Commentary for June 2025
Market Overview
Markets delivered further solid gains during June as more trade agreements and a further delay to the 90-day tariff deadline reinforced the TACO (Trump Always Chickens Out) narrative. US equities led the way, rising 3% to a new high, boosted by renewed investor confidence and strong earnings from key growth stocks. Nvidia became the world’s most valuable company and the first to pass the $4 trillion milestone. The US rebound was matched by Asia and emerging markets, while Japan and Europe rose by a more modest 1%. Back home, UK equities recorded a fresh record high, advancing 2% overall, while small caps continued to outperform, closing 4% higher.
Positive returns came against a backdrop of elevated political uncertainty, with a major escalation of hostilities in the Middle East. The crude oil price briefly leapt above $80 per barrel following US air strikes on Iran’s nuclear facilities, before retreating below $70 per barrel on the announcement of a cease fire, to close the month unchanged. Gold continued to consolidate following its sharp move higher earlier this year. However, silver finally started to play catch-up, surging 8.5% for the month.
It has remained a busy time for the new US administration. On the international front, President Trump pushed back the 9th July deadline for trade deals to 1st August, allowing more time for negotiations. So far, only the UK, Vietnam and China have agreed outline deals, with exports to the US being set at 10%, 20% and 55%, respectively. This latest delay was seen as supporting the idea that more deals will eventually be done. Domestically, the ‘Big, Beautiful Bill’ was signed into law, sidelining Republican fiscal hawks who had attempted to rein in the current level of excessive spending. President Trump’s flagship bill will slash taxes and is expected to add at least $3 trillion to the US national debt over the next 10 years, with fiscal deficits above 6% of GDP set to continue. Against this backdrop, longer-dated US government treasury bonds remained volatile, and the dollar continued to drift lower.
In the UK, Rachel Reeves and Kier Starmer can only dream of further fiscal stimulus. Here, the main story has been the Labour Government shooting itself in the foot again with their botched Welfare Bill, where an attempt to cut total spending of £303bn by a mere £5bn was flatly rejected by Labour backbenchers unwilling to countenance any cuts in the face of the party’s current dire polling numbers. The subsequent bond market sell-off was a sharp reminder to the Chancellor that breaking the Government’s fiscal rules is not an option. With spending cuts looking politically impossible, further tax rises in the Autumn Budget are now seen as inevitable.
Economic data in the US was mildly positive, with jobs growth slightly better than expected. Sentiment surveys have generally improved following their nosedive in April/May, perhaps also helped by the stock market’s return to its previous high. Inflation ticked up slightly to 2.4%, but was below expectations, suggesting that tariffs are not yet having a discernible impact on the overall level of prices.
The UK economy shrank marginally in May for the second month in a row, although it’s likely that US tariffs played a key role: the manufacturing sector pulled back after a stronger Q1 as companies attempted to front-run the start of the new levies. Forward looking surveys such as the PMI and consumer confidence continued to point to an improvement in activity. However, employment fell for the first time in more than two years. Inflation held steady at 3.4% for May; well above the official 2% target. However, the Bank of England expects the recent move higher to be short-lived, peaking at around 3.7% in September before falling back.
The Bank of England voted to hold interest rates at their current level of 4.25%, mirroring the decision made by the US Federal Reserve the previous day. Both decisions were expected, as mixed signals in the global economy underlined a ‘wait and see’ stance. Markets are predicting that the next move down will be announced by both policymakers in August. This allowed bond markets to move modestly higher over the month.
Looking Forward
The speed with which equities have recovered from their sharp ‘Liberation Day’ losses has been one for the record books. Risk on sentiment has returned as a result of easing trade tensions and generally robust data. After the initial shock of President Trump’s trade tariff announcements earlier this year, markets appear to have largely put this behind them. The deals agreed so far suggest that tariffs will end materially higher than before, but not at a level which would de-rail the global economy. Moreover, interest rates look set to fall during the remainder of the year, providing a positive backdrop for financial markets.
