Investment conditions
The first quarter of the year hasn’t been without drama with major revisions being made to global GDP forecasts. The IMF is now predicting global growth of 2.8% for 2025, down 0.2% from our previous update.[1] The largest revision from the IMF has been to the US economy which forecasts a 1.8% growth down from 2.7% earlier this year. The IMF has predicted a 1.1% growth for the UK, 0.8% for the Euro area, 4.0% for China and 0.6% Japan.[2]
Inflation remains a problem for developed world economies with further structural issues coming into play for the UK. At the latest reading, headline consumer prices dropped to 2.4% in the US, 2.2% in the Eurozone, 2.6% in the UK, and 3.6% in Japan, all above central bank target levels. The current measures haven’t considered the impact of President Trump’s tariffs, and the UK forecasted for higher inflation throughout 2025 owing to the increase in consumer energy prices[3].
Unemployment is still near historic lows in the developed economies; however, there has been a slight uptick in both the US and UK with a 4.2% and 4.4% unemployment rate respectively. US and UK wage growth has remained healthy, which encourages consumer spending and thus demonstrating the resilience of the economy[4].
The first quarter earnings season for the S&P 500 is off to a slower start than usual, with fewer companies exceeding earnings expectations and the size of earnings surprises falling below of historical averages. So far, 12% of companies have reported results, with 71% beating earnings estimates, below the 5 and 10-year averages of 77% and 75%, respectively. While earnings are flat compared to the end of last quarter, the index is still showing year-over-year growth for the seventh consecutive quarter.[5]
In the world of monetary policy, the US Fed rate remains unchanged from the last meeting at 4.25% to 4.50%. The Bank of England maintained its policy rate at 4.5%, however, the European Central Bank cut their base rate by 0.25% at their most recent meetings, to 2.25%. The Bank of Japan rate remains unchanged from its hike earlier this year at 0.50%.[6] In the US, rate cuts are likely to remain on pause until the end of the year with a further 0.25% priced into the market for December. With the increasing uncertainty of Trump politics, central banks (the Fed in particular) are taking a more hawkish approach to policy rates amidst fears of higher inflation and potential recession.
Market Themes
Trump Tariffs
Less than three months into President Trump’s second term, the level of policy uncertainty has surpassed expectations laid out in our previous updates. While markets initially responded positively to the election results, optimism quickly faded amid the velocity and size of tariff announcements.
The administration’s evolving stance on trade, marked by inconsistent tariff policies, has introduced significant uncertainty for businesses and households alike. This environment is beginning to impact economic sentiment, with early signs of more cautious behaviour across both consumer and corporate sectors.
Further complicating the picture, the recently established Department for Government Efficiency (DOGE) has initiated large-scale reductions in federal employment. Though aimed at curbing governmental fraud and inefficiency, the execution of these cuts has raised wider concerns about the Trump administration’s policy stance.
On the international stage, the US has signalled a shift in its traditional security commitments to Europe. In response, several European countries, led by Germany, are reassessing their defence strategies. The European Union has approved additional defence spending of up to €650 billion, alongside a further €150 billion in defence-related loans.[7]
Source: Saltus, Macrobond Data to 31 March 2025
Despite entering 2025 in relatively stable condition, the global economy now faces headwinds. Should trade tensions escalate further, global growth could fall below 2.5%, potentially marking one of the weakest years in recent decades.
Looking ahead, there remains a path to recovery. If trade tensions ease, US tax cuts and increased European investment in defence and infrastructure could help support a rebound in global growth.
Dollar Decline
In the run-up to the 2024 US presidential election, the dollar strengthened, supported by solid US economic growth. Following Donald Trump’s election victory in November, the currency continued to gain momentum, fuelled by investor optimism that stronger growth could persist. Expectations around Trump’s proposed trade policies also played a role. Many investors anticipated that new tariffs could drive inflation higher, encouraging the Federal Reserve to either raise interest rates or hold off on cuts longer than previously expected. Higher interest rates generally make the dollar more attractive, as they offer investors better returns compared to other currencies.
