While President Trump’s pause on tariffs provided relief for investors earlier this week, ongoing tensions between the US and China continue to influence markets.

During this time, it is important to remain highly considered and data driven, avoiding any knee-jerk reactions.

As long-term investors, our analysis continues to support our current holdings as they should remain attractive over time.

An important consideration when market conditions are changing is to focus on an extended time horizon. Those who hold firm through turbulence could be well placed to benefit when markets eventually settle.

While markets have moved dramatically over the last week, the fact remains that global economic fundamentals appear solid at present and company balance sheets are healthy. That’s why we still see long-term opportunities for investors. Markets can fall, but over time they tend to recover, and still have potential to outperform cash (see chart below).

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs. This article should not be taken as advice.

Through day-to-day market moves – positive or more challenging – two key aspects of our investment approach stand out: active asset management and diversification.

Proactively picking assets best placed to benefit from evolving market conditions and making nimble changes as required are crucial. We use fund managers with a strong track record of doing just that.

We take this approach with our US allocation, for example. We have felt for some time that the environment there makes it important to be selective on US equities. Our US fund managers have provided meaningful diversification to the broad US market in a time of heightened volatility.

Diversification has also long been a staple of our investment approach. It has potential to help cushion investments from the worst of any falls.

We hold US Treasuries to hedge against stock performance, which has served us well so far this year. We also diversify through currency, having bought more sterling-hedged assets earlier this year. This helped as sterling has appreciated against the US dollar. But we go further. We also have a proprietary liquid alternatives fund which provides further diversification even when stocks and bonds move in the same direction. 

With uncertainty still in play, in our view this is not a time for investors to make rash decisions around their positioning.

We trust our ‘anchor and cycle’ process to guide us through these ever-changing times (more on our process is below). We are of course monitoring developments closely and will act on opportunities, but we are not about to make any sudden shifts until there is greater certainty.

The US-China tension notwithstanding, work is underway to achieve that certainty elsewhere. Countries cannot wait too long before they respond to the US tariffs, and some already appear to be negotiating with the White House. They need to either accept the tariffs and put supportive measures in place to help manage them, or reject them and attempt to get a better deal.  

One way or another, they need to act – for the sake of their own economies. And when they do, it should bring us even closer to clarity and help markets settle.

Source: Datastream. MSCI World £ used for Equity, Bloomberg gilt index used for Bonds, Gold Bullion price used for Gold, UK Sterling 3M deposit used for Cash. Returns include total returns and assume dividends reinvested, data to 31 December 2024. Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

The tariff back and forth means expectations of a recession are being adjusted on a daily basis. But it’s still not our base case because of the positive long-term economic indicators we’re seeing.

These more recent developments are a useful reminder that this bear market was created by policy action. It therefore could be resolved through compromise and negotiation. There is potential for more measured, positive outcomes.

Whatever further developments await us, history shows that over time markets tend to recover from falls. And the data shows that our holdings should remain attractive over the long term.

A broader look at how Coutts manages your investments

Coutts’ anchor and cycle investment process is a two-pronged approach that aims to make the most of market conditions to help you grow your fund or portfolio over time.

Anchor is about the long term, looking ahead at least five years. It’s about getting the over-arching positioning right for that timeframe. While short-term shifts in asset prices are important, it’s good to stay focused on long-term goals.

Cycle, on the other hand, is about the here and now. Coutts looks at where we are in the business cycle today, the current macro-economic environment and what governments and central banks are doing.

Anchor is about strategy, cycle is about tactics. But it’s all based on hard data. The experts at Coutts analyse an array of information to ensure their decisions are well-considered and firmly rooted in fact.

Their day-to-day decision making comes down to three key areas:

• Taking risk where they believe it will be well rewarded – all investing comes with risk. Coutts has a framework in place to help ensure they take ‘good’ risks – those likely to be successful in their view.
• Diversifying investments – Coutts does this to try to pre-emptively manage any losses within acceptable limits. 
• Exploiting market shifts – markets are often irrational in the short run and can change fast, which can present the best opportunities. The team is ready to take advantage of that.