How the AJ Bell funds are reacting to Trump tariffs

The past week has seen new tariffs from the US that are causing significant volatility in global markets. As markets have seen turbulence, we understand you may have questions. Below, the AJ Bell Investment Team address key areas of concern and share how we’re managing the AJ Bell funds during these challenging times. 

What is happening in markets?

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; Apple, Microsoft, Tesla, Nvidia, Alphabet (Google), Amazon and Meta (Facebook).  

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 volatility in many stock markets around the world. When tariffs, or taxes on imports, are imposed, they can cause ripple effects throughout the economy. In this case, President Trump's trade policies created uncertainty, especially between the US and China. The tariffs led to concerns about higher prices for goods, supply chain disruptions and slower global growth, all of which made markets more volatile. 

Tariff-related tensions also led to fears of a trade war, which could further harm the global economy. This type of instability has caused markets to fluctuate, as companies and investors adjust to changing conditions. 

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 the moment 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.  

How is our investment approach designed to handle market turbulence?

Our investment approach is built to guide the AJ Bell funds 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 falls. Our goal is to manage funds in a way that delivers you an investment journey in keeping with your attitude to risk. 

The funds are in lots of different investments, meaning they are well-diversified across asset classes and global regions. We regularly assess the holdings in the portfolio and reposition them to make sure we focus on areas offering better value relative to risk.

How were the funds positioned going into this market turbulence?

Our funds have less invested in 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 the amount we have invested in Europe in January as we saw more opportunities there. This region performed well through the first three months of the year, 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.  

The AJ Bell funds 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. This was particularly beneficial in the early part of this year, especially the exposure to financial companies, such as banks and insurers, and energy stocks, such as oil and gas companies.  

How have the funds performed in recent weeks?

During this more challenging period in markets, fund values have understandably fallen. While 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 portfolios, defensive investments such as government bonds have helped to offset some of the losses in stocks markets, albeit not entirely.  

Periods of market volatility are a natural part of long-term investing. While markets are currently challenged, our funds are built to weather these phases and are well positioned for future opportunities.  

What is our outlook for markets since the Trump tariffs were introduced?

The new tariffs announced by Trump on so-called “Liberation Day” mark a dramatic escalation in US trade protectionism and go beyond what many anticipated. The moves are a continuation of the trade agenda from Trump’s first term, which began with tariffs on China and metal imports. And while tariffs are not a new measure, the change in policy has been quick and on a large scale. 

While a pause has now been put in place, clearly if they remain the tariffs will have a knock-on impact on global economies. 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. All of this has raised fears over ‘stagflation’ in the US (which is low growth and high inflation) and possibly a global recession. But the situation is very fluid, a lot of the fallout depends on what tariffs remain, how long the tariffs remain in place, how other countries react, whether deals can be agreed and whether tax cuts materialise as a result.

 As always, we will remain focused on our investment process and the long-term. While we don’t make short-term decisions, we are watchful for opportunities that may arise out of the market turmoil.