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Richard Scrope
Fund Manager
Can equities deliver positive returns this year?
The current trading situation has been tumultuous to say the least, with the market hanging on every word that comes out of President Trump’s office. This has led to significant volatility in global equity markets and many rushing for perceived safe havens such as gold or just deciding that cash can be a better store of value than equity markets.
Risk off
Within US equity markets, there has been a clear rotation out of cyclical sectors and into the traditional more defensive ones, as the realisation that the outperformance of the magnificent seven peaked towards the end of December and has continued to fall ever since. It is not only technology and communication services (dominated by Meta and Alphabet) which are now struggling, but also consumer discretionary as consumers’ disposable incomes are expected to come under increased pressure.
Within European equities however, the rotation has been less clear. This is, in part, due to the less clear leadership over the past 18 months with the increasing breadth of European markets that has occurred, but also due to lower number of technology leaders in the region.
Time to re-engage with markets?
We are now almost halfway through the US reporting season, and in the earlier stages of the European one, and management teams are coming out of their close periods and are able to express their views on the current trading environment. While it is not surprising that most are saying there is increased uncertainty, what is becoming clearer is that the broad-brush approach to selling that global equities have faced may have been unwarranted and that there are an encouraging number of companies that seem to be able to weather the currently stormy seas, be it though pricing, local manufacturing or continued organic growth and demand. To pick a few comments from just the past 24 hours, and from a wide variety of sectors:
“With our agile organization and strong local presence, we are well-positioned to adapt to changing market conditions and prioritize growth opportunities” Nico Delvaux, CEO of Assa Abloy.
“With a share of more predictable revenue of 86%, SAP’s business model remains resilient in uncertain times.” Christian Klein, CEO of SAP.
“Double-digit growth across all markets and channels in today’s volatile environment shows the strength of our brand and underlines the great job our people are doing.” Bjorn Gulden CEO of Adidas.
“2025 is off to a solid start, reflecting demand across both our construction and industrial end-markets. I’m pleased with the team’s commitment to putting our customers first, which ultimately translated to record first-quarter revenue and adjusted EBITDA. I’m also pleased to reaffirm our full-year guidance, based on both the momentum we’re carrying into our busy season and continued positive customer sentiment, which, together, reinforce our expectations for another year of profitable growth.” Matthew Flannery CEO of United Rentals.
Passive or active?
Although most of the volume in markets at the present time has been in the ETF space, Calastone recently reported that £8 of every £10 of inflows from UK investors went into index trackers. Unsurprisingly we see this as the wrong approach, even if market valuations have fallen significantly.
Seldom has there been a better time for active management, identifying those companies that can navigate the headwinds and head into calmer seas, with the foresight and cash flows to invest in future growth, while others hunker down. Although we do not doubt that markets will continue to be volatile, there are opportunities appearing in markets for those who are not fixated on the next 90 days, but what the world order will look like once the dust settles.
The VT Tyndall Global Select Fund holds positions in United Rentals and Assa Abloy of the management comments selected above.
Data source (unless otherwise stated): Bloomberg
Disclaimer
WARNING: All information about the VT Tyndall Global Select Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not