Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
The moving of the tectonic plates of global politics and economics were starkly illustrated by two events in the first week of September.
First, was Vladimir Putin being greeted by the Chinese President, Xi Jinping, and India’s Premier, Narendra Modi, at the Shanghai Cooperation Organisation on 2 September. And then the next day, Putin, Xi and Kim Jong-un, the North Korean leader, were all publicly seen together for the first time ever. These events came very shortly after President Trump had announced increased tariffs on India, ostensibly for buying oil from Russia.
These images from China embodied the reversal of globalisation we have seen over the past few years and the impact of US tariff announcements in 2025. There are two other notable developments for investors. First, the largest 10 stocks in the US market now account for around 35% of the index, an historically high level of concentration. Second, US debt has been rising and has reached 120% of GDP. While Japan has had a similar level of debt for many years, the US is arguably over-reliant on foreign capital to fund its debt at a time when there is tension between the White House, the Federal Reserve and bond markets, especially over the pace of cuts in interest rates. Confidence is all-important in managing such levels of debt and the US government is hardly looking to curry favour overseas.
In recent years, it has been as though regardless of the question, the US was the answer; flows into the dollar, treasuries and stock market attest to that. However, in our view, recent developments point to the world being in the late-cycle phase of US exceptionalism – the dollar and the treasury market have already come under pressure, could the stock market be the last shoe to drop, bringing with it the end of the country being the dominant driver of global equity markets? What does this mean economically and for markets?
Globalisation has been a deflationary force through the efficiency of production and therefore cost reductions it has brought. Its reversal, which is being exacerbated by tariffs, national security concerns and political populism, is likely to keep inflation higher than over the 15 years after the Global Financial Crisis (GFC). This will be partly caused by disrupted supply chains, lower competition and reduced access to cheap goods and services, leading to higher prices for consumers and lower profit margins for businesses. This is likely to be disproportionately paid for by lower income households.
It seems that through tariffs and a lower US dollar, President Trump is seeking to bring manufacturing jobs back “home”. But this will only succeed if the labour market is willing to take up those jobs, which may not be the case given the high levels of manufacturing vacancies already and they invariably involve lower wages.
So far, the consequences of tariffs are higher prices for US consumers, reduced competition for domestic companies and the threat of retaliation, including increased trading among non-US countries as demonstrated by the Shanghai Cooperation Organisation meeting. This has been exacerbated by the weaker dollar, which is increasing the attractiveness of US exports by making them cheaper but also pushing up the cost of imports.
Simultaneously, President Trump is publicly calling for the Federal Reserve to cut interest rates, which would lower the yield on short-term US assets, reduce the attractiveness of the US dollar as a store of value and potentially weaken the currency further.
The US is walking a tightrope here. While the White House wants to stimulate growth through rate cuts, the Federal Reserve wants to prevent an upturn in inflationary pressures, especially given the increased levels of debt. The bond markets are watching closely with a lower level of confidence while there must be question marks over whether foreign investors will continue to fund the debt given the US government’s aggressive political and economic policies.
This is all creating a potentially more fragile environment for businesses with greater uncertainty, increased costs and planning paralysis.
What does this mean for investors and portfolio management? It is interesting to note the change in sentiment among UK investors. From November 2024 to April 2025, North America dominated flows into equities. Then we saw a dramatic switch, with North American flows turning negative and positive net inflows into Europe and Japan, the latter of which has been enjoying a lesser-known stock market rally.
We have been underweight US large cap equities for some time and believe it is important to diversify in this environment to mitigate risks and take advantage of new opportunities. This means by asset class, geographically, cap size and investment style. For example, US smaller companies now trade at a substantial discount to large cap stocks, making them attractively valued once again.
Our most favoured asset classes are UK equities (all cap sizes), US small caps, emerging markets, Asia ex-Japan, Japan, Japan small caps, global high yield bonds and global short-dated corporate bonds.
Whatever your view, however, the key is to ensure portfolios have sufficient diversification to withstand and exploit the impact of the ongoing shifting political and economic tectonic plates.
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KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds and Model Portfolios managed by the Multi-Asset team may be exposed to the following risks:
- Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value;
- Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss;
- Liquidity Risk: If underlying funds suspend or defer the payment of redemption proceeds, the Fund's ability to meet redemption requests may also be affected;
- Interest Rate Risk: Fluctuations in interest rates may affect the value of the Fund and your investment. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result;
- Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time;
- Emerging Markets: The Fund may invest in less economically developed markets (emerging markets) which can involve greater risks than well developed economies;
- Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates;
- Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices.
The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
