There has been a change within markets in recent months and significant moves in recent days. Firstly, the emergence of AI technology in China has come as a challenge to the dominance of the US and the so-called ‘Magnificent Seven’ group of companies: Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia, and Tesla. 

Secondly, investors have become increasingly concerned with the behaviour of the US towards its trading partners. The announcement of sweeping tariffs at the start of April has been a shock, leading to a short and sharp fall in many stock markets around the world. What does it all mean? It is possible that we are now entering a phase of relatively increased volatility in markets. What we cannot determine at present is the extent to which this will last. As explained below, our focus remains on sticking to an investment process that weathered previous periods of market disruption.   

Our investment process is built to guide the funds and model portfolios through both good and bad market conditions. While the past few years have been positive, it's normal for long-term investors to face occasional periods of market stress. Our goal is to manage the funds and model portfolios in a way that delivers you an investment journey in keeping with your attitude to risk.

The resulting funds and model portfolios are well-diversified across asset classes and global regions. We regularly reposition them – at least annually – to focus on areas offering better value relative to risk, and every three months we rebalance the portfolios to make sure profits are banked and underperforming positions are topped up.

Our funds and model portfolios have less emphasis on the US stock market than global indices and instead allocate more to the UK, Europe, Japan, and emerging markets such as China and India. Notably, we increased our allocation to Europe in January on valuation grounds. This region performed well through Q1, aided by a shift in the German government's willingness to spend on defence and infrastructure, which is expected to boost growth across the region.

Our funds and model portfolios also maintain what is called a ‘home bias’, which means we allocate more to the UK than you will typically see in global indices and in the portfolios of investors based in other countries. We do so because we believe the UK market has some inbuilt qualities that are overlooked – specifically its combination of different sectors. This was particularly beneficial in the early part of the year, especially the exposure to financials, such as banks and insurers, and energy stocks, such as oil and gas companies.

During this more challenging period in markets, portfolio values have fallen. Whilst this is disappointing to see and can be unsettling, the declines are within what we would expect at such an uncertain time. For lower risk funds and model portfolios, defensive elements such as government bonds have helped to offset some of the losses in equity markets, albeit not entirely. 

Periods of market volatility are a natural part of long-term investing. While markets are currently challenged, our diversified, value-driven approach is built to weather these phases and keep the funds and model portfolios well positioned for future opportunities.

The US has declared a sweeping set of new tariffs, referring to it as "Liberation Day," marking a dramatic escalation in US trade protectionism.

• These new measures go beyond what many anticipated.
  
• The tariffs target over 190 countries, based on a recent US Trade Representative report evaluating global protectionist practices.
• This is a continuation of the trade agenda from Trump’s first term, which began with tariffs on China and metal imports.

• Universal tariffs:
  • 115 countries now face a 10% tariff on exports to the US
  • 75 countries with higher implied tariffs on US goods will face reciprocal US tariffs ranging from 10% to 50%.
• China-specific measures:
  • Tariffs on Chinese goods have increased, with cumulative rates now over 60%.
  • New China-focused tariffs also target fentanyl-related products, some of which extend to Canada and Mexico.
• Sector-specific tariffs:
  • 25% tariffs imposed on steel, aluminium, automobiles, and auto parts.
  • Future tariff targets include pharmaceuticals, semiconductors, lumber, and copper.

It is estimated that US growth could start to decline quickly, although there is considerable uncertainty around how much and over what period. This is likely to have a knock-on effect on other economies.

Prices of goods in the US are expected to rise, driven by increased import costs. The impact on prices in other countries is uncertain. For example, the price of oil has declined as demand is expected to weaken. This should feed through to lower petrol prices if it is sustained.

The effective average US tariff rate is now estimated at 20–25%, levels not seen in over 100 years. Tariffs are not a new measure, and are used frequently across the world, however the change in policy has been quick and on a large scale.

• China has announced retaliatory tariffs on US goods.
• The European Union is considering a collective response and has put in place some measures.
• Canada and Mexico, major trading partners with the US, have not been included in the new measures because they are already in negotiations.
• Many countries are engaging in talks with the US and there is likely to be a lot of news following these negotiations in the coming weeks.