Fund update Comment on market response to US tariff plans

What's happened?

Since President Trump declared "Liberation Day" and announced his tariff plan on Wednesday 2 April 2025, global stock markets have experienced significant turbulence.

The announcement of a 10% baseline tariff on imports from all countries, except Canada and Mexico, to be implemented on 5 April 2025, along with higher tariffs on major trading partners like the EU, Japan, and China, to take effect on 9 April 2025 led to immediate concerns among investors and businesses.

In response, stock markets worldwide saw several days of sharp losses due to several key factors:

Anticipation of slower economic growth – Investors feared that the new tariffs could slow down global economic growth, resulting in reduced corporate earnings and overall economic activity. This uncertainty prompted investors to sell off equities (shares in companies), which are considered riskier investments.

Retaliation concerns – The possibility of affected countries retaliating with their own tariffs, which could further disrupt international trade and economic stability.

Increased costs – Tariffs make imported goods more expensive, which can lead to higher costs for businesses and consumers.

Higher policy uncertainty – At a time when the US equity market in particular appeared expensive compared to history, the introduction of substantial policy uncertainty may have prompted investors to revisit their equity allocations.

To mitigate the immediate fallout, on Wednesday 9 April President Trump announced a 90-day pause on the implementation of the higher tariffs. However, the 10% baseline tariff for all countries applied on the 5 April and the increased tariffs on Chinese imports remain in effect. Specifically, the tariff rate on goods imported from China which has been raised to 145%.

While this 90-day pause is intended to provide time for negotiations and to help calm the markets, the long-term effects of the tariff plan remain uncertain.

What are tariffs and why does the US want to increase them?

Tariffs are taxes imposed on goods imported from other countries, paid by the importer. For example, when a company in the US buys products from abroad, it pays a tax to receive those goods.

President Trump aims to use tariffs to encourage US consumers to buy more American-made goods by making foreign-made products more expensive. This strategy is intended to protect US manufacturing and create more jobs. He may also be seeking to raise revenue to help fund tax cuts.

How we're responding

Given the wide range of potential short-term outcomes, our Portfolio Management Team continues to take a long-term approach to managing our multi-asset funds.

We remain committed to maintaining a balanced and diversified approach in everything we do, while emphasising areas of long-term value.  Whilst we have not made any significant changes to asset allocation in response to the tariffs, our investment experts are closely monitoring the market's response and will act to take advantage of market opportunities that arise from the volatility.

Should I act?

During these unsettling times it’s important not to panic and consider the current volatility in relation to your long-term investment goals.

A downturn in markets is never pleasant, but while stock market shocks tend to be sharp and painful, they’re usually relatively short-lived as illustrated in the chart below.

Source: Morningstar Direct, produced by Aegon. Chart shows initial investment of £10,000 from 31 January 1980 to 4 April 2025.