Webinar Q2 Market outlook webinar – Managing through uncertainty

(00:01):

Morning and welcome to our webinar aptly titled, Managing Through Uncertainty. So for those that don't know me, I'm Dan Matthews. I'm the Senior Investment Manager on the team here, and I'm joined actually in the room, but you can't see at the moment by Anthony McDonald, the Head of Portfolio Management. 

(00:21):

So let's start with the learning objectives. I don't need to read these to you, but you know, we're going to look at the market themes over the quarter, bit of economic background, and finally aim to explain sort of the views and convictions across the different asset classes within our portfolios. So, how do we plan to get to those learning objectives? So this is the agenda for today. We're going to start, as always, with our investment philosophy. Then we're going to talk a little bit about 2025 and try in vain to answer the question, what on earth is going on. And to do that, we're going to focus mainly on the big tariff shock that we've all seen. Then we're going to transition over to Anthony, who's going to talk a bit more widely about the environment of change and how that's impacting our investment views, and bring the webinar to a conclusion. And then we'll take any questions that you have at the end. Please do drop those in the chat. We will also be dropping the CPD certificate in the chat towards the end of the webinar, so look there for that. 

(01:19):

So we start today, as always, with our investment philosophy. This is as ever unchanged. It's incredibly important to us that we look at things with a sort of consistent lens, especially as the world changes around us, as it has been so far this year. You know, the team believes that they're on the slide, but broadly, we believe that, you know, markets are not fully efficient. We've certainly seen that recently, that long-term view is crucial to investing. What you pay for investments matters. So the starting valuation for an investment matters, and obviously asset allocation is an important driver of portfolio risk and return. Otherwise, we wouldn't be managing a multi-asset portfolio in the way that we do. 

(02:00):

So we're going to start today's webinar in the good old US of a talking about your friend and mine, Mr. Trump or President Trump. We've titled this slide ‘Flooding the Zone’ which, you know, I looked this up. It means to overwhelm or saturate a particular area with information or resources, and we think that's pretty apt to what's been happening in the states so far in 2025. On the slide, we've just picked a few different things to demonstrate this. So, you know, first of all, we've got the Mexico tariffs. You know, first they were here, then they weren't here, then they put some tariffs on cars. You know, we'll come to all the details of the tariffs later in the presentation. But the point here is that there was a lot of change going on within this theme. Second, we have Mr. Powell there on the slide to the head of the Federal Reserve. 

(02:45):

Trump has again said contradictory things about whether or not he may or may consider firing him. He wants him to drop interest rates and has been very vocal about that on Truth Social. At the same time they've said that they have no intention of firing him. So quite a mixed message there. Next one, trade deals. So, post tariff, we've seen trade deals start to emerge again, contradictory information here on this slide, there's one about Japanese trade, where the Japanese trade representatives, you know, the US has been saying that Japanese trade talks have been going well, and the Japanese representatives have been saying, the US has been very unclear on what it is they require from those trade talks. So, very different messages, again, from the trade deals. Next, Mr. Musk and the infamous Doge. So Doge being the Department of Government Efficiency. 

(03:30):

Here, Trump declared they were going to cut about a trillion from federal budgets. Again, even the trillion number is different depending on who speaks and what time. But what it's looking like is that Musk is now going to step back and they've maybe cut $150 billion. So a big difference there in terms of expectations. And then finally on the bottom of the slide, we included Greenland as kind of perhaps one of the more extreme examples. You know, Trump talking about wanting to take over Greenland, but we could have included Canada as the 51st state. We could have included doing deportations in sort of defiance of the Supreme Court. We could have included the external revenue service, you know, paying for tax cuts via tariffs. We could have included the executive orders to allow people to have plastic straws or to allow them to change their shower heads to make them more efficient. 

(04:16):

The point here is that there's a lot of noise out there and quite often very contradictory noise, you know, sometimes contradictory noise in the same hour or even from the same source. And, you know, this has added a great deal of instability to, to market here to date, and just generally politics here to date. And we believe that this most likely isn't going away anytime soon. So the next few slides we're going to dip into, you know, the most prevalent and perhaps the biggest source of noise at the moment, which is the US tariff policy. We'll come to a slide in a minute that gives us kind of a holistic view of the tariff policy as it stands. But let's start off with the big tariff shock, which was April the second and the conveniently named Liberation Day. 

(05:00):

So we're sort of starting our story in the middle here. You know, liberation day is when the bulk of the tariffs were added, and when the big shock in the market kind of reacted significantly. But President Trump was, you know, very much a tariff man before this day, even during the campaign. So the background going into April 2nd, was that we had seen some smaller specific tariffs. You know, I alluded to them on the previous page, Mexico and Canada. And these tariffs were largely expected. So the admin, the administration had telegraphed that these were reciprocal tariffs were coming. That being said, in part because of the Canadian and Mexican experience, the market expectations were that these tariffs levels would be linked to the tariffs that other countries charge the US and were most likely to be some sort of negotiation tactic. So, you know, the Canada and Mexico tariffs were sort of supposedly to stem the flow of fentanyl to the USA. And when those countries, you know, took some actions to appease Trump, those tariffs were rolled off. And so that was the kind of background to the, the market expectation here. 

