April 2025

“Anything worth doing good takes a little chaos.”  Flea

Chaos reigned in April, as a torrent of new tariffs, retaliatory tariffs and amended tariffs complicated by accelerations, delays and cancellations, upended markets that were already reeling in expectation of what was about to be announced.  Not since the days of Senator Smoot and Representative Hawley have tariffs been the cause of such disruption.  Those two gentlemen, who were the prime sponsors of the eponymous legislation of 1930 that led to a global trade war that ultimately deepened the impact of the Great Depression, believed that the protectionism was the ultimate way forward, despite an already strong consensus in opposition.  Their policy was ultimately undone by the very predictable reaction of other trading partners. What’s allegedly going on now is some attempted giant realignment of global trade through pressured negotiations, but as is always the case, unintended consequences follow any consequential action. Where this all ultimately ends up, and how severe the outcome will be remains to be seen.  What is almost certain is that economic activity is currently slowing, aided and abetted by other higher taxes and strained government finances, and the longer the uncertainty prevails the deeper the trough will be.

By month’s end markets had calmed somewhat, but this was after US 10Y yields traded within a 50 bp range and the SPX touched a low 20% from the high midmonth.  High valuations of many technology companies continue to weigh on broader indexes, but fundamentally we believe that at this stage we are unlikely to fall below mid-April levels without a considerable deterioration in economic conditions.  Once again markets will take their cue from forward looking data, and sentiment measures were already pointing lower.  Financials were similarly caught up in the same market dynamics, with the European bank index trading down as much as 15% before rallying back on solid Q1 results, particularly those institutions with markets businesses that have been able to profit from recent volatility.

For the month, the fund’s A shares lost -0.57%, the first decline in just over two years driven by the broad correction in risk assets with credit contributing -66bps in gross return and equities +5bps.  We used the selloff to add to our positions and will continue to do so on market softness.  Looking forward, we also expect that upcoming results announcements for some of our holdings will be a catalyst for action.