current macroeconomic environment is attractive for monetary metals’ investors. Is the US facing a period of stagflation? It seems more likely than it did a year ago, in my view. Ever since Liberation Day, economists have been scaling back growth estimates and raising inflation forecasts. Stagflation has in the past proven to be an ideal backdrop for monetary metals.
My view is that gold and silver and gold and silver miners ought to be considered a mainstream investment for pension and institutional mandates and long-only investors. A small allocation to gold has been shown to reduce volatility in a portfolio of stocks and bonds.
Gold is a principal reserve asset of central banks, which use it to protect against inflation and market risk, and these institutions have been increasing their holdings, according to the World Gold Council. We think that gold, silver and gold and silver mining equities have an important role to play in a well-diversified investment portfolio, especially in the current market and macroeconomic environment.
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March was a challenging month for global equities, with most major indices falling. Talk – and the implementation – of US tariffs on some of its largest trading partners ushered in a further deterioration of soft economic data and recession risk increasing. This was in conjunction with heightened concerns about resurgent inflation, with the University of Michigan’s long term inflation expectations measure rising above 4% in March, its highest level since 1993.
After a very strong run of performance, the last few days have been challenging. Generally speaking, the fund is positioned for a de-globalising world, but has not been positioned for a recession. Some of the areas that have driven our outperformance over the last few years – namely European banks, defence and Japan - have sold off materially.
Following strong Q1 performance – led by our ‘growth’ and ‘risk’ buckets – we have been boosting our allocation to core income – adding to AbbVie, AstraZeneca, BATS and Hess Midstream, and buying shares in Bristol Myers and Japan Tobacco. Our core income allocation has increased by c.700bps from recent since inception lows. This has been funded by taking down some areas of cyclicality such as Fluor, CRH and Komatsu. Nonetheless, the portfolio retains a significant allocation to ‘risk’, the majority of which is through financials which look well equipped to deliver double digit annual cash returns and are well capitalised and well provisioned for a hit to profitability and/or deterioration in their credit books. We believe that these utility-like returns are sustainable, but the market will test this view if the regime change that we have long argued for is expedited by a tariff-induced recession.
In this backdrop of increased volatility and uncertainty, we can take some comfort in a portfolio that looks very different to both the market and peers, with a substantial (50%) valuation discount to and twice the dividend yield (4% vs 2%) of MSCI ACWI, that has grown its income distribution at a compound annual growth rate of 8% since the fund’s inception in 2010.
This article is for general information and does not constitute personal financial advice. If you’re unsure what’s best for you, seek independent financial advice.
Past performance is not a guide to future performance, nor a reliable indicator of future results or performance. The value of investments, and the income or capital entitlement which may derive from them, if any, may go down as well as up and is not guaranteed; therefore investors may not get back the amount originally invested.