(06:02):

So, against that backdrop, what actually happens on April 2nd is quite different. So Trump stands up on the, sort of in the garden of the White House and announces the tariffs that we see on the slide here. Couple of things to note. First is they are not based on the level of tariffs that other countries apply to the US. Despite the fact that images do say that, that is not what was announced. They are based on the level of trade surplus or deficit that the US enjoys with each country. So the size of the US trade with that country. So those numbers were in most cases, significantly elevated versus people's expectations. Secondly, we had a minimum 10% tariff applied across the world. And so if you were a country that had no tariffs applied to the us, you would expect no reciprocal tariff because there is nothing to reciprocate, and you still found yourself with a 10% tariff applied to you. 

(06:52):

This impacted the market in two ways, really. First of all, because those tariffs were higher than anticipated, the market priced in the impact of that sort of unexpected shock. Second is, you know, the nature of the way this policy was announced caused a bit of concern about the predictability of future behavior from the US administration. You know, these numbers were very distant from people's expectations, we'll come to performance, and then exactly what happened in a few slides time. But needless to say, the market did not react positively to this news. And as most of us will be aware, eventually Trump backed down and we saw a 90 day pause in the tariffs that were announced on the 2nd of April here. 

(07:34):

So that brings us to this, which is quite a busy slide but it gives us an overall picture of where tariffs are today. So, you know, the market has been on such a rollercoaster as a result of that April 2nd announcement, that it's easy to forget that some tariffs do remain in effect, and indeed some of them have been here for quite a while. So, the lines in sort of pinky-red on this table indicate tariffs that have been in some way kind of paused, changed, muted, you know, aren't in the original form they were announced. So in that category, we have the Mexican and Canadian tariffs from the 1st of February, they were almost immediately rolled back. We also have some delayed tariffs on Canadian oil and some tariffs on auto parts into that pink list. We can now add those April 2nd tariffs, because those are now on a 90 day pause, although those have been replaced with the 10% tariff, which is the fourth line down. 

(08:25):

So all in all, a pretty confusing picture. Amongst all of this there's kind of two things that I really want to draw your attention to. So the first is that those reciprocal tariffs that shocked the markets, are now on pause, but they haven't gone away. You know, the Trump administration is likely to find some face saving way of, of changing them or backing down from these. But the exact nature of what comes next is at best unclear and is very unlikely to be 0%. So they probably won't go back to the numbers we saw on the preceding slide, but where we go next is still very much a risk, and the market has cheered the fact that these have been replaced with the 10% universal tariff. But once the dust has settled, people are likely to realize that 10% is also not 0% and is still going to be a pretty significant drag on global trade. The second thing is the tariffs on China. The next slide digs into these a little bit more detail, but needless to say, you know, the tariffs on China are at extremes, and they have been in place for quite a while. So we believe that whilst the market is sort of cheering that pause of wider tariffs, this, this China component has the potential for fairly significant repercussions. 

(09:39):

So let's dig into that China tariff just kind of by itself. You know, it's easy to forget with all of that ‘flooding the zone’, as we call it going on, that the base tariff on China has now been in place for a good few months. The first tariff on China was added on the 4th of February at 10%, and supposedly because of fentanyl, raised again on the March 4th to 20%, raised again on April 2nd as part of those reciprocal tariffs, the liberation day tariffs, to 54% and then to 104% when China retaliated, and finally to 145 when China retaliated to the US retaliation. So for those keeping track at the back, this means that the final tariff was a retaliation in response to a retaliation in response to a retaliation in response to a retaliation in response to the reciprocal tariff. All in all, still quite confusing, but what matters here really is that where we stand today is that there is 145% tariff on Chinese goods. There has been something of a rollback, so they've exempted some electronics and semiconductor products. There's also been some noise out of the administration that these tariffs will drop further, but that has yet to be announced. So as it stands, the tariff applied to China is at astronomical levels. 

(10:54):

And that brings us to this, which kind of sums up the overall picture. So the chart on the right here is from BCA Research. They have kindly given us permission to use this chart that they produced, and this shows their estimates of the overall effective tariff rate to the US. So the kind of average tariff paid for goods coming into the economy. This chart goes back to the 1900s, and it suggests that current tariff levels are near or kind of indeed potentially higher than the infamous sort of Smoot Hawley Act in the 1930s that had significant economic implications. If you look to the very right hand side of that chart, the little, almost tiny bump there is Trump's last term. So the tariffs that he implemented during his first term and various research has suggested that these tariffs cost the economy between 0.3% and 0.7% of GDP. 

(11:46):

So needless to say, you know, if the current tariffs were in place, the impact is likely to be significantly higher. This level of tariffs is also introducing quite significant dislocation into global trade. Should these tariffs persist? We believe that the damage to supply chains globally is likely to have a fairly significant impact, even if those tariffs are later removed. It takes around 30 days, let's call it, to ship goods from China to the US. It takes slightly longer If you're trying to ship to the New York, you have to go through the Panama Canal, that can take up to 55 days. But what that means is tariffs that were introduced early April, so these tariffs were announced on the 2nd of April but not in enacted until the ninth - the eighth sorry - you know, those tariffs are yet to be felt in America, even if the importers of goods acted immediately upon their announcement. 

