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There was one word that dominated investor sentiment in March – Tariffs. Up until last month, markets had largely shaken off Donald Trump’s threats to impose widespread import taxes on trading partners. However, despite constantly changing his mind, consensus is now that Trump is set to announce stringent tariffs on 2nd April potentially escalating a trade war. Tariffs are effectively a tax on the consumer and are likely to be detrimental both for the economic growth of the US economy and their trading partners and this has pushed investors to finish the quarter in “risk-off” mood.

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The potential negative impact of tariffs was highlighted by the Federal Reserve, slashing their growth forecast for the US economy to 1.7% for 2025 and increasing their inflation forecast to 2.7% - and it was no surprise that the Central bank kept rates on hold in their March meeting given the uncertainty.

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The Bank of England also held interest rates (at 4.5%) in March as it tries to balance continued inflationary pressures with a gloomy growth forecast for the UK economy. The OBR recently downgraded UK GDP growth to 1% for 2025 and the Spring statement from Chancellor Rachel Reeves did little to inspire confidence (although bond markets largely took it in their stride). It feels that trying to work within fiscal rules linked to twice yearly OBR forecasts simply results in short term panicked decision making - not a good way to run an economy where the fiscal challenges are much more structural based on a lack of productivity and challenge of an ageing population! There was some positive news for the UK with February’s inflation reading better than expected with a fall from 3% to 2.8% and the composite PMI confidence survey giving a (marginally) positive reading of 52.

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Interest rates globally are starting to diverge and whilst the Fed and Bank of England are taking a cautious approach the European Central Bank have been more aggressive and cut rates again in March to leave base rates at 2.5%. Only time will tell which approach is right, but it feels as if growth (or lack of) is more of an issue than inflation. For the record bond markets currently expect there to be around two more rate cuts in UK, US and Europe this year (although such predictions are very fickle).

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It feels like Trump policies will continue to drive the shape of the global economy for the foreseeable future and tariffs are not the only issue. The Russian-Ukraine war is now more than three years old and the cost to the US taxpayer is clearly a bug bear to Trump. He has made it clear that Europe needs to step up on defence spending which have a material impact on fiscal policy and borrowing. The UK has already committed to increasing annual defence budget to 2.5% of GDP by 2027 and German lawmakers voted to approve huge increase in fiscal spending for defence and infrastructure.

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Market Watch

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Trumponomics is showing no signs of making America great again for stockmarket investors and the US S&P 500 fell back 5.7% in March, whilst the MSCI World index was down 5% as investors retreated to safer assets to shelter from economic and geopolitical uncertainty. Whilst last year US mega cap tech stocks could do no wrong, they have been suffered some of the heaviest falls this year with the tech heavy Nasdaq index falling 8% in March. Investors are beginning to question whether the huge spend on AI development will translate into visible earnings in the foreseeable future.

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As there has been a rotation away from tech, sectors such as financials, defence, healthcare and materials have returned to favour with style shifting from growth to value. In turn this has seen UK and European markets performing better than the US. The UK FTSE and German Dax both hit new highs early in March and although the FTSE fell 2% in and the Eurostoxx was down 2.9% in March as investor confidence faltered, both have shown healthy gains in the first quarter of 2025.

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In Asia, Japanese markets had proved relatively resilient until the last day of the month they fell heavily spooked by concerns of a US trade war escalating. Ironically emerging markets have proved most resilient despite the risk-off environment. Most notably India ended a five-month losing streak and the MSCI India index rallied 6.7% as investors took advantage of more realistic valuations.

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Bond markets have not provided much protection as risk aversion increases with inflation and large Government deficits keeping yields elevated. The US ten-year treasury finished March paying the same as a month ago, 4.21%, whilst the UK ten-year gilt finished the month offering 4.68% up from 4.48% at the start of March with concerns over whether the Chancellor is going to breach self-imposed financial rules. Germany’s ten-year bond, also saw a jump in yield to 2.74% compared to 2.41% a month ago, due to the commitment to increase borrowing to fund defence and infrastructure.

