Quarterly Market Report Q1 2025

Q1 LT Performance

All London Tyne portfolios continue to make positive gains in Q1 2025.

London Tyne Cautious returned 2.77%, outperforming its benchmark over the quarter which returned 0.44%.

London Tyne Balanced returned 3.07%, outperforming its benchmark over the quarter which returned 0.20%.

London Tyne Opportunistic returned 3.06%, outperforming its benchmark over the quarter which returned -1.22%.

LT Performance Since Launch (06/09/2023)

Performance Since Launch

All London Tyne portfolios continue to perform well against their respective benchmarks since launch (06/09/2023).

London Tyne Cautious returned 15.54%, outperforming its benchmark which returned 10.33%.

London Tyne Balanced returned 17.94%, outperforming its benchmark which returned 11.86%.

London Tyne Opportunistic returned 20.24%, outperforming its benchmark which returned 13.21%.

Returns Disclosure

Figures refer to model past performance and that past performance is not a reliable indicator of future performance. Returns are net of holdings’ management fees and expenses based on the cheapest share class available; however they do not include the fees charged by the manager (estimated to be 0.35% per annum), the adviser or the Platform. Returns are calculated assuming a single trading date in relation to any changes to underlying holdings which will not necessarily be the date that actual platform transactions occurred. Therefore, platform performance may vary from actual performance. For periods longer than one year, cumulative performance has not been annualised. Movement in exchange rates may affect the value of some underlying investments.

Overview

Global markets delivered mixed returns in Q1 2025 amid rising trade tensions, divergent monetary policy paths, and shifting investor sentiment. US equities declined as technology stocks came under pressure from growing AI competition out of China, while fresh tariffs and fiscal uncertainty under the Trump administration weighed on confidence. Conversely, UK and European markets performed relatively well, buoyed by sector rotations, dovish central bank signals, and fiscal stimulus plans - particularly in Germany. The Bank of England and ECB both held a cautious stance, with Europe benefitting from stronger sentiment and improving economic indicators.

Emerging markets saw modest gains, supported by a weaker US dollar and falling Treasury yields, though returns varied widely across regions. China and South Korea outperformed, bolstered by AI innovation and tech rebounds, while India and Taiwan struggled amid growth concerns and tariff exposure. Japan’s market declined despite domestic strength, as exporters suffered from currency shifts and geopolitical risks. Commodities surged, led by precious metals and energy, while global fixed income rebounded on softer economic data and shifting central bank expectations - especially in the US. The quarter reflected growing divergence in global growth prospects and policy responses.

Positional Changes

During the quarter, we increased our allocation to the FTSE 100 while reducing our exposure to iShares UK Dividend, where transaction costs were unreasonably high. We also initiated a position in the FTSE China Index in February to capture emerging opportunities in the region.

Attribution

Our overweight to alternatives, namely, AQR Managed Futures Fund and Jupiter Merian GEAR Fund generated strong performance over Q1, returning 6.62% and 4.76%, respectively. These holdings boosted the portfolios’ risk-adjusted returns as they aim to have a low-correlation to equity markets. During a time of a correction in US equities the alternatives acted as they should. In addition, the Pimco Commodity Real Return Fund rose by 9.86% over the quarter, benefitting from a stagflationary environment in the US and a notable rise in precious metal prices, providing a ballast to the portfolios.

The position we took in Franklin FTSE China in February was also a strong performer in the portfolio as it returned 6.94% between February and the end of March due to more optimism around AI in China and potential stimulus measures.

The main detractors of performance over Q1 were from iShares World Quality Factor ETF and Redwheel Next Generation Emerging Markets, falling 4.84% and 1.84%, respectively. World Quality declined due to broad US de-risking due to the Trump administration placing tariffs on their neighbours of Mexico and Canada, along with China. Meanwhile there was further emphasis on more tariffs to come on April 2nd, nicknamed ‘Liberation Day’.