(12:37):

So in practice, it's reasonable that businesses would take a short time to, to digest the news and the tariffs and then react. So what you might expect to see is that any major tariff impacts would start showing up in the trade data in the next few weeks. As it stands, this is looking to be the case. We're starting to see a bit of a drop off in both the number of ships and the number of containers sent from China arriving in ports into the USA. That in turn has the potential for knock on effects in trucking, any logistic based jobs within the US. Not to mention, you know, the simple fact that if goods don't arrive, you may well have shortage of those, shortages of those goods. As it stands, the slowdown is significant, but it's not yet horrendous. But if the trend continues, it's likely that America will see some shortages of products on it’s shelves in the coming weeks. 

(13:26):

So if this tariff policy continues, the damage will be done, should this change quickly, that of course can be avoided. But one thing that we want to stress is that that 30 day lag works in both directions. So if the tariffs end and the flow of goods from China increases, it takes 30 days for that increase to reach the USA as well. So should the US find itself in a situation where it does allow these tariffs to drag on until shortages begin to emerge, it's already too late to undo those shortages for at least 30 days. So, unlike the financial markets which can rally back in a day when there's good news, the real economy cannot rally back in a day, and it takes time for these effects to, to unwind themselves. 

(14:11):

So where does that leave us on tariffs? The short answer is we don't know. And at the moment we think no one does. So even with Trump's in a circle, they are contradicting each other at every turn, you know, sometimes in the same meeting. What we do know right now is that tariffs are incredibly high and they're at a level where the economy is undoubtedly being damaged. You know, we see this showing over the supply chain data, but not just there. We also see it in the sort of what they call soft economic data. So the data that comes from businesses and consumer surveys where they ask people about how they feel about the future of the economy, we also know these tariffs are going to change. You know, the 90 day pause has to end somehow. You know, it may end with the tariffs coming back, it may end with the tariffs changing, but what we know is the market is currently heading towards a known unknown. 

(15:00):

So this is where our long term and sort of value driven perspective comes into play. You know, short term unknowns can drive market performance to short term extremes, but they often provide, you know, change points to help reassert what should be long-term trends. In our case, we felt that US equities have been overvalued for some time, and we think this could potentially be a catalyst to help push those valuations to more reasonable levels. We also think the market is too keen to react positively when tariffs are reduced. You know, tariffs could halve from here and still remain at significantly elevated levels versus their history. Less of a bad thing is still a bad thing. So let's look quickly at how markets did react to the last few weeks. 

(15:41):

So let's start with equities. As you can see, markets initially reacted very negatively to the tariff announcement. One thing I would stress is that we're looking at end of day data here, so this might not align perfectly with your memory of events. The way to see that is if you look at the purple line, which is the UK and the red line, which is the US on the day that the US has a large spike, the UK finishes lower. That's because that large spike occurred after the US market closed. They close at different times. So the big drawdowns also occurred on days when potentially there were large rallies and the intraday data had had bigger drawdowns. You know, you can see that equities reacted poorly to the tariff news, rallied back on the pause, and since then they've kind of struggled to find direction. For us the key component of this chart isn't so much what the lines do themselves as the order of them, you know, this downdraft was led by the US with better valued regions outperforming. So the tariffs we think have taken a little bit of the shine off the historical US exceptionalism that we've seen. 

(16:44):

If we turn next to bonds, people believe it's the reaction the bond market that has caused Trump to kind of rethink and pause the tariffs. Traditionally, bonds are your risk-off asset. And so at a time of sharp equity downdraft, you would anticipate that they might rally. In this case because tariffs have potentially inflationary implications as well as there's been some technical market pressures. This resulted in the opposite reaction for bonds. So yields initially rose, and with the exception of Germany, bond investors have suffered losses over most of this period. One thing we saw during this event, and in fact we've seen it quite a lot during 2025, is a strong correlation between the US bond performance, which is the red line here, and the UK gilt line, which is again purple. You can see them almost moving in lockstep at the start of the tariff period. We think this correlation is not justified by the fundamentals. It makes sense that the tariffs ought to hit the federal reserve, sorry, it makes, it ought to make it harder for the Federal Reserve to cut their interest rates. We don't think those same pressures apply in the UK. So the fund continues to hold an overweight gilts with a preference for these over the overseas bonds. 

(17:56):

So where does all of that leave us? We think that against the background of noise, meaningful things are occurring under the surface. We've highlighted a few on this slide, and for all of us, you know, for all of this, this all stacks up to one overarching theme for us, but I will invite Anthony to talk through the rest of the presentation now. 

