What Liberation Day means for charities
It has been a momentous week for the world economy with the Trump tariffs. Global stock markets have reacted negatively and the so called Liberation Day has been on the front pages of the media, heightening fears of a new trade war.
Yoke doesn’t pretend to be economists or capable of predicting what happens next. If anyone wants a good explanation of the tariff and market madness Robert Armstrong in the FT tells it well. We have been speaking to many investment firms over the last 48 hours and thought readers would be interested and reassured that there is a broad consensus on the impact for charity portfolios.
The markets and investment managers had been expecting some form of tariffs. President Trump said in November, “tariff the most beautiful word in the dictionary.” Therefore, many managers begun to reduce their equity exposures after the market peak in mid February, preferring to hold cash or short dated bonds and other diversifying assets such as gold. Others have been reducing their exposure to the US and preferring markets such as Europe that have already benefited from higher spending and looser fiscal policies, especially in Germany.
The level and calculation of the tariffs was the shock that spooked markets, especially on the poor penguins. It is widely expected that global growth will fall and inflation will be persistent. This was the main thesis of Jay Powell, Chairman of the US Federal Reserve who responded after Liberation Day. But most investment firms are remaining mildly optimistic and not taking drastic action to their portfolios. As we have previously seen when markets fall, think of the Global Financial Crisis and COVID, it is wise not to sell after the event. While this might be physiologically reassuring, it is highly likely you will only have the conviction to reinvest after the markets have made a significant recovery. As Yoke has frequently said, only Trustees can destroy a charity by making rash decisions at the wrong time.
We know charities will be planning their financial budgets for the next year. Charities are operating in the most uncertain and challenging time, a comment made last week by Sarah Elliott chief executive of NCVO, so the economic news is unhelpful. No one knows what's going to happen next, up or down. President Trump is renowned for his unpredictability and world leaders will be spending this weekend discussing their options. China has already responded with a reciprocal tariff of 34% on all US imports. As Mr Armstrong points out, it’s the unpredictability that’s going to kill you, but sooner or later the markets will adjust to the new order which is why charity portfolio managers are remaining calm during this storm. While some may say this is the madness of crowds, Trustees should follow suit.
You will now begin to find out if your investment strategy was well designed for the needs of your charity. Reviewing your manager without reviewing your risk tolerance at the same time, to make sure it is still appropriate, is unwise. If you are uncertain on your financial situation or simply want to chat, please do not hesitate to contact us.