US economy plunges as Hargreaves Lansdown addresses 'volatile' Stocks and Shares ISAs
Investment experts have issued urgent advice to anyone who holds US stocks and shares after the US stock market plunged due to Donald Trump’s new tariffs on key trading partners. Since Donald Trump returned to office, political decisions have spooked casual investors holding stocks and shares.
After initially pausing tariffs, Trump said that starting just past midnight local time, imports from Canada and Mexico would now be taxed at 25%, with Canadian energy products receiving 10% tariffs. The move – followed swiftly by retaliatory action from Canada and China – sent US markets tumbling into the red, with the Dow Jones Industrial Average closing 1.5% lower and the S&P 500 ending the session down 1.8%.
Investors holding stocks are nervous and are assessing other options. One comment, posting on the ETF sub-Reddit, said: “Another market crash – WTF is going on in America?”
Another said: “With the current volatility in the US markets because of all the craziness going on would it be better to invest in foreign funds until the craziness calms down?”
Another asked: “How does it affect the stock market, as we can see Trump is launching trade wars with everyone worldwide. That can never be a good sign for the economy as a whole… It really raises reasonable concerns about how the stock market is going to react in the next four years.”
Lots of Stocks and Shares ISA holders in the community and in UK Personal Finance expressed an interest in reducing their dependence on the US markets as a result, and look towards global or non-US funds.
Now, Victoria Hasler, head of fund research at investment platform Hargreaves Lansdown, has addressed the ‘volatility’ in the stock markets for those concerned about current events.
She said: “The election and subsequent policy changes (and speculation over further possible changes) have led to some volatility in the US stock markets.
“Combined with the increasing concentration of the market and a few wobbles from the ‘Magnificent Seven,’ investors are increasingly looking elsewhere.
“Some areas of the US market could perform well under Trump. The introduction of tariffs is seldom a good thing for growth overall, but they could potentially be good for smaller US companies because trade tariffs favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused. Coupled with a more supportive monetary policy stance and this year could be a good time to invest in domestic-facing US corporates.
“This said, adding some diversification into your portfolio is always a good idea.”
She went on to explain the difficulties around diversifying away from US stocks due to the pervasiveness of US stock exposure in global funds.
She continued: “The problem is that it may not be as easy to get as you first think. Take, for example, a client who owns a US fund, a global fund and a technology fund.
“At the end of January, the MSCI World index had 74% exposure to the US. The MSCI technology index had 90% exposure to the US. And the MSCI World and MSCI USA indices had 25% and 31% exposure to technology respectively. And to top it off, all these indices have the same top 3 investments: Apple, Nvidia and Microsoft. Three funds, not much diversification. So, what you pick matters.”
Here are three fund ideas that are not your standard US fare, but could help diversify a portfolio of large cap US or global funds:
Artemis US Smaller Companies
Smaller companies may be of interest to those who wish to stay in the US but diversify away from the usual large stocks found in trackers.
The Artemis US Smaller Companies fund seeks out smaller companies with good potential for their share price to grow relative to the risk of the business. We like the way the manager considers how the US economy is performing to identify sectors that are benefiting from trends and areas that are finding things tough. We believe this should help the fund take advantage of new or changing policies put in place by the new president.
Troy Trojan
In times of uncertainty one investment which tends to do well, and to effectively diversify your portfolio, is gold. The uncertain outlook, combined with increased buying from central banks, particularly in emerging markets, means that the commodity could continue to enjoy support, although we don’t necessarily expect it to go up at the pace it did in 2024.
The managers of the Troy Trojan fund manage to take advantage of gold’s attributes without putting all their eggs in one basket. Rather than trying to shoot the lights out, the fund aims to grow investors’ money steadily over the long run while limiting losses when markets fall.
The fund is focused on four ‘pillars’. The first contains large, established companies that managers think can grow sustainably over the long run. The second is made from bonds, including US index-linked bonds, which could shelter investors if inflation rises. The third pillar consists of gold-related investments, including physical gold, which has often acted as a haven during times of uncertainty. The final pillar is ‘cash’. This provides protection when markets stumble, but also a chance to invest in other assets quickly when opportunities arise.
FSSA Asia Focus
Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the Asia region. Domestic consumption will be a key driver of growth over the coming years, helped by a young and growing population and rising wealth. Continued innovation from companies at the forefront of technology could also provide exciting growth opportunities for investors. However, younger economies mean the risks are greater and more volatility should be expected. While Asia is home to developed markets such as Hong Kong and Singapore, others, including China and India, are still emerging.
A manager and team run the FSSA Asia Focus with a great pedigree of investing in Asia. We like the culture and philosophy at FSSA – the managers view themselves as stewards of investors’ capital, looking after it as though it’s their own. The fund has an impressive track record of picking some of the region’s best-performing companies over the long run.”
It’s worth noting that whatever you do, the value of stocks and shares can go down as well as up, and you should not invest anything you can’t afford to lose.