(18:22):

Thanks very much, Dan. Thank you everyone for joining us. As Dan said at the start, please do use the chat for questions. We've had a couple of really good ones come in already, so we will be making time to address them at the end. Anything that comes to you that you'd like our thoughts on, please do drop them in there. That was obviously started there with the, the recent, mainly with the recent market volatility and underlying tariff policies and economic risks they pose. There's a lot going on so we thought that made sense given the whirlwind of headlines, the policy initiatives we've seen from President Trump. But I'm also keen to go deeper than the kind of immediate ‘will he, won’t he’ tariff headlines, because we think, as Dan said there, the broader concept of change is far wider reaching than that. 

(19:12):

We step back, the majority of G& governments have collapsed or changed. Been [unintelligible] out over the last 12 months or so. Clearly there's a new prime minister in Canada who won an election yesterday and of course led by the US. We think that all that together might need to a period of really profound global policy change characterised by policy shocks such as some of those we see on this slide here; the tariffs, immigration policy outside the US, German government spending a very big commitment there which we'll talk about in due course you know, political elements, the long term ramifications such as dismantling the US Department of Education. And if we go to the next slide there the precise contours of that change, as Dan was suggesting, the tariffs kind of what happens to reciprocal tariffs etc are far from clear. 

(20:04):

You know, that's why, as a tagline to this webinar, we stole an old quote from Warren Buffet. ‘The rear view mirror is always clearer than the windshield’. You know, I don't use quotes very often, but I thought that was quite an important one. You know as Dan suggested, we'd be the first to say, looking through the windshield, there's a huge amount of uncertainty, as we’ll see in a second. That in itself is relevant. But we also think that all those headlines, and this is deliberate, this is in our mind part of the, kind of the Trump strategy of flooding the zone - kind of changing tariff levels, policy announcements and rollbacks risk masking something that we do believe will be clearer in hindsight, that there are profound global economic and geopolitical changes afoot. 

(20:51):

And if we go to the next slide, please, Dan, at the moment, while that's all kind of playing out and kind of Trump and other leaders are testing the boundaries of how far they can go we currently have a huge fog of uncertainty. These two charts with the spectacular spike, particularly on the right show that really, really clearly. On the left small business uncertainty around its highest level of 30 years above COVID levels. And, you know, if you think about running a small business through the COVID shock, that in itself is pretty incredible. And on the right trade uncertainty, absolutely extreme. You know, we've seen why from Dan's slide, you know, when you're talking the highest tariff levels for the best part of a hundred years it’s no surprise that that comes with a whole load of uncertainty. 

(21:38):

And, you know, Dan's touched on the likely ramifications that the policies themselves will have on growth. But the uncertainty matters in itself as well. You think about the small business uncertainty on the left - it's much harder, we all know, to make economic decisions - where to build a factory, where to employ more people, how to invest in the future - when the policy outlook is so murky, you know, that was captured last year. There was a paper from the IMF you know, as many research papers do in some ways kind of concluding, you know, a natural conclusion, but one that is still useful to see, which is uncertainty itself can have a very negative impact on growth over and above specific policy itself. If we go to the next slide, please. Now that's directly relevant today. 

(22:27):

We think, as you see on this slide now, over 2023, and particularly last year, 2024 there seemed to us to be an increasingly consensual view of the US economic exceptionalism, you know, effectively without economy's ability to continue to grow at healthy levels despite challenges elsewhere. And in the UK we've had much more kind of flatline economic growth over that period, higher interest rates lots of potential headwinds that didn't really in any way derail a resilient economy. But in this new Trump-led world of uncertainty, pressed on masking potentially significant change we think that narrative starts to come under threat. This chart here kind of gives a little bit of kind of short, admittedly short term parts that the Atlanta fed GDPNow Index many of you all know it, it's not a forecasting tool per se, it just estimates the next quarter in the US economic growth print based on the economic data that's already been published for the quarter. 

(23:34):

So perpetually takes the economic data that's been published that quarter and says, you know, if that was all the economic data for the quarter, then it estimates that the, the GDP print would be x. So as the quarter goes on and kind of more data's arrived, that it should calibrate to a kind of more accurate estimate. What you see over on the left in those solid lines is the Q3 and Q4. So it's the second half of last year. Growth in green and PCE consumption levels in blue, you know, brokers around 2.5%, 3% very healthy over those two quarters. Consumption up 3.5% to over 4% in Q4. The dash lines then show kind of the progress of this kind of now passed over this quarter. And key to look at really are that there are a lot lower than those solid lines in Q3 to Q4 indications are that we're going to see. 

(24:25):

Well, we have seen, I suppose we'll find out the number tomorrow, a step down in US growth in the first quarter. And as the purple line shows, which is the, the, you know, the best estimate from the now past for where we are, it may well be flirting around zero, a long way down from previous quarters, suggesting to us that previous investor - certainty US economic - resilience may be starting to come under pressure. We go to the next slide, please. Then this is a similar message. This is the conference board's, US leading index for the US economy. Again, a similar story, fell by 0.2% in January by 0.2% in February, accelerated to fall in by 0.7% in March, also suggestive of a slowing economy. Go to the next slide, please, Dan. 