Our fixed income holdings also behaved as we should expect during a correction in US equities. Higher duration and inflation-linkers were the main attributors to performance. iShares 20+ yr Treasury Bond returned 4.71%, iShares 7-10yr Treasury Bond returned 3.86%, and Royal London Short Duration Index Linked returned 2.18%. The only detractor in fixed income performance was from iShares Emerging Asia Local Government Bond with a return of - 1.75%.

US

US equities declined over the first quarter, with the S&P 500 falling 4.3% - its worst quarterly performance since 2022. The information technology and consumer discretionary sectors led the declines, while energy and healthcare posted gains.

Technology stocks, which have fuelled much of the market’s recent momentum, came under pressure after China’s DeepSeek unveiled an artificial intelligence (AI) model said to rival leading Western equivalents at a fraction of the cost. This triggered a reassessment of the US’s competitive edge in AI and weighed on some of the largest index constituents, including Tesla and Nvidia, which fell by 36% and nearly 20%, respectively.

Trade policy was another major driver of volatility. President Trump announced new tariffs on imports from Mexico, Canada, and China, targeting sectors such as autos, steel, and aluminium. Markets were particularly focused on 2nd April - dubbed “Liberation Day” - when a broader package of tariffs was expected. Concerns also mounted over potential public sector job cuts under the newly formed Department of Government Efficiency (DOGE), which, together with the tariff measures, could dampen consumer spending. These fears were echoed in sentiment data, with the University of Michigan’s consumer confidence index falling to 57.0 in March, from 64.7 in February.

The Federal Reserve kept interest rates on hold at 4.25 - 4.50% but downgraded its 2025 growth forecast to 1.7% and raised its inflation projection to 2.7%. Fed Chair Jerome Powell struck a more cautious tone, signalling that downside risks to growth had become more prominent. US 10-year Treasury yields ended the quarter at 4.2%, down 36 basis points.

While optimism was high coming into the year, driven by US outperformance in 2024 and expectations of pro-growth Republican policies, the reality has been more mixed. Uncertainty around trade policy and weakening business investment have begun to weigh on the outlook, leaving markets increasingly focused on how long the Fed can remain on hold.

UK

UK equities delivered a positive return in the first quarter, with the FTSE All-Share Index rising 4.5% despite a challenging global backdrop. Performance was led by large-cap companies, particularly in the financials, energy, and healthcare sectors, as global investors rotated out of highly valued US technology stocks.

Small and mid-sized UK companies underperformed, reflecting ongoing concerns about the domestic economic outlook. The UK narrowly avoided a technical recession at the end of 2024, but this provided little relief for sentiment. Consumer-facing sectors, including housebuilders, retailers, and travel and leisure, were particularly weak, making consumer discretionary one of the largest drags on performance.

The Spring Statement underscored the fiscal challenges facing the UK. Chancellor Rachel Reeves announced £8.4 billion in spending cuts to meet fiscal rules, prompting fresh concerns over future tax rises. Although the Office for Budget Responsibility maintained that the fiscal outlook was broadly stable, it flagged potential pressures from rising defence spending and a deteriorating global trade environment.

The Bank of England held interest rates steady, citing persistent inflationary pressures. Meanwhile, the UK yield curve steepened, reflecting market concerns around government borrowing needs and economic resilience. Sterling stabilised after a weak start to the year, and gilt yields finished the quarter only modestly higher, with 10-year yields rising by 10 basis points.

Europe ex-UK

European equities outperformed their US counterparts in the first quarter, with the MSCI Europe ex-UK Index rising 6.4%. Gains were supported by stronger fiscal stimulus, improving economic data, and a shift away from concentrated US tech exposure following renewed scrutiny of the AI theme. The European Central Bank (ECB) also struck a dovish tone, cutting interest rates twice during the quarter and signalling further reductions ahead, with markets pricing in an additional 60 basis points of easing by the end of 2025.

Sector leadership came from financials - particularly banks, which benefited from strong earnings and insulation from global trade tensions. Industrials, energy, communication services, and utilities also performed well. In contrast, consumer discretionary, information technology, and real estate lagged.

