Simon Taylor: Hello, good day and welcome to the first MPS quarterly webinar of 2025. Today, we’ll review how our MPS strategies have performed over the last quarter and explore some of the key market events that shaped them.
Some of the highlights we’ll cover include:
The volatile start to the year, triggered by President Trump’s return and sweeping new tariffs, which pushed global markets lower and sent the S&P 500 into bear market territory.
We’ll look at the flight to safety, with increased demand for bonds and gold amid all this uncertainty.
We’ll look at some of the currency fluctuations, particularly a strengthening US dollar and its impact on emerging markets.
In just the last week markets have rebounded sharply after a 90-day pause on US tariffs was announced, with the S&P 500 surging 9.5% in one of its strongest rallies since the Second World War.
We’ve seen China responding with higher tariffs, escalating trade tensions and we’ve seen the European Central Bank signalling a rate cut which is likely in the coming weeks to support growth.
We’ll also cover the rebranding of our MPS strategies and what that means for you and your clients, as well as share some key messages you can pass on to investors—helping them stay confident and focused in what continues to be a volatile environment.
Thank you for joining us and let’s get started.
Ronelle Hutchinson: Over the quarter, markets have been left reeling from the impact of Trump’s tariff policy. The S&P 500 is down 7% bearing the full brunt of the impact. But outside of the US, equity markets have fared better with Chinese equities up 11% as investors react positively to Deepseek, China’s AI model. European equities have rallied 7% buoyed by a seismic shift in fiscal policy to increase defence spending that is expected to boost growth. UK equities are up 4.5% for the quarter and gold prices have surged to an all-time high as investors have fled to safe haven assets.
Over the quarter, the Trump administration has announced a series of tariffs ranging from 10 – 50% on countries that have large trade deficits with the US. A universal 10% tariffs have been levied on all other countries and a further 25% tariff on steel & auto imports was also announced. While a number of these tariffs are now currently paused, if fully implemented this would effectively bringing the US tariff rate close to 25%, levels we have not seen this century.
Volatility in markets have spiked – with the VIX index shown in this chart rising to levels last seen during Covid as markets have priced in maximum uncertainty and the risk of stagflation.
To date, Trump’s policy remains fluid with tariffs paused for a number of countries that have not retaliated. However, it seems that Chinese tariffs will move ahead. But if we take a step back and ask what will be the likely impact of these tariffs if we assume no change?
Tariff revenue from China & Europe in dollars will be quite substantial as you can see in the blue bars, close to $250bn for China alone. But relative to the size of these economies, the blue dots, tariffs will be much more moderate. It is likely that smaller countries like Vietnam and Thailand where trade with the US is a bigger percentage of the economy, that will feel the biggest impact.
So, amidst this market volatility, how have we repositioned the portfolios? Firstly, we have moved to mitigate risk in the portfolio, reducing our US exposure marginally as Trump’s trade policy will weigh on growth and earnings. We have added to alternatives to limit portfolio volatility & drawdown risk. Whilst we have increased exposure to European equities to take advantage of the improved outlook driven by increased fiscal spending.
Corrections are now a normal part of investing in equities, as you can see from this chart, intra year declines in markets are quite common but markets can rebound quite strongly as they have done in more recent days where there is some upside volatility. As a result, we encourage investors to keep a long-term perspective.
With that I’d like to hand over to Andrea who will take you through the specific portfolio actions that we have implemented in the MPS portfolios.
Andrea Yung: Looking at our key changes over the quarter, our focus has been on risk management. We’ve added to our hedge fund type strategies within the models. We have done this by incorporating the Henderson Absolute Return fund. This is a low-volatility fund, which focuses on capital preservation across all market conditions through using long/short strategies. We believe this type of fund will be well placed to withstand the market volatility and political uncertainty and will help to smooth out the return profile for our portfolios.
We have also tilted our portfolio away from growth, towards quality type assets. We started repositioning our portfolios towards the end of last year by reducing our allocation to index funds in favour of quality companies on more reasonable valuations. This has led to us being better positioned to navigate through the turbulence that we have seen so far this year.