(25:16):

I would note, and this comes back to some of the points Dan made about windows of opportunity, is this slide here goes into a bit more detail on the contributions of the different components to that leading index. And I don't want to get too in the weeds but the, the key point is over on the left, over the last six months, over on the left, the main negative components are those survey based components. ISM New Orders survey businesses on their new orders and consumer expectations. You know, a survey of consumers on what they think about the economy. Now people pay attention to surveys for good reasons. They can give a much more timely indication of global activity and the effectively the health of the global economy and actual data points, which often come through with a lag. So I absolutely wouldn't discount them. 

(26:00):

But we've seen before and not too far away that they don't always give a fully accurate indication of the scale of any economic change. And so over on the right there, the actual data points, still through the hard economic data points, reasonably healthy. And we are watching them like hawks, for signs of weakness. You know, there could be a window of opportunity if President Trump in particular decides to kind of reverse a lot of his policy. That a lot of the, not all but a lot, or at least some of the kind of damage to surveys and how people in the businesses are feeling can be reversed. We don't think a recession is baked in the slow down, probably is, but as time passes the risks will grow if the current policy path remains set. Go to the next slide, please. 

(26:46):

So, kind of pulling those different bits together, it looks to us that the US economic outlook has become more uncertain, more vulnerable, especially in this place. One of the questions we've got, and please do send your questions through, is as the inflationary risks of this Trump policy platform have clearly made the central bank more reluctant to ease policy proactively. And so with the US equities ending 2024 valuations we've previously only seen in the dotcom and post COVID bubbles we think there were very well aggressively priced for that previous regime of US economic strength, US exceptionalism and not necessarily well priced for a more uncertain path in the US. We think that there'll be a great risk of our themes of change and uncertainty continue to play through this chart, captures that a little bit. You can see, you know, US equities after a good start to year, we know this is year-to-date performance in green fell very sharply. 

(27:41):

Government bonds are a little bit muted in terms of their defensive characteristics. Nevertheless, kind of a modestly positive return over that period. Turn to the next slide please. It's also changed as well. I mentioned Germany mixed election results led to a really substantial spending package on infrastructure and defense. You can see some of the headlines here. You know, Germany's parliament approves Merz’ 1 trillion Euro spending plan, Germany's Friedrich Merz strikes game changing deal to boost defense spending, you know, really significant change to, well, longer term German policy on budget deficits and government spending. You know, that will have a long-term implications for Germany and pro German and probably the broader Eurozone balance between monetary and fiscal policy, probably for the long-term level of interest rates in the Eurozone and the outlook for growth and inflation. So again, like some of those unorthodox policies from Trump, risks upend the conventional wisdom around which markets are priced. 

(28:42):

You can see that on the next page. Again, you know particularly kind of before the, this is year before the April shock, you can see, you know, we'd seen that US equities were struggling and bonds were doing well. You can see here it was the opposite in Europe. Equities were flying at the start of the, well, for most of the first quarter Europe, German government bonds struggling. You see their lag down in early March around the German government spending headlines. You know, this shows a lot of things to us. Different expectations are baked into different markets. Shocks will be different in different areas, and we may well see more divergence between country level equity and bond markets than we got used to in the kind of that prolonged zero interest rate period following the financial crisis which we think is an opportunity for active asset allocation. 

(29:28):

Can we go to the next page, please? The UK I'll talk about very quickly. It's really interesting because clearly there's a government change to a labor government last year, and there are ongoing periodic concerns about the sustainability of government spending in the context of the debt rules and difficult growth backdrop. But actually, if we zoom back to the broader environment, we see it as a country where policy change has been much more muted. Now, we saw in the spring statement that we capture on this slide, the government appears committed to fiscal prudence, the consolidation that requires this parliament, you know, we saw that a bit yesterday again when they refused to fund time expected pay deals for teachers and doctors while looking for ways to improve the growth environment. So we do think that relative stability over time will underpin the longer term investment opportunities that we set that against the uncertainties we see in areas like the US. And for us, if you go to the next page, please, Dan, gilts are one of those an excellent example really, of one of those opportunities. 

(30:24):

You know, you can see I've circled at the start of the year, we've had a couple of bouts of gilts underperformance when we had those concerns about their fiscal rules. But yields are close to 4.5%. The higher they are in the US, the higher they are than they are in Germany, despite what I would say is less policy risk and a fragile economy. And we think that represents a really terrific longer term opportunity as well as a good defensive balance within portfolios. So we are really positive gilts can you go to the next page, please, Dan? And so putting it all together and then, like I said, leaving plenty of time for questions, please do feed your questions through. Of course, cutting through the noise. What does it all mean? 

(31:06):

We've gone through a lot of policy noise this year at a high level try to make some sense of it, but let's think about how we approach it. Philosophically, we can't know every Trump tweet, X or Truth (social) or whatever he chooses to put his, to post his latest policy initiative, but then we don't think anyone else does either. What we can observe is the degree to which we think the overall policy environment has changed or maybe changing in the context of the valuations we see in the market. If you think about the way we frame our investment philosophy, we always acknowledge there's lots of short term noise. Part of our part of what we do is try to tune out the, the noise and focus on the signal in the long term. That's normally economic data and now it's policy. But our job is to step back from that and consider the longer term context and opportunities. 

