Tariffs and Turbulence
- Tatyana Mursalimov
- May 22
- 5 min read
What Trustees Should Take from Recent Market Moves
The announcement of sweeping tariffs by President Donald Trump in early April caused an immediate stir across global markets. Dubbed “Liberation Day”, the policy proposed a 10% universal tariff on US imports, with even steeper reciprocal tariffs on nations with large trade surpluses. Unsurprisingly, financial markets reacted swiftly and negatively.
Within days, equity markets fell sharply, reigniting fears of a trade-driven slowdown and denting investor sentiment. Yet in the weeks since, that narrative has shifted. A 90-day pause in tariff implementation (though excluding China) was enough to calm market nerves. What followed was a robust market rebound: the S&P 500, which had dropped by over 10%, is now showing gains for the year and is inching back toward record highs.
For trustees overseeing charity investment portfolios, this episode is an important reminder. Volatility may be unsettling, but it is not inherently damaging - provided portfolios are well constructed and oversight remains diligent. In this piece, I explore the key lessons and how trustees can use them to engage more effectively with their investment managers.
Navigating Volatility: The Importance of Context
Periods of market stress often feel more alarming than they are. In this instance, initial fears around the economic consequences of protectionism led to a sharp market correction. But markets are forward-looking. Once investors sensed the potential for a negotiated outcome, particularly with improving signals from US-China trade talks, confidence returned. The rally that followed has been swift and broad-based. Market ‘crashes’ always make for more sensational headlines than ‘steady gains over the year’ so the market sell off should also be put in the context of earlier strong positive returns.
It is also notable that inflation, which many feared would spike due to higher import costs, has continued to decline. April marked the third consecutive month of falling US inflation, with many core inflation measures reaching multi-year lows. This is particularly reassuring given that April also saw tariff rates temporarily reach their highest levels in over a century.
April Was The Third Month In A Row That US Inflation Declined And Came In Below Expectation:
What This Means for Charity Portfolios
Charity investors are not expected to respond to every macroeconomic development. However, trustees do bear responsibility for ensuring that their portfolio is being managed appropriately in light of changing conditions. This moment provides a valuable opportunity to review investment strategy with renewed clarity.
1. Ask About Portfolio Positioning During the Volatility
Trustees should be asking their investment managers how the portfolio was positioned before, during, and after the period of volatility. Did the manager take any defensive measures? Were any opportunities taken to acquire quality assets at lower valuations?
Suggested questions:
How did the portfolio respond during the April sell-off?
Were any tactical adjustments made as markets recovered?
Has the fundamental outlook for the portfolio actually changed and are any positioning changes required based on the latest inflation and interest rate outlook?
2. Understand Sector and Geographic Exposure
The impact of tariffs is uneven across sectors. Industrial and manufacturing businesses are more exposed to trade costs, while services and technology firms may be insulated. Conversely, service firms may be more exposed to wage inflation and technology firms to the impact of AI developments. Trustees should ensure they understand how their portfolio is allocated across these areas and how the manager seeks to maintain an appropriate balance.
Likewise, with the dollar weakening year-to-date, trustees may wish to explore how currency exposure is managed and whether geographic diversification has been reviewed in light of recent developments. Since the majority of expenditure is likely to be in sterling an understanding of the risk of ‘currency mismatch’ is also helpful.
Suggested questions:
What proportion of the portfolio is exposed to sectors most affected by tariffs?
How is geographic and currency exposure being managed given current conditions?
3. Assess the Implications for Income and Inflation
As inflation trends lower, trustees should reassess both income-generating assets and long-term portfolio resilience. Falling inflation may support real returns in the near term, but trustees should also consider the potential impact on income. Certain equities could face margin pressure if trade tariffs remain in place, which may affect the sustainability of dividend payments. At the same time, a lower inflation environment could enhance the appeal of longer-duration bonds - particularly for charities that rely on fixed income to fund their operations. However, recent volatility has also highlighted risks in this area, with long-dated U.S. government bond prices falling sharply - possibly reflecting investor concerns around growing fiscal deficits.
Suggested questions:
What is the current outlook for income generation across asset classes?
What is the sensitivity to interest rate moves and inflation expectations of our bond holdings?
4. Evaluate Long-Term Resilience
Market volatility, while unsettling, is an opportunity to test the resilience of your portfolio. A key consideration is to avoid being a ‘forced seller’ that potentially means that you will have to trade and sell assets at times when transaction costs are high and valuations may be temporarily depressed. Trustees should be confident that they have sufficient liquidity to meet planned expenditure. The sharp rebound in markets illustrates the danger of reacting impulsively to short-term movements. Staying invested, especially in a well-diversified portfolio, has once again proven to be a more effective strategy than trying to time exits and re-entries.
Suggested questions:
What measures are in place to ensure portfolio resilience during future market shocks?
How does the manager evaluate company quality and long-term fundamentals?
What has portfolio ‘turnover’ been this year?
A Time for Reflection, Not Reaction
At PMCL, we encourage charity trustees to use episodes like this to reflect, not to panic. This is a timely moment to revisit your investment policy statement, challenge assumptions, and ensure your risk parameters and income needs are still aligned with strategy.
We also urge trustees to maintain perspective. Economic policy uncertainty will always be a feature of long-term investing. What matters is that your portfolio is structured to absorb shocks, capitalise on opportunities, and remain aligned with your charitable objectives.
If your organisation is grappling with any of the issues discussed above - or simply wants to ensure its financial strategy is fit for purpose - we would be pleased to support you. PMCL specialises in helping charities develop integrated, resilient approaches to financial management. To explore how we can help, please get in touch with our team at www.pmclconsulting.com or contact us directly.
Disclaimer:
The information presented is intended for organisations and individuals with professional investment experience. Portfolio Manager Consultancy Ltd is committed to serving professional clients, ensuring our advice and insights align with the sophisticated needs of this group. We encourage those who do not have professional investment experience to seek advice before making any investment decisions based on this update. For a full understanding of our terms and the scope of our advice, please consult the disclaimer provided.