We have maintained our overweight positioning to fixed income, most notably higher quality credit and government bonds, which we believe will act as an attractive hedge against equity type risk as investors seek that flight to safety.
Looking at our equity allocation, in-line with our house view we hold an overweight to Europe and slight underweight to US.
In Europe we have seen a dramatic shift in fiscal policy and the support for defence spending. Although there will be significant political and logistical challenges to ramping up European defence spending quickly, this approach suggests the outlook for European growth over the next few years has improved. This alongside changes in relative momentum and valuations, is turning to look more favourable toward European equities.
Looking at the US, following the impact of trade tariffs, this slightly increases the risk of a recession and will be a significant threat to the near-term economic outlook. We don’t believe this is fully reflected in earnings expectations or valuations and therefore we are slightly risk off here.
Drilling deeper into our equity positioning, as you may recall, last year we cited concerns around the growing vulnerabilities in the magnificent-7 stocks which we know have driven the majority of returns over recent years. In 2025 so far, we have seen this reverse with a rotation out of these stocks. Our repositioning towards quality and value names towards the end of last year, has supported performance especially during this recent market downturn.
We believe now, it is important to have an actively managed portfolio because this gives fund managers the ability to adjust positioning in light of these economic and geopolitical changes and it helps us to be able to manage portfolio risk and volatility effectively. What 2025 has proven so far, is that being overly exposed to passive and market weighted funds, has led to more severe drawdowns and increased volatility.
In our portfolios, we do still have a degree of these passive funds within our portfolios to cost effectively gain exposure to certain areas of the market, but the majority of our investments are actively managed, and this ensures we remain well diversified, are able to take advantage of market inefficiencies and provide a smoother return profile for clients.
Turning to performance, we know that it has been a volatile period for markets. As, Ronelle mentioned, there have been large disparities in terms of performance across different regions.
Bond markets held up relatively well over the quarter, especially short, dated bonds as we’ve seen investors seek refuge in higher quality assets like government bonds.
This is why our lower risk models, which tend to have a higher allocation to bonds have held up better relative to our higher risk models.
Our income portfolio is a bit of an outlier here, as the portfolio’s natural positioning towards value companies and those that generate a higher income has served as a buffer during this volatile period.
Our overweight position to fixed income, has also helped to support performance.
However, what has detracted from performance, especially in March, has been our property allocation via the Schroder Global Cities fund. This was primarily due to the significant exposure to the US market. We’ve seen that the US has faced challenges from resurgent recession concerns and declining consumer confidence.
If we look back at 1 year, performance, capturing the majority of 2024, we know that returns have been generated by a small, concentrated number of stocks in the magnificent 7, making difficult for diversified and active managers to outperform. Again, our Income portfolio is an outlier here as value has outperformed growth in recent months.
However, the positive news for investors, is that given the broadening out of returns, this does appear to be a better environment for diversified portfolios with an active management style.
Taking a longer-term view, looking at performance since inception, our portfolios have outperformed their IA benchmarks across our full range. We continue to take a long-term approach to investing, with a focus on downside protection which helps to smooth out our returns and support long-term performance.
Simon Taylor: Thank you, Ronelle for your review of quarter one and to Andrea for your update on the MPS portfolios and how they have performed over the quarter.
I’d now like to move on to some of the questions that both our advisers and our clients have posed to us:
Simon Taylor: Should I be worried about how all this political and economic uncertainty might affect investors?
Ronelle Hutchinson: We will always encourage investors to keep a long-term perspective. We know that this short-term volatility in markets do occur, but it also provides opportunities to buy good quality assets at cheaper prices and this will better position the portfolio to deliver long-term returns.
Simon Taylor: Have you made any changes to portfolios because of the recent market ups and downs?
Andrea Yung: So, the main thing that we’ve been doing in portfolios, which we started at the end of last year, we reduced our exposure to US index funds and that exposure to the mega cap stocks which were very expensive on high valuations, and we’ve transitioned to more actively managed funds with a quality focus that are more reasonable valuations. In the fixed income space, we’ve increased our exposure to higher quality credit and government bonds, and we think this should provide more resilience if we do see a recession coming through.
