There well may be, despite the uncertainty being dealt with by corporates and markets alike, says Darius McDermott, managing director of FundCalibre and Chelsea Financial Services.
“All bets are off when equities and bonds sell off together.”
My mind harks back to 2022 when I hear that line, as it was the last time we really saw markets suffer. Every asset class fell, there was nowhere to hide – questions about asset correlation and the death of the 60/40 portfolio were also running rife.
The past couple of years have been a lot smoother, with US equities reaching record highs and volatility remaining very low, with the exception of August 2024 when markets were spooked by fears of a US recession and the yen carry trade.
I’m sure most of you are aware of the VIX index – it is designed to produce a measure of constant, 30-day expected volatility of the US stock market. A number greater than 30 is considered to signal heightened volatility from increased uncertainty, risk and investor fear. VIX values below 20 generally correspond to more stable, less stressful periods in the markets. For most of 2023 and 2024 it averaged around that 20 figure.
With Donald Trump as the spearhead, 2025 has changed all of that. Even prior to Liberation Day, global markets had already endured a market correction, with geopolitical tensions, macroeconomic concerns, and the potential risk of stagflation.
Trump’s announcement of his “reciprocal tariff” strategy has added plenty of fuel to the fire. We now live in a world where there is uncertainty over trade flows, company earnings and geopolitics.
Yes – we have seen a 90-day pause on universal tariffs (with the exception of China). But volatility has spiked and seems unlikely to return to pre-Trump levels. The VIX peaked at 52.3 earlier this month and is currently still above the 30-point threshold*.
Aegon Diversified Monthly Income manager Vincent McEntegart says the challenge is that we are still not aware of how willing the US President is to put the world into recession. For example, corporates are now in a tough position as their company profits are now clouded for the next 12 months.
It seems the only guarantee from here is further market volatility – but this can also bring opportunities. With this in mind, here are a few sectors and funds worth considering as we brace ourselves for more turbulent times ahead.
Real assets – TR Property
TR Property investment trust manager Marcus Phayre-Mudge points to real estate historically doing well on both a relative and absolute basis in shallow recessions. The reason for this is the price of money typically comes down because central banks see economies slowing down and inflation coming under control – real estate benefits from that as a leveraged asset. In addition to this, in shallow recessions you do not get huge job losses and companies quickly trying to reduce the three factors of production (land, labour and capital). Essentially, companies don’t reduce the facilities they operate from; retailers don’t scale back the number of shops they sell from; and offices don’t reduce headcount.
“If Trump does nothing in the coming month or so, the Q1 earnings forecasts will basically be withdrawn by many corporates, as they have no idea if they are going to make the money they said they would. For real estate, these businesses have leases and obligations. We are a debtor on the balance sheet of these businesses – so rents are still going to be paid.”
TR Property invests in the shares of property companies of all sizes, typically within Europe and the UK. It will also have a small amount invested in physical property in the UK. The trust has outperformed its benchmark in 14 of the past 15 years.
Gold – Jupiter Gold & Silver
Gold is seen as a safe haven and risk-off asset that has provided excellent returns over the past few years. Asset allocators have started to feel more comfortable buying this asset than US treasuries as a risk-off asset as the US has in part started to lose its trusted tag as a place of stability and certainty. This has been accentuated geopolitically amid international trade turbulence. The asset has already had a strong start to the year, having risen 19%** in Q1 and is now at a record high of $3,400 an ounce.
Jupiter Gold & Silver manager Ned Naylor-Leyland says the current macroeconomic environment is attractive for monetary metal investors, citing the increasing threat of stagflation in the US. The fund not only invests in physical gold and silver, but also miners, an area he believes offers attractive growth potential. He says: “Mining companies are performing too well at the operating level to be ignored any longer, especially within this more dramatic market backdrop where many other equities are a pain trade.
“Miners most often gain momentum in bullish periods for monetary metals. Because they have fixed costs, a ramp up in gold and silver prices tends to feed straight into the mining companies’ profitability and cash generation. At the moment, they are throwing off a lot of cash, they are paying dividends, and they are undervalued versus history based on metrics such as price to cash flow.”
Short-Duration – Artemis Short-Duration Strategic Bond
Short-duration strategies can play a strategic role in an investor’s portfolio by potentially mitigating interest rate risk, managing liquidity, enhancing cash returns and providing potentially steady and consistent income while limiting volatility regardless of the market cycle. The challenge we currently face is there is no visibility on rates and inflation at present. On one hand Trump could capitulate on his Tariff moves and markets could rise quickly; but he could just as easily stick to his guns and plunge us into a global recession – this is why a fund which is less rate sensitive offers a degree of protection.
Artemis Short-Duration Strategic Bond invests across the entire fixed income spectrum, with manager Stephen Snowden targeting returns from six different sources; asset allocation, stock selection, ratings, sector selection, yield curve and duration. The fund is broken down into three different modules: credit, rates and carry. The fund invests in 100-130 positions and has the ability to long and short.
The great defender – Ninety One Diversified Income
Another defensive option worth considering is the Ninety One Diversified Income fund, which sits in the IA 0%-35% shares sector. Managed by John Stopford and Jason Borbora Sheen, the fund targets a yield of around 4% annually, distributed monthly, by principally investing in fixed income securities and some equity positions. The portfolio also uses hedging for downside protection, with the fund targeting half the volatility of UK equities. The portfolio has produced solid, single-digit returns each year for the past decade, the only exception being a 5.5% loss in 2022***. Year-to-date the fund is up 1.3%***.
*Source: VIX index, figures to 22 April 2025
**Source: Jupiter, What market volatility means for gold and silver, 7 April 2025
***Source: FE Analytics, total returns in pounds sterling, calendar year performance 2015 to 2025, as of 23 April 2025
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
