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Multi-Asset Market Review

May 2025 review
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.

Market review

  • Tariff fears ease as limited deals signed
  • Global equities led higher by the US
  • Tactical US and UK positions deliver in the first quarter

Equities continued to recover in May from their April lows as confidence returned. But May had its fair share of challenges to navigate, adding to an extraordinary flow of news this year that has created enough uncertainty to challenge the conviction of even the most resolute investors.

The shock and awe of President Trump’s global tariff assault dissipated in May, with a tentative de-escalation of the trade tensions announced with China and limited deals signed with the UK, EU and India. This helped to assuage some fears of recession, but the longer-term impacts of this vacillation on consumers and businesses we believe remain to be seen. Trade tensions remain far from resolved, and the progress by one vote of President Trump’s officially titled ‘One Big Beautiful Bill Act of 2025’ in Congress heightened concerns about the sustainability of the US’s debt levels. We are seeing tentative signs of concern here, with the US dollar weakening and treasury yields rising as a result. 

We believe the tribulations seen this year will likely have some ramifications for the US economy in terms of business and consumer confidence, but we do not believe that on its own this will be sufficient to tip the US into a substantive recession. It is possible that it will be enough to trigger a technical recession (which is two consecutive quarters of negative growth) but the impact of that sort of relatively minor slowdown should not be overstated. In this complex and fluid political and geopolitical environment, we expect more uncertainty, possibly higher volatility and undoubtedly more twists and turns providing plenty of headlines.

Our investment process is long term and disciplined, and while we have seen a huge volume of noise in recent months, we do not believe there have been material shifts in terms of underlying fundamentals underpinning markets. Ultimately, as investors, we do not invest in economies or politics, we invest in asset classes and so we need to try and identify whether the news we see today will have a more severe impact – either positive or negative – than is reflected in market pricing. From a Tactical Asset Allocation perspective, we still rate the global environment – and equities – a positive four out of five. This means we have a modestly pro-risk stance in our funds and portfolios in recognition of the overall opportunities that we perceive to be, on balance, positive on a 12- to 18-month view. 

Of course, the challenges facing the world have changed. President Trump’s ‘Liberation Day’ announcement, while broadly anticipated, was more excessive than expected, giving markets a negative surprise, and their impact on businesses and consumption we believe will only fully materialise in the months ahead. Indeed, there are still question marks over how and where they and President Trump’s other policies will apply. On the flip side, a breakthrough deal, especially with China, could be a fillip to markets.

Nor do we consider current conditions to be as concerning as some might fear. It is worth noting that markets have broadly recovered since the aftermath of 2 April. Companies have been expressing caution in their forecasts, but we consider the economic environment and outlook remain reasonable and there is a lot of cash waiting on the sidelines of investment markets. While the economic outlook may have weakened, we see it as remaining positive: the International Monetary Fund reduced its forecast for global economic growth in 2025 from 3.3% because of trade tensions, but only to 2.8%. Tariffs could give inflation an initial impetus, but it has still fallen significantly from its 2022 peaks.

To us, equity markets are not too expensive, with the possible exception of the US, where valuations look stretched from an historical perspective. We maintain our positive tactical outlook view on UK, Japanese, emerging market and Asia Pacific ex-Japan equities, as well as small caps in the UK, Japan and the US. We are less constructive on European ex-UK large cap companies. 

Markets in May

May was a strong month for equities across the board, with the US leading the way with a 5.5% return in sterling terms. Growth style stocks returned a notable 7.8%, although year to date, value has outperformed. Furthermore, the US has been a negative performer year to date, and our underweight exposure to the region was a leading contributor to relative performance from a tactical viewpoint in our funds and portfolios in the first quarter. Another key contributor was our overweight to UK equities which, together with Europe ex-UK, have been the two best performing equity regions in 2025. Investors appear to have become less negative about the UK’s prospects and it has proven to be less sensitive to sentiment driven by tariffs and AI.

Performance was more mixed in fixed income markets. Rising US treasury yields weighed on global government bonds. Concerns over the US’ debt levels, which have been growing recently, were compounded by the progress to the Senate of the Big Beautiful Bill, which would slash US taxes and increase federal debt.

However, global high yield bonds fared more positively, adding to the strong returns they have delivered over the past year and their double-digit returns over three years. High yield bonds have been significant contributors to our funds and portfolios, and we continue to rate them a positive four out five in our TAA ratings. We view their nominal yields to be currently attractive at close to 8.0%, which is indicative of long-term returns and analogous to those of equities.

Opportunities beyond the US

The obstacles that President Trump’s political programme encountered in May, such as the US’ Court of International Trade declaring that several of his tariffs were illegal, were examples of the checks and balances baked into the US system. We believe that it also supports our thesis that over the long run, political events tend to have only a modest effect on financial markets: And over the long term, businesses have a track record of finding ways to overcome obstacles and give investors rewards that could exceed inflation. In this regard, we believe that the patience inherent in our Actively Different process will aid long-term returns. 

Furthermore, focusing attention solely on the US we believe detracts from the many opportunities elsewhere in the world. The differing fortunes of various financial markets so far this year highlights for us the importance of having a diverse range of drivers within investments. We see plenty of opportunities beyond the US. 

Understand common financial words and terms See our glossary
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.

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