In Germany, the Christian Democrats (CDU) led by Friedrich Merz emerged victorious in February’s elections. Merz signalled a shift towards looser fiscal policy, advancing plans to ease borrowing limits even before officially forming a government. This paved the way for increased spending on defence and infrastructure, including a proposed €500bn investment package. The German DAX Index responded positively by climbing 11.3% over Q1, delivering its strongest first quarter since 2023.

Economic sentiment across the region improved. Germany’s Ifo business climate index rose to 86.7 in March, while the eurozone’s HCOB flash PMI hit a seven-month high - with manufacturing output growing for the first time in two years. Inflation also eased, falling to 2.3% in February from 2.5% in January, giving the ECB room to maintain a supportive policy stance.

Meanwhile, escalating trade tensions with the US prompted a coordinated policy response in Europe. European Commission President Ursula von der Leyen proposed a near-€800bn defence funding plan, including €150bn in new borrowing and additional fiscal headroom for member states. The ECB welcomed the more expansionary approach, which bolstered optimism around the region’s growth outlook.

Despite a late-quarter pullback on renewed US tariff fears - particularly targeting the European auto sector - sentiment towards European assets remained broadly constructive. Government bond yields moved higher, with German 10-year Bunds rising over 30 basis points following the infrastructure plan announcement, but equity markets continued to reflect growing confidence in the region’s recovery.

Emerging Markets

Emerging market (EM) equities posted a 3.00% gain in Q1 2025, per the MSCI EM Index. While there were challenges from trade uncertainties, a weaker U.S. dollar and a declining U.S. 10-year Treasury yield late in the quarter offered support. S&P Global Ratings trimmed real GDP growth forecasts for EM economies, citing tighter financial conditions and cautious central bank policies, with Mexico’s outlook downgraded due to U.S. trade tensions.

The MSCI China Index soared 15.02% in Q1 2025, outpacing broader emerging market gains. This surge was driven by optimism surrounding DeepSeek’s low-cost, open-source AI model, unveiled in January, and bolstered by late-quarter stimulus measures, namely, rate cuts, property sector support, and liquidity injections aimed at stabilising the economy and boosting domestic consumption. The Hang Seng Index reflected this strength, climbing nearly 20% year-to-date. However, renewed U.S. trade tensions and additional tariffs clouded the recovery’s momentum.

Korea also excelled, driven by a rebound in DRAM chip pricing. Emerging European markets such as Poland, Greece, the Czech Republic, and Hungary delivered strong returns, lifted by an improved Eurozone outlook tied to Germany’s fiscal policy shift. Brazil outperformed as the Real strengthened against the Dollar, even as inflation climbed to 5.48% - its highest level in two years and well above the 3% target. In response, the central bank implemented three rate hikes, raising the policy rate to 14.25%. South Africa surpassed the broader EM index, aided by a January rate cut, while Mexico gained from a temporary delay in U.S. tariffs. The UAE and Saudi Arabia posted positive returns, though the latter trailed the index.

In contrast, India weakened amid growth concerns, prompting the Reserve Bank of India to lower the repo rate to 6.25% in February (its first cut in nearly five years) to support the economy. Indonesia, Thailand, and Taiwan recorded double-digit losses in U.S. dollar terms, with trade tariff uncertainty hitting Taiwan’s tech sector and growth worries pressuring the others. Within EM equities, value stocks outperformed growth, while smaller companies lagged, amid fears of weaker growth and rising inflation.

Japan

The Japanese equity market saw a challenging Q1 2025, with the TOPIX Total Return Index ending down 3.4% in yen terms. The Nikkei 225 underperformed, dragged by weakness in larger stocks, particularly in technology and export sectors. A stronger yen put pressure on equities, which was further exacerbated by uncertainty surrounding U.S. tariff policies under the Trump administration. A late-March announcement of 25% tariffs on imported cars further hit Japanese exporters and tech stocks.

Nevertheless, Japan’s economy showed growth, fuelled by rising domestic demand, though labour shortages remained a hurdle. The Bank of Japan maintained a dovish stance but raised its policy rate in late January - aligned with expectations as inflation persisted - boosting financial stocks, notably banks. A gradual hiking cycle is anticipated later in 2025. Sector-specific positives also emerged: rising government bond yields, tied to solid inflation and wage growth, lifted financials; Berkshire Hathaway’s increased stakes in trading houses added optimism; and higher defence spending supported gains. Ongoing corporate governance reforms, including activist investor stakes and a surge in management buyouts, further propped up share prices.