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The best place to shield from Trump’s policies appears to have been gold and in March the price of an ounce of gold smashed through $3000. An ounce of gold started March costing $2848 and finished at $3158. Black gold wasn’t quite so in demand however a barrel of Brent gained just over a dollar (and a half) to close at $74.74.

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From a currency perspective the pound proved relatively stable, gaining strongly against the weakening dollar and the Yen but falling versus the Euro. The latter was somewhat counterintuitive bearing in mind the ECB cut rates. Sterling gained 2.26% against Yen, was up 2.49% versus the US dollar and fell 1.42% against the Euro. Bitcoin fell 4.03% in March in Euros and is down 16.91% in 2025.

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Fund Watch

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Turning to funds now and gold funds dominated in March. Eight of the top ten were gold and precious metals funds with Baker Steel Gold & Precious Metals topping the tables with a rise of 15.31%. The expected stalwarts were all there including Jupiter Gold & Silver and Blackrock Gold & General. Interestingly the only non-gold funds in the top ten were Jupiter’s India and India Select funds both gaining just over 10%. Just outside the top ten many more India funds featured.

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From a sector perspective India has somewhat slipped under the radar after a poor few months. But the average India fund gained 5.48% in March pushing the sector to the top of the tables (as gold funds are in the eclectic IA Specialist sector). India has suffered due to high valuations, concerns over long term growth prospects. Only three other fund sectors produced a marginal positive return in March (Latin America, infrastructure and European corporate bonds) and all other sectors lost ground over the month.

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The bottom of the performance tables was focused on US and tech funds in March. The Magnificent seven have pushed the market higher in 2024 and has brought it back down again this year. There wasn’t even the saving grace of a weak pound for UK investors as the pound gained versus the dollar in March to further dilute UK investor returns. The Tech sector propped the tables falling just shy of 10% closely followed by the North American Smaller Companies and North America sectors as the Trump trade faded.

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Looking at investment trusts and M&A continues to dominate. Harmony Energy Income received two bids and gained 35% in March; however, it was beaten to top spot by Impact Care REIT that almost received a bid propelling the shares up 38.4%. Whilst these bids are great for short term investors, most are under the prevailing net asset value and call into question how these trusts have been valued in the past. From a sector perspective Property UK Logistics topped the tables gaining 12.78%. it was a decent month overall for trusts with 11 sectors delivering a positive return. Year to date it is the resurgent JP Morgan Emerging Europe Middle East & Africa Securities trust that tops the tables gaining 41% - this is the old Russia trust and is a long way off the pre-war highs.

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Manager watch

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The key theme when meeting managers in recent weeks has been the questioning as to whether we are seeing the end of American exceptionalism.  For some time, the dominance of US large cap technology has been the only game in town and holding US or global index trackers (which are dominated by US stocks) has almost been the only stockmarket strategy you have needed. However, there has been a sharp change of sentiment year to date that has seen fund managers in other regions seeing opportunities. Asian fund manager Martin Lau believes sentiment has turned from American exceptionalism to concerns over a US recession and that tariffs are bad for everybody (not just China). Goldman Sachs have recently increased the chance of a US recession this year from 20% to 35%. Yet US stocks are still historically expensive - valued at around 50% above other global markets.  Highly regarded global investors such as Mike Fox at Royal London and the team at Scottish Mortgage have been talking about looking for more opportunities in Asia and Europe in recent meetings. There is once again a strong argument for active management and diversification.

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The numbers…

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1 month returns - Performance figures 28/2/25 – 31/3/25, source FE Analytics.

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Important Information

This document is produced by Fairview Investing Ltd, an independent research consultancy. The content is for information purposes only and does not constitute financial advice. The commentary or research provided do not constitute a personal recommendation to deal. Any statements, opinions, forecasts, and figures are made by Fairview Investing (unless otherwise stated). They are considered to be reliable at the time of writing but may be subject to change.

Fairview Investing accepts no legal responsibility or liability for the content of this material. The contents of the document are not to be re-produced or circulated without the express permission of Fairview Investing Ltd. Fairview are independent investment consultants sitting on the Investment Committee of EXE Capital Management.

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