Quarterly investment letter – 2nd quarter 2025
Summary points
- The US economy demonstrated resilience, with short-term softness from policy uncertainty offset by long-term strength, as a robust labour market sustained 2.8% GDP growth in 2024 amid rising inflation pressures.
- Macroeconomic challenges, including heightened policy uncertainty and escalating tariff risks, particularly in manufacturing and trade, were compounded by the Trump administration’s 25% steel and aluminium tariffs.
- The S&P 500 experienced significant volatility, with DeepSeek’s January surge prompting a tech recalibration. Aggressive tariffs and rising trade tensions contributed to a 2.3% decline in Q1 vs. an increase of +11.0% in Euro Stoxx.
- Germany’s multi-hundred billion investment program aims to revitalize its economy, with inflationary and growth impacts across the eurozone.
- China’s economic trajectory reflected a balance of policy adjustments, disinflation and rising geopolitical risks, with GDP exceeding 130 trillion yuan, growing 5% as targeted.
- Conclusion: With a severe recession unlikely, the positive bias on risky assets persists, despite increased volatility and potential conflicts under the Trump administration in the coming months. Active management is essential in a low-growth environment, given heightened disparities across companies and sectors. Credit investments, particularly loans and non-cyclical short-term high-yield bonds offering 7–9% yields, are favoured. We maintain a positive stance on equities, upgrading “RoW” equities. The current market environment supports an absolute return strategy over a traditional relative value approach.
We invite you to review our complete 2nd quarter 2025 investment letter, which includes a more detailed look at the regional macroeconomic backdrop, market consensus forecasts, and more.
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