Market overview
Key macroeconomic trends UK October 2024 budget:
Sector-specific trends Growing market
US Election and ʻ Liberation Day ʼ tariffs: managing shock-and-reversal cycles The November 2024 clean sweep for President Trump and the Republican Congress rewired global risk premia overnight. Markets initially cheered the prospect of lower taxes and looser regulation, only to reverse when the ‘Liberation Day’ (2 April 2025) tariff package fuelled the stagflation risk of weaker growth and stickier inflation. The S&P 500 slid, the ‘Magnificent Seven’ group of mega-cap technology stocks slipped into a bear market, and investors witnessed the rare tandem of a falling US dollar and rising Treasury yields, indicating that investors were questioning US Treasury bonds’ ‘safe-haven’ status. How we responded Two decisions protected our clients through that turbulence. First, we had already started to diversify away from mega-cap concentration: our US underweight position meant we entered the sell-off with a more balanced style and market cap exposure, with the flexibility to further trim risk where companies looked most vulnerable. Second, our fixed-income positioning of 50% sovereign bonds and 50% investment-grade credit, targeting a lower than benchmark average duration, acted exactly as designed, counteracting equity drawdowns whilst capturing relatively attractive real yields. When President Trump announced a 90-day tariff pause, volatility halved and equities recouped most of the losses. We used that window to further reduce US weightings in low and medium-risk portfolios and reallocate capital into short-dated UK bonds. The result was that our portfolios participated in the rebound yet emerged with lower net exposure to the epicentre of policy uncertainty.
Looking ahead: tariffs, fiscal concerns and the case for discipline The relative calm seen in early summer could give way to renewed volatility as global markets digest the impact of President Trump’s new trade deals. Regardless of negotiation optics, corporate supply chains are already under disruption and capital- expenditure timetables may be deferred. At the same time, the US Government is set on an expansionary fiscal path that could widen deficits. That mix keeps bond-yields elevated and leaves central banks juggling conflicting mandates: supporting growth whilst anchoring inflation expectations. How we responded Against this backdrop, our Asset Allocation Committee has purposefully moved equities from a slight overweight back to neutral across all risk bands. Within equities, we spread risk across regions and market capitalisations, tilting toward lower-valuation areas such as the UK and Europe, whilst retaining thematic exposure to the technology theme favouring actively managed, less-concentrated vehicles. Within fixed income, we favour sovereign bonds and high-quality investment-grade credit with lower-duration exposure relative to benchmark. Real assets, now an integrated sleeve combining Property, Infrastructure and Alternative-Income, as a partial inflation hedge, offer a useful buffer if policy missteps lead to higher stagflationary risks. Structured return products, struck at conservative entry levels, round out the toolkit by delivering asymmetric pay-offs largely uncorrelated to traditional assets. In short, our strategy is not to predict the binary outcome of tariff negotiations, but to build portfolios to weather a wide range of macroeconomic scenarios.
from headline risk to strategic opportunity
The UK wealth market continues to grow significantly with an attractive outlook regardless of the underlying macroeconomic conditions. The fundamental opportunity for Brooks Macdonald remains strong and is improving, with scope to increase market share in all products. Our distribution model means we are well-placed to grow across both adviser solutions and direct wealth. Our core investment management and financial planning offering is well positioned to capture the market opportunity, given financial freedoms and the increased need for financial advice. We are adapting our offering both to meet short-term challenges in the marketplace and to cater to advisers’ and clients’ changing needs, with a strong set of specialised BPS products, including our Gilts and Retirement Strategies, further development of funds and unitised solutions tailored to the adviser, and consistent business-to-business BM Investment Solutions delivery. Sector consolidation The investment management competitive landscape is complex and highly fragmented, with numerous players and varying business models addressing different, but overlapping, segments of the market. Types of player include integrated wealth managers; IFAs who may conduct some, or all, of their own investment management; platform providers who serve advisers; those focused on providing model portfolios and fund solutions; and the wealth arms of the major high street banks and high-end private banks.
Last October’s Autumn Statement brought along tax rises, including increased employer National Insurance contributions and changes to Inheritance Tax (“IHT”), alongside measures to address the fiscal deficit whilst maintaining public spending support. Gilt yields initially drifted higher as investors pondered how the increased tax burden would impact the economy and how spending pledges would be funded. Uncertainty over the prospect of higher taxes and changes to IHT rules prompted many families and high-net-worth individuals to rethink their tax-optimisation strategies, leading to higher net outflows in the first half of the financial year. How we responded Our Asset Allocation Committee decided to rotate part of the allocations currently in property and alternatives in low-risk mandates into short-duration UK sovereign bonds and investment grade credit, hence locking in an attractive yield. The switch helped to cushion lower-risk client portfolios against any subsequent volatility and, more importantly, positioned us to harvest a higher running yield.
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Brooks Macdonald Group plc Annual Report and Accounts 2025
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