The first quarter of 2025 felt like groundhog day from the start of 2022. The S&P 500 Index fell 5.1% as the late 2024 rotation from concentrated names in Magnificent 7 (M7) continued and the fervour of AI subsided, at least for the time being. The tech heavy Nasdaq fell 8.2% and, within that, semiconductors, which had been the flag bearer for AI, fell 14% (SOX Semis Index). The comparison to 2022 is eery, with almost identical Q1 pullbacks in that year and this was a pre-cursor to an ugly Q2, so investors have started to take a more cautious stand.
The threat of tariffs that also pervaded the quarter (they didn’t become reality until 2 April in Q2) led to significant positioning changes at the single stock level. Consumer-facing product names were hit hard as the prospect of selling products made in China especially and sold into the US were under threat from tariffs.
M7 names came under pressure as investors rotated from the highly successful concentrated ETFs into broader product sets like the S&P Equal Weighted ETFs and actively managed ETFs. The consequent impact on M7 was significant; in index terms, about 70% of the S&P fall was from those names. Nvidia was down 18%, Alphabet -18%, Apple -13%, Amazon -12% and Microsoft -10%. The outliers bookending the group were Meta, which dropped just 1.5% in the quarter, and most notably, Tesla, which fell a whopping 35% as delivery numbers from across the world came in significantly lighter than expected – in some cases, as much as 50% lower than the previous year.
As we highlighted in the 2025 outlook, diversification has proved to be valuable, with gold and the gold miners in particular providing a safe haven. Gold rose 17.8%, reaching an all-time high of $3,120, and the iShares MSCI Gold Miners ETF increased 36.8%. We also made the case for China and we were not disappointed as that index increased 11.6% in Q1. Obviously, much has changed since the end of the quarter and we assess all that has occurred with the Trump tariff programme in the Outlook section at the end of this newsletter.
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
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.
The Funds managed by the Global Equities team:
May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund. May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. May have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio. May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. May invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of a fund over the short term. Certain countries have a higher risk of the imposition of financial and economic sanctions on them which may have a significant economic impact on any company operating, or based, in these countries and their ability to trade as normal. Any such sanctions may cause the value of the investments in the fund to fall significantly and may result in liquidity issues which could prevent the fund from meeting redemptions. May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay. Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. May be exposed to Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. Do not guarantee a level of income. May, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. The use of derivative contracts may help us to control Fund volatility in both up and down markets by hedging against the general market. The use of derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short-dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
DISCLAIMER
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. 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.
This 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. It contains information and analysis that 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 of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.
