Following the headlines in the press concerning Donald Trump and his announcement regarding Tariffs, our colleagues at Sentinel Portfolio Management Limited have shared an overview of their thoughts regarding the current situation.

Liberation Day + 2 prepared by Sentinel Portfolio Management Limited.

The wait is over…. although there still remains a number of known, unknowns…..

• Without stating the obvious, this is the start of a Trade War.
• After 80 years of US subsidies since the end of WW2, which in many ways created globalisation, individual countries and economic blocks have been cut loose from the US purse strings.
• The UK has received a better deal than the Eurozone, with a blanket 10% tariff on imports to the US, while the Eurozone has been hit by 20%. A Brexit benefit perhaps?!?!
• China, Vietnam, Thailand are among those countries hardest hit, as Trump tries to push through his reshoring plan.
• The US remains open to a ‘deal’ with all countries and the announced tariffs are not set in stone.

Source: The White House

Some companies have already reacted, with Volkswagen introducing an “import fee” on vehicles affected by the 25% tariffs, as reported by the Wall Street Journal. It will also temporarily halt rail shipments of vehicles from Mexico and will hold at port cars arriving by ship from Europe. It told its dealers that it would give more details by mid-April on pricing strategies for tariff affected cars and plans to begin allocating those vehicles to stores by the end of the month.

In contrast, Reuters reported that Ford is offering across-the-board discounts, jumping on the tariff induced bounce of its sales. It plans to announce discounts across multiple models starting today, three sources said, leaning on its healthy inventory to offer customers thousands of dollars off as competitors hike prices to absorb tariffs.

Hyundai Motor said it has no plans to raise prices in the United States at this time in response to the tariffs. “We have seen the tariff announcement, and we are evaluating the impact”. “There are no plans to raise prices in the United States at this time”

This is one sector and we are certain to see a number of ‘tit for tat’ moves as companies and indeed countries try to reposition themselves, to protect their revenue in some cases, but grow their top line in a number of other cases. There will be clear winners and losers as the dust settles.

There is undoubtedly every chance that world growth will slow this year due to the tariffs and that inflation will remain higher than it would have done. Is it the next nail in the coffin for globalisation and increased US isolation, time will tell.

We initially expect those countries less affected by the tariffs to have the better performing stock markets, as seen this morning, but again, once the dust settles, reassessments will be made and a number of investment opportunities found.

The risk in the coming days is retaliatory action. EU President Ursula von der Leyen has already said the EU is preparing fresh measures against the US. While a trade war is in nobody’s interest, the previous status quo was far from perfect. For decades US multinationals have operated in Europe from tax haven countries such as Ireland and Luxembourg, denying Europe and America what most would see as a fair rate of tax on their profits.

Now is not the time for kneejerk decisions, but the world has changed, and investors will have to do the same.

 Economic Outlook

Each of the fund managers are closely monitoring and assessing the position considering their respective fund mandate and investment objectives. The Defensive and Navigator funds sit on the lower risk side of the risk scale.  The Defensive fund aims to mitigate volatility risk by increasing exposure to structure products which are currently offering attractive rates of return. The Navigator fund was already defensively positioned, waiting to take advantage of opportunities as they arise.

The mid-range Sentinel Universal fund has transitioned to a more defensive position, by taking profits on technology stocks and moving towards a ‘value’ allocation, seeking what the team believe are underpriced opportunities. They have reduced their US exposure back to Sterling due to concerns that tariffs could weaken the US dollar. This expectation materialised yesterday morning, with GBP rising 1.5% to 1.32%.

With regard to the higher risk growth targeting funds in the range, the Growth fund has already reduced their technology and US exposure prior to the tariffs being applied. With the Enterprise fund manager, not making any immediate changes due to the longer-term nature of his stock selection, with the objective to ‘ride out’ shorter term market volatility.

As with any global event, market reactions are inevitable. However, it is important to remember that investments are designed for the long term. History demonstrates that, despite short-term volatility, equities and bonds have generally followed an upward trajectory in returns.

Past performance is no guarantee of future returns. The value of investments may fall as well as risk and is not guaranteed.

Please note that this has been prepared for information purposes only and does not constitute advice.