For everyday Americans, the dollar’s strength or weakness can be most noticeable when traveling abroad, where a stronger dollar means greater purchasing power. Conversely, foreign tourists visiting the US benefit when the dollar is weaker.
Beyond personal travel budgets, movements in the dollar have wide-reaching global implications. As the world’s primary reserve currency, the US dollar is heavily used by central banks around the globe for international trade, debt payments, and currency stability. In fact, about half of all global trade transactions are invoiced in dollars.
When the dollar weakens, US exports become more competitively priced overseas, potentially boosting demand for American goods. However, it can also make imported goods more expensive for US consumers. Additionally, commodities like oil and gas, which are priced in dollars, become more affordable for countries with other currencies when the dollar softens.
In short, the dollar’s movements are not just a financial market story, they ripple across the global economy, impacting trade, inflation, and investment opportunities worldwide.
The ‘DXY’ (dollar index) chart below shows the price of USD change vs a basket of currencies including, EUR, JPY, GBP, CAD, SEK and CHF.
Source: Saltus, Bloomberg
Views by asset class
Equities
Since our last update, global equities have experienced extreme volatility in parts of the market, mostly driven by Trump’s tariffs and the fear of a global trade war. With markets beginning to stabilise, investors can take stock of the situation and position portfolios to best navigate this economic environment.
The committee has taken the view to further reduce US exposure from the equity book, continuing the theme from earlier in the year. From this sale in US exposure, the move has been to add into areas of the market that are expected to either provide resilience or benefit from the current economic environment. The UK and European equity markets have demonstrated these resilience characteristics with both regions major indices posting positive returns year to date. In terms of size, the committee favours small and mid-cap companies in this environment which have exposure to the domestic market over large, globalised organisations.
We continue to maintain an overweight position to Japanese equities adding to the broad exposure between large and small cap value stocks. Although these equities have struggled in the year to date, we believe strongly in the longer term value that these equities could provide to investors.
Overall, we have made the decision to sell from equities reducing to an underweight position relative to our longer-term view, adding to the UK, Europe and Japan.
Bonds
Although government bond yields look relatively attractive, the committee remains cautious about the outlook for inflation, economic growth and interest rates, especially in the US The committee has made the decision to reduce the exposure of government bonds, to purchase investment grade corporate bonds.
We continue to favour ex-US government bonds, primarily UK government bonds, as we believe there is more scope for interest rate cuts, lower inflation, and lower economic growth. Where we do have US government bond exposure, this is through inflation-protected bonds, given concerns around sticky inflation.
Given the sale of assets in equity we have taken the view to increase exposure in the high yield space. High yield corporate bonds yield a return higher than that of investment grade and traditional government bonds. Regarding geography, the committee favour UK and European markets over US, owing to the dovish central bank policy rates in the Euro area compared to the US.
Our market-neutral global bond fund investment has proven to be a useful diversifier in portfolios this year. Given that the fund aims to perform positively regardless of the direction of stock or bond markets, this fund could fall into our alternative asset class exposure, as it offers an uncorrelated return stream to the overall portfolio. We intend to maintain the exposure at this cycle and look to potentially add to the asset class throughout the year.
Alternatives and Currency
Alternative managers continue to be a key diversifier in portfolios across all risk bands. The addition of global macro hedge fund managers which incorporate a wide range of asset classes to benefit from the current economic environment, have proven useful. As with the market neutral fund, the hedge-fund managers aim to profit from the market by volatility – which has been heighted in recent months.
Since our last update, we have sold some of our gold exposure taking profits at market highs. We still maintain a large overweight in gold bullion as well as gold miners in our higher risk portfolios.
For the lower risk band portfolios, where gold miners have been present, the committee has decided to sell some exposure, (taking profits) and buying gold bullion as a safe haven asset.
We have continued the reduction of our equity dollar exposure in favour of hedging back to pound sterling. At our last asset allocation cycle we added to direct Yen exposure and have maintained this position in light of recent USD weakness.
Summary of positioning
Below is a summary of our views for each asset class, from strongly negative (- -) to strongly positive (+ +).