Simon Taylor: Would you say portfolios and investments are more actively managed now, or are you mostly leaving it to track the market?
Andrea Yung: With our portfolios they’ll always be mainly actively managed and with the recent changes that we’ve made to the US we’ve moved out of the US index funds into more actively managed, so we have seen that tilt and that has provided us with being better positioned going into 2025.
Simon Taylor: What should I be telling my family and friends who are nervous about investing right now?
Ronelle Hutchinson: We will always encourage investors to maintain a long-term perspective. We know that short-term volatility in markets and intra year declines are quite common, yet markets can still go on to deliver good long-term returns. I think investors need to remember that falling prices allow us to buy cheaper quality assets. The portfolio is not sitting static, we are actively managing the portfolio, identifying opportunities which can deliver future returns and repositioning the portfolio in this environment. So, for investors we encourage them to remain invested over this period.
Simon Taylor: Will portfolios and markets impact my retirement plans and how should we think about that?
Ronelle Hutchinson: There are two types of investors investing for retirement. There are investors still in the accumulation phase and it’s easier to stay invested and to exploit pound cost averaging in this environment. For clients in the decumulation phase, at this stage their portfolios would be skewed to income generating assets and these are assets that exhibit lower volatility and the natural yield in the portfolio will mitigate drawdown over this period. So, naturally for decumulation the portfolio is more risk averse and more focused on capital preservation.
Simon Taylor: Have you done anything to make the portfolios a bit more cautious, given everything that’s happening?
Andrea Yung: The risk management element is embedded into the portfolio, so we tend to have a higher degree of exposure to alternative assets and that’s also relative to other MPS providers. So, within that segment of the portfolio, we’ve adjusted our exposure, so our alternative assets are exposed to absolute return strategies, and they have a low volatility. That exposure helps to ride out the volatility we’ve seen in markets so far this year.
Simon Taylor: Would I be better off moving to cash until things settle down?
Ronelle Hutchinson: The danger of moving into cash at the moment is that you will crystallise these losses and avoid the potential of participating in any recovery in markets. Just to give you an example, last week Tuesday alone markets were up 9%. This upside volatility is equally common, as always, we encourage investors to stay invested. This volatility is not just on the downside it’s also on the upside so allow markets the opportunity to recover and compound good long-term returns.
Simon Taylor: If we do get another market drawdown, is there anything in the portfolios to help mitigate these big potential losses?
Andrea Yung: Within the portfolios we’ve also got exposure to fixed income assets and our alternatives so that sits outside of that equity bucket. So, within our fixed income allocation we’ve got more exposure to higher quality credit and government bonds. Given where yields are they should provide a degree of protection if we do see a recession come to fruition. Also, as we mentioned in the alternatives bucket, we’ve got exposure to low volatility funds which should help provide a degree of defensiveness.
Simon Taylor: Will the change in the value of the pound or any other currency affect portfolio returns?
Andrea Yung: When you’re investing in overseas markets, unless your exposure is fully currency hedged, you’re always going to have that potential risk in portfolios. That is something that we factor in when we’re looking at asset allocation and regional positioning. That’s been a consideration within the portfolio positioning. Yes, there will be risk there but having that exposure and diversification to different regions and the benefits of that outweighs the currency risk.
Simon Taylor: What’s the best advice you’d give someone feeling unsure about staying invested right now?
Ronelle Hutchinson: The key point would be not to panic, to stay invested and be reminded of the longer-term perspective, markets are volatile by nature, intra year declines are actually quite common, we’ve been through covid, the onset of the Ukraine war but if you invest in good quality assets that have good starting yields this over time can compound and deliver good returns for clients. As always we recommend clients stay invested.
Simon Taylor: That’s all the questions we’ve had from our audience, thank you ladies for your participation in todays webinar. Thank you for the questions you’ve asked, for investing in the portfolios and if you’re interested in learning more about them, please reach out to your business development director or indeed if you have any questions you’d like to ask the team next quarter, please do reach out to us.