Another reason for optimism is the shifting landscape for global growth. For the first time in years, regions such as Europe and China are taking a proactive role in stimulating their economies. This diversification of economic drivers should lead to a more balanced global economy, where investors don’t have to rely on the US for returns.
One of the major themes of 2025 has been the sharp underperformance of US stocks – after an extended period of extreme dominance – as the ‘US exceptionalism’ narrative has started to crack under high valuations, a weaker dollar and policy uncertainty. In the short term, it has not been surprising to see US equities regain some of the ground lost to other regions after such major underperformance earlier this year. However, as a result of the recent recovery, equity valuations in the US have returned to historically high levels. Valuations in other markets have also moved up but remain reasonable in relation to both their history and relative to the US (US equities trade at twice the valuation multiples of other major markets). US companies are still the best in the world, but valuations arguably more than reflect this. History tells us that stocks trading at these valuations rarely deliver the returns needed to justify their price tags. A strategy based on buying undervalued assets has proved the best way to ensure superior returns over the long term.
Performance
Overall returns for 2025 are now in respectable positive territory for our standard portfolios, and comfortably ahead of their respective benchmarks. The portfolios have benefited from several key themes. These include the rotation away from the US to markets in the UK, Asia and emerging markets, and the strong performance of small and medium sized companies within the UK. Exposure to both physical bullion and gold mining shares has also been a significant contributor to outperformance against benchmarks. Overall, the performance of our standard portfolios is in the first quartile over one, three and five years.
Our Strategy
The shift away from excessive concentration in the US is good news for active managers with diversification strategies in place to benefit as assets in other regions come back into the limelight.
UK equities remain undervalued and under owned despite their recent strong performance. The market offers exposure to global earnings, solid balance sheets, a high yield and valuations that remain low by international standards, suggesting there is still value to be unlocked. This is supported by the level of take-over activity, which has continued to accelerate. The recent broadening of the recovery beyond large caps highlights the superior valuation opportunities further down the market capitalisation spectrum.
Emerging market stocks offer an attractive combination of historically undervalued valuations and opportunities for growth and income. Profits growth across the region has picked up in recent months and is now growing at a faster rate than in the US. China remains in stimulus mode, and the risk/reward trade-off is, in our opinion, particularly attractive. Our core position in the region was recently switched into the Artemis SMARTGARP Emerging Markets fund to take advantage of this trend. Latin America is also well positioned to benefit from the repositioning of global supply chains following Trumps’s tariffs.
While equities remain our preferred asset class, the prospect of lower rates means that bonds should outperform cash. From an income perspective, yields are now attractive in both absolute and real terms (relative to the level of inflation). Bonds also provide diversification in the case of slower growth but will not protect portfolios from the possibility that inflation remains higher for longer (except for index-linked bonds). However, upside is also likely to be capped by concerns over the sustainability of government debt, as policymakers lack the will to cut spending.
The current environment argues for broader diversification, including inflation hedges like energy and commodities and geopolitical hedges such as gold in addition to recession hedges like government bonds, alongside core holdings in equities. As well as reducing risk, incorporating additional asset classes allows us to capitalise on wider opportunities outside of traditional assets.
We continue to view gold as essential portfolio insurance. We have held the view for some time that the combination of higher geopolitical risk, deteriorating fiscal trends and strong central bank demand have the potential to drive a powerful bull market, where multiple pockets of global capital attempt to diversify away from dollar assets into gold as a safe monetary asset. The market is simply not large enough to absorb large flows without much higher prices. For gold mining equities, current prices are likely to translate into record profit margins and the highest growth rate of any sector in the broader equity market. Despite the recent move up, they remain very undervalued relative to the prevailing price of gold bullion.
Overall, we continue to manage investments in a manner that allows us to capture the upside in financial markets while also effectively controlling risk to dampen volatility and smooth the path of returns.