Australia

In Q1 2025, the ASX200 experienced a fall of 2.8%, marking a challenging period for Australian equities. Uncertainty over potential U.S. tariff policies, increasingly debated throughout the quarter, unsettled investors and pressured export-reliant sectors. Corporate earnings were uneven, with only 58% of companies exceeding expectations. The Reserve Bank of Australia’s February rate cut to 4.10% aimed to support economic activity but struggled to offset global headwinds.

While the economic outlook was positive, with GDP growth projected near 2% driven by rising wages and lower rates, the ASX 200 showed sector disparities. Materials stocks gained from a rise in commodity prices, particularly gold, offering some stability. However, technology and financial sectors underperformed, consistent with global trends.

Fixed Income

The Bloomberg Global Aggregate Index gained 2.4% in Q1 2025, reflecting a shifting global bond landscape. U.S. Treasuries led with a 2.9% return, as recession fears drove yields lower amid weakening economic data and policy uncertainty. In contrast, German Bunds declined 1.6%, pressured by expectations of hefty issuance to fund new spending, sparked by Chancellor Friedrich Merz’s March plan to ease borrowing limits and launch a €500 billion infrastructure fund. Yields spiked - the largest daily leap since 1990 -though losses eased late in the quarter as U.S. tariff concerns took focus. Japanese government bonds trailed all major markets, down 2.4%, as robust Q4 GDP growth (2.2%) and rising inflation hinted at Bank of Japan rate hikes.

European sovereign bonds struggled, but U.S. credit held firm, with solid corporate fundamentals curbing widening spreads despite tariff risks. European investment-grade spreads tightened, though local bond weakness dragged on returns. A softer U.S. dollar lifted emerging market debt, while plunging U.S. real yields propelled inflation-linked bonds past nominals. Canada saw yields dip amid tariff uncertainty, though it lagged the U.S. In the UK, a stagflationary outlook and fragile fiscal stance, highlighted in the Spring Statement, nudged gilt yields up slightly.

The quarter underscored diverging trends: U.S. exceptionalism waned as sentiment soured, while Germany’s fiscal pivot brightened Europe’s outlook, driving sharp fixed-income contrasts. U.S. dollar-denominated corporate bonds outshone euro-denominated peers in both investment-grade and high-yield segments. In Asia, while Japan showed inflationary signals, China faced deflationary pressures, keeping its yields in check.

Asset class and style returns

Commodities

The Bloomberg Commodity Index rose 8.9% in Q1 2025, led by standout gains in precious metals. Gold and silver surged as tariff fears and economic growth concerns drove investors to safe-haven assets. Energy followed suit, with all sub-components advancing - natural gas posting the steepest climb. Industrial metals showed mixed results: copper prices spiked, lead and nickel edged up, but zinc slipped. Agriculture lagged as the weakest performer, dragged down by a sharp drop in cocoa prices, though wheat, cotton, and corn saw milder declines, offset by gains in coffee and sugar.

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Disclaimer: This document is intended to be communicated solely to persons that fall within the FCA classification of Professional Client. This document is for information and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase interests in any portfolio managed by Sturgeon Ventures LLP trading as London Tyne. Nothing in this document should be construed as a recommendation, representation of suitability or endorsement of any particular security or investment. Prospective investors should seek their own legal or tax advice. The information contained in this document has been compiled from sources believed to be reliable, but which have not been independently verified. Forward looking information is provided for illustrative purposes only and is not intended to serve as and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Simulated and actual past performance is not a reliable indicator of future performance. All marketing materials are distributed in the United Kingdom to professional investors by London Tyne, a trading name of Sturgeon Ventures LLP utilised under license. Sturgeon Ventures LLP (FRN: 452811) is authorised and regulated by the Financial Conduct Authority (FCA).