(31:55):

We think that's absolutely perfect for this environment. We see plenty of exciting investment opportunities, opportunities that we think will benefit your clients. And if anything, we think the concepts of change and uncertainty are likely to provide triggers to unlocking the value that underpins our approach. We know that valuation is not a very good timing tool in terms of what will happen to the short term, kind of what markets will perform maybe three months or six months. We think it's a really good anchor for long-term investors like us to position portfolios in the assets that will add value over time. What we have here is a change that we think is consistent with triggering the unlocking some of those value opportunities. Expensive markets should become cheaper when they're suddenly pricing the wrong environment, or at least uncertainty about the environment their pricing goes up. So we think this is absolutely aligned with our approach from portfolio construction standpoint. 

(32:45):

That means we haven't relatively changed anything hugely. We are being really careful to make sure we're putting all our ideas together in a diversified way that's not too exposed to a single short term outcome. With uncertainty comes volatility and U-turn, we think we've got to be really careful to have a balanced portfolio, but to augment it with built-in resilience from cheaper defensive positions such as gilts, which should provide protection in bad scenarios. That in a nutshell is the way we think the existing environment interacts positively with, with our philosophy and the way we think. It makes sense to construct portfolios through the noise. If we go to the next slide, please, Dan, our themes for the year are actually unchanged. Around our interest rates fall further we've seen that already happen in the Eurozone Bank of England, likely to follow next week in the US it'll be a bit slower, but elsewhere we think that remains absolutely in constrain. Lower down, Trump policy will be dominant. 

(33:40):

And we really think the UK opportunities are substantial in a country of relative stability and good valuation. Go to the next slide please. Asset class convictions. These are our overweight and underweight convictions across the different areas, and that's fully aligned to that cutting through the noise approach that I just set out. We're neutral at the overall equity level at this stage. But we're focused on the best value markets and, I'd reinforce, underweight in the US. We think that market still looks expensive. We think it's very vulnerable to what's happening. So that's a core underweight in the portfolios in bonds. The overall overweight in bonds reflects the fact that we think that we can bring in some defensive characteristics alongside the equity position. 

(34:29):

And that's captured with a clear preference for gilts and a lighter weighting in overseas government bonds, including US treasuries where we think the policy changes bring many more risks. That in a nutshell is the way it all comes together. So if we conclude on the final slide before questions we think that what we are seeing now, global political developments are much more than short term noise. We often do an exercise where we sit down and write down all the things that seem to matter to markets at the moment, and then we pick it up again a year later and see which of them are still relevant. And very few normally are. We think this is an exception. We think that the impetus and impact that political change will vary significantly between countries bringing asset allocation opportunities and some of those asset allocation opportunities that we think are particularly compelling are being overweight UK gilt within the bond portfolio and being underweight US equities within the equity portfolio. So that is a brief tour of the world, the short term and the longer term context. Please do continue to fire in your, your questions. We've got two or three here already. It'd be great to know what you want to hear about. Dan, I'm going to pass the first one to you here actually. I touched on a little bit, but to add a bit more colour. What changes have you made to portfolios given the market volatility?  

(35:56):

The short answer is none. The longer answer is of course, much more sort of significant. I guess just to frame the question the act of doing nothing is exactly the same as the act of doing everything, which is, you know, the portfolio is always analysed through the same lens. And so, you know, we do the same amount of work when the portfolio remains unchanged as when the portfolio remains changed. You know, we are constantly looking at the environment and looking at our kind of longer term assumptions, both around valuations and the economy and saying, you know, does this maturity shift any of those things? And quite often if you have a long term view, opportunities can occur very quickly because you have a very good sense of where things ought to be in the long term. 

(36:43):

And so if things shift materially, you could take advantage of those. So with that in mind, I think on this occasion, the starting context really matters. You know we went into this with an underweight in the US. We went into this with, you know, a reasonable exposure to bonds. So the risk of asset and so, you know, positioning was already relatively sort of geared towards, towards this type of event. The next question is, you know, things did sell off - did they sell off to levels where were they were desperately more attractive, for example. And actually the US is sufficiently of value that they didn't believe it or not, the US did not become anywhere near a level where it was considered perhaps even reasonably valued, let alone cheap. And so we chose not to, you know, to buy, to increase or decrease the size of the underweight and increase our overweight overall US position. 

(37:32):

But, you know, there's a second piece to this, which is when the market is moving around you, you have to move to stay still. And so one of the things we did do is we did stay true to our positioning. So when the US sold off, we bought it back to our target position. When it rallied, we sold it back down to our target position, we managed the portfolios to their existing and current weights. During that time, you know, we could have let the portfolio markets push the portfolios around, and so doing nothing would've been a decision in of itself. So we kind of held the course but we were very comfortable with how the portfolios were positioned going into this. And generally with these portfolios we're not here to pick up short-term market movements. 

