Navigating the current investment environment

Positive signals remain for long-term investors despite the exogenous shock markets experienced from last week’s US tariff announcement.

Those signals include a reasonably solid US economy, markets showing a strong record of recovery from periods of elevated volatility, and opportunities from lower company share prices.

Fahad Kamal, Chief Investment Officer at Coutts, shared his latest views at an investment event for Coutts’ clients this week. He told the audience: “The tariffs came at a level that surprised markets and investors around the world. The resulting volatility will continue for the time being, and there is still a lot of uncertainty around what will happen next.

“But the underlying economy and historical evidence give us every reason to believe the situation will improve over time.”

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.

Three key factors

Fahad reminded those who joined the event that Coutts, as a long-term investor, “doesn’t engage in knee-jerk reactions”. Reasons he gave for maintaining current confidence despite the tariff turbulence include:

Although such periods can be uncomfortable, historical evidence suggests markets tend to recover over time.

Fahad said: “While this has been a very sudden selloff, such developments are part and parcel of equity investing. We have seen periods like this before – and markets have recovered.”

The Coutts CIO also explained that there are potential risks in withdrawing investments at such times. Coutts’ research finds that missing the best trading days in the market could have a significant negative impact on your overall annual returns (see chart below).

Investors and analysts are concerned the impact of tariffs on prices and aggregate demand could cause a US recession. But that is currently not a foregone conclusion.

There are signs of strength in the US economy as it enters these uncertain times. For example, non-farm payroll data from the US Labor Department shows that 228,000 new jobs were created in March. And wages have increased faster than inflation, with average hourly earnings up 4.3% over the previous 12 months, according to the US Federal Reserve.

Although the future is unclear, these tailwinds could help the US economy withstand trade friction better than it otherwise may have.

Fahad pointed out that there are still a lot of high quality, well-performing companies around the world, many of which will now be available to investors at a discount.

“A good company at the start of the year is likely to be a good company today, it will now just be cheaper to buy,” he said. “As the world is shifting and changing, in my opinion, good companies should still find a way to grow their earnings – whatever challenges are thrown at them.”

As for where opportunities may arise, Fahad said Coutts would always invest in regions where it sees solid company performance in the form of earnings growth.

Missing the best trading days in the market could have a long-term impact

Global Equities - Annual returns from 31 December 2008 to 31 December 2024

Evidence based decisions

Fahad said his team were “actively monitoring the situation and Coutts’ investment positioning”, employing a wealth of real-time data and analysis.

“Any actions we take in portfolios are probability-weighted and evidence based,” he said. “We do not make headline-driven decisions.”

He said a strong element of Coutts’ investment approach within its multi-asset strategies was diversification – designed to help cushion investments from the worst of the falls at times like this.

The audience heard how Coutts diversifies its holdings in a number of ways.

“We hold US Treasuries, which have been a really reliable hedge over the last few days,” Fahad said. “We also bought more exposure to sterling-hedged assets this year. This has helped because sterling has been strengthening against the US dollar.”

Fahad also mentioned Coutts’ proprietary liquid alternatives fund, another important diversifier which focuses on areas with low sensitivity to traditional stock and bond markets. It aims to generate stable returns regardless of whether those markets rise or fall.

Moving forward

While Fahad acknowledged the difficulty of such challenging times for investors, he stressed that “time and time again markets have shown remarkable resilience over the long term”.

“We are in an intense period of volatility caused by a lack of clarity,” he said. “It has happened before, it will happen again. History tells us greater clarity will emerge. And when it does, companies and investors should be able to get on with the business of moving forward.”

Speak to us

If you are a Coutts client and would like to discuss market developments or your own investments with us in more detail, please contact your private banker.