(38:13):

You know, the, the only reason you would see us make a move into a short-term market movement is if it is aligned with our long-term philosophy, and therefore there is an opportunity aligned to that longer term positioning at that longer term goal. We may step in and, and take advantage of that, but we're not here to say, okay, market's now in 5% today, let's buy some and markets are up 5% tomorrow, let's sell some. That's, that's not what these portfolios aim to do, and that's not what we're trying to deliver for clients. Okay. I'm going to ask you one now just looking at our overweights question here about how people believe the trade war will impact the UK and in particular Japan. 

(38:59):

Yeah it's a good question. You know, I'll preface it as we have done with, there will be a lot of uncertainty around it. But, but big picture, we think that the UK economy is unlikely to be worst hit out of the main economies. You know, there's not, as we all know, there's not a substantial kind of trade imbalance with the US and the noises around trade negotiations are quite positive. So clearly the 10% minimum tariff level is a demand shock that plays to some degree to our positive view on gilts as well. But if we think about it from a relative point of view, we think the UK is relatively insulated, Japan possibly a little bit less so we saw they had a higher risk than originally announced. The flip side there is alongside a cheapish equity market, there are again very constructive noises around, at the start, from the US side around trade negotiations. And we do think that the kind of the Yen exposure that we get with our Japanese equities does help build resilience to both the position and the portfolio. 

(40:24):

I'll pick up another question that's come through here. There's a good one. Any thoughts on whether the Fed will have to step in and buy US bonds to keep real rates low given effectively the size of their debt and deficits? Yeah good question. Short answer is I don't think that's on the horizon right now. You know, and I think the question about the Fed is a really important one. The last year, middle of last year when the US economy showed signs of play, actually, ultimately we accelerated again, but the economy showed signs are slowing. The labor market showed signs of kind of coming under pressure. The US Federal Reserve responded quite quickly in the autumn with several rate cuts, including kicking off with an unusually outsized 50bp rate cut. 

(41:13):

You know, that was a very proactive policy in response to kind of a pretty early stage softening in the economy. They felt they could do that and be that proactive because rates were at quite a high level and they felt that they were effectively restrictive so they could reduce restrictiveness without being too similar. Coming today to this world, and, you know, chair Powell has made this absolute point a couple of times, and it's not that dissimilar from the Bank of England and Liz Truss back in 2022. At a really high level US inflation is looking sticky around and above the target. President Trump's policies are likely to bring positive price pressures, so some inflation pressures, and that is likely to reduce the central bank's ability or willingness to be as proactive with policy this year as they were last year. 

(42:07):

Which is a long-winded way of saying it's harder for the Fed to come to the economy's rescue if it's needed. And that includes buying bonds. And that is part of, you know, a plausible bear pace depending on how things develop from here. So that's very important. We've got another one here. I'll pass it. I'll ask you, Dan a couple of similar questions. You know, despite the uncertainty around tariffs, you know, we've got a much lower dollar, we've got lower oil prices, we've got lower, slightly lower interest rates. We discussed that. Won't that be a boost to the global economy, you know, linked to that when we know when markets will a stable growth phase again. 

(42:52):

Yeah. the short answer is those things do boost the economy. So, you know, lower interest rates, you would anticipate, that's why we lower the interest rates, is to try and create, boost the economy. But, you know, when interest rates were rising, we heard a lot about what people refer to as the long and variable lags, which is this idea that, you know, stimulative, well in this case policy designed to, to reduce the inflation rate, but raising rates is, is takes time to flow into the real economy. And the same is true of, of, of dropping rates. I mean, not quite the same, the lags are different depending on in both directions because of the way policy flows through and, and so on and so forth. But any stimulus is, is never immediate. And so, yes, you know, the reason they would lower the interest rate is to try and stimulate the economy. 

(43:37):

So you'd expect some, some positive impulse from that, but that positive impulse will not be on the same cadence or timing as we are currently seeing The potential, potential negatives, you know, if we, in the, in a world, and, and I say if, because you know, the, the consensus and the likelihood is that we don't end up in a world where the 145% tariff from China remains for the next three years. But supposing we do, it would be fairly reasonable to say that that will be an enormous drag on the global economy and that drag will happen relatively quickly. Cutting interest rates would in some way kind of act as a sticking plaster to that drag, but it is not going to react on the same time horizon. And so unfortunately it wouldn't necessarily save the economy from the difficulties in the, in, in the short term. 

(44:20):

So, you know, the answer is those things will stimulate the economy, but be wary of different timelines for different economic mechanisms. Hybrid the market in stable growth, again the honest answer is data. We'll see the data in the survey data. One thing I would say is that we do need political stability around that, I think to have a stable growth phase. Again, you know, people, you know, we talk about all these things like markets, you know, when we talk about the S&P, it's an index, it's a sum of companies, and we forget that underneath that are people doing business and, and, and, and making things, and creating things and building things and, you know, hiring people and all those, those, those good things that keep, make the world go round. And if you are a business doing that, you want to do that in a stable environment. 

(45:03):

You want to be able to build a factory somewhere where the policy that affects that factory when it's finished in five years time when you finally put the roof on, is, is, is stable. You know, you want to know that the tariff policy that will be applied to the goods that you are moving into that warehouse you're building will be at a certain level. You know, you, you want to understand the, the environment in which you and your business is operating. And that's the sort of environment in which you go out and you hire new people and you take, you know, you, you, you take risk when there is less uncertainty. And so a stable growth phase requires some, some degree of certainty. One potential catalyst for that is that something happens at the midterms that limits trumps power. That the nature of the midterms is that not every seat comes up for, for, for grabs. So, you know, the opportunity for that to happen is perhaps slightly less limited this time. And there has been other times, but often when we see sort of political power curtailed or reduced or something, that means that, that that policy environment becomes less volatile. That creates the environment where there is the possibility of stable growth. Not necessarily stable growth will come from it, but it, it is kind of, it creates fertile soil, which you then in theory can sort of grow that grow that environment. 

(46:17):

Sorry, we've got one more answer point here. We've got one more question, but it's below the scroll line on my chart here on my slide here. If the tariffs resulted in higher costs to us consumers possibly meaning higher inflation, how long before the tax cuts promised by Trump are made? That's a good one. Do you want to take that?  

(46:34):

I’ll take that one. It's a very good one. And there's lots of - just before I address that on the tariff side of things, because it'll be relevant as well. Dan was talking there about no one thinks that, sorry, it is probably a minority belief that the tariffs in China will stay at 145% for a prolonged period of time, that this links to kind of obscuring the potential for change and flooding the zone and all that, which is if they're not 145% and let's say picking right that they get half to 72 .5% you know, that's still a very high tariff level and the market may cheer the fact that some kind of deal is being made in tariffs are lower. But there is a number above which as I think Scott Bessent said earlier, you know, there is effectively a form of a trade embargo with China. 

(47:22):

And so, you know, we do have to think very carefully about kind of how good news is compared to how positively it's taken by markets in this environment. You know, it is very important to step back and think about looking forwards, where are things compared to, where they were before and what does that mean? To some degree maybe this question touches a bit because it touches on two different elements of tax cuts, I suppose. The first, I suppose I'll take it you know, if tariffs leads a higher inflation to consumers, what does that mean for tax cuts? Well, you know, tax cuts are typically stimulative and also bring inflation. So you know, eventually what you could have in the way this is rightly and interestingly framed, is a supply shock from tariffs which kind of produces price pressure and then a tax demand shock, which also brings price pressure. 

(48:14):

You know, that's not that different to a smaller version of what we saw post COVID and when supply chains were mauled by the virus. And we had a massive supply shock, bigger than, I mean bigger than that, but, you know and then we had you know, the US kind of leading the way and kind of transfers their money to citizens to help kind of tie over the negative period. And that probably went on for too long and created a demand shock against the supply shock. So, you know, that may very well be what happens. You know, we've seen headlines now that Congress is back talking about aiming to get a tax deal done by the 4th of July. I suppose I would say what I would say is that the context in which that sits and how big the tax deal is are actually pretty important because if you, if they're not careful and they overly stimulate demand in a world where the US economies suppliers curtailed, that creates the kind of double push on inflation that is not positive for bond markets. 

(49:12):

And we've seen this year that equities are sensitive to where bond yield go to so that’d be point 1 - tax cuts in themselves typically good for economy may well be good for economy. But let's think about that in the context of the broader policy mix. because there's an awful lot going on. And that could go badly wrong. Point 2 - ultimately we do expect around mid-year some progress on tax cuts. What that looks like is the biggest question. You know, there is going to be a big bumper sticker number on tax cuts, which we will be just extending the Trump tax cuts from its first term that expire at the end of this year. Now that makes a difference to, you know, the technical forward looking projections and the deficit because they officially don't exist after this year. 

(49:56):

And so the deficit will get bigger when you kind of put them in. But in terms of actual underlying economic performance they're already in place. They're not a new tax policy for anybody paying their tax in the economy. And so the risk is if they don't happen, there's a sharp step up in the kind of the tax burden. So they will happen. It's how much of his promises on the campaign trail. He also like taxes on tips. He also puts in his tax deal and how much spending, savings or not though are on the other side. You know, he's got a treasury secretary who's a lower deficit man in a world where tax cuts would increase the deficit. So the devil will be in the detail. We are following the detail very carefully. We know effectively the bits that we're looking for, the bits of uncertainty and uncertain and what we think the kind of longer term implications are for the opportunities in different markets. But I would caution that again an initial relief rally on our tax cap, that's a good bit of the agenda, is something that will have to be met with very careful scrutiny in terms of what's being cut, how much is being cut, and what's the supply and demand environment in which that's operating. 

(51:10):

We've gone through the main theme of the questions there. So I think we're out of time, so we will stop there. The CPD link is now available in the published section, so please do pick that up. Many, many thanks for joining us. I know there's a lot going on in markets. I'm sure there's lots of demands on your time as a result and I hope that was a helpful perspective on what's happening and the kind of long-term value implications we think emerge as a result of that.  

Thanks for your time and all the best.