Asset Class
| Asset class | -- | - | Neutral | + | ++ |
|---|---|---|---|---|---|
| Equities | X | ||||
| Government bonds | X | ||||
| Corporate bonds | X | ||||
| Alternatives | X | ||||
| Cash | X |
Asset Class Breakdown
| -- | - | Neutral | + | ++ | ||
|---|---|---|---|---|---|---|
| Equities | USA | X | ||||
| UK | X | |||||
| Europe | X | |||||
| Japan | X | |||||
| Asia ex-Japan | X | |||||
| Emerging markets | X | |||||
| Bonds | US Government | X | Non-US Government | X | ||
| Inflation-Linked Government | X | |||||
| Investment Grade Corporate | X | |||||
| High Yield Corporate | X | |||||
| Emerging Market Debt | X | |||||
| Alternatives | Commodities | X | ||||
| Gold & Gold Miners | X | |||||
| Property | X | |||||
| Global Macro | X | |||||
| Equity Long/Short | X | |||||
| Absolute Return | X | |||||
| Infastructure | X | |||||
| Currency | Sterling | X | ||||
| US Dollar | X | |||||
| Euro | X | |||||
| Japanese Yen | X | |||||
| Emerging Markets | X |
Fund in focus: Skerryvore Emerging Markets
Skerryvore and the team
Skerryvore Asset Management is made up of a small team of investment managers based in Edinburgh who have been managing money since 2019. Although the strategy has been in place for 6 years, the team have been working together for over 10 years prior at numerous other institutions. The team is led by Glenn Finegan who has over 20 years of investment experience directly targeting frontier and emerging market strategies. The firm is now managing over £1bn+ in assets with significant growth over the past few years.
Investment Philosophy
At the heart of Skerryvore’s investment philosophy is the belief in alignment with trustworthy, long-term-focused business leaders. Operating in emerging markets means navigating the constantly evolving political, economic, and regulatory landscapes. Hence the team at Skerryvore seeks to partner with companies whose management teams share their own values and have a strong track record of building sustainable, stakeholder-focused businesses.
Their approach is grounded in the following core principles:
- Long term focus: Investments are made with a five-year outlook, allowing time for businesses to deliver on their potential and ride out any potential headwinds.
- Index-agnostic: The team doesn’t follow benchmarks, they invest where they find the best opportunities.
- Quality first: Companies must demonstrate strong leadership, durable business models, and sound financials.
- Sustainability matters: Environmental and social sustainability is a key part of evaluating every business.
- Bottom-up stock selection: The focus is on deep, fundamental company analysis, not top-down macro views.
- Absolute returns over relative performance: Success is defined by preserving and growing capital, not just beating an index.
- Valuation discipline: The team avoids overpaying for growth, relying on clear financial metrics to set long term price targets.
This philosophy underpins a selective and disciplined investment process, designed to uncover high quality businesses that can thrive in the dynamic environments of emerging markets.
Process
Source: Saltus, Skerryvore
- Filtering a Vast Universe of Stocks
The investment journey begins with a broad universe of around 2,600 stocks. The team narrows this to approximately 300–350 names, focusing on companies from developed markets that earn more than half their revenues from emerging economies. Through a mix of financial screening, company meetings, and deep supply chain research, they identify high-potential opportunities. While they consider broker research, their primary focus is on proprietary insights.
- Rigorous Research and Quality Focus
Before any company makes it onto the team’s 150-stock watchlist, it undergoes a thorough quality assessment. The focus is long term: understanding the strength and sustainability of each business rather than short term earnings forecasts. The team evaluates four core areas:
- Management and governance: Aligned incentives, prudent capital allocation, and risk awareness.
- Franchise durability: Pricing power, high entry barriers, and proven resilience.
- Sustainability: Awareness of social and environmental risks.
- Financials: Emphasis on cash flow and balance sheet strength.
This watchlist has been refined over 20 years through deep, consistent analysis. Rather than excluding entire countries, the team takes a bottom-up approach, although no Russian stocks have made the list since 2018.
- Constructing the Portfolio with a Long Term Lens
From the watchlist, the team selects companies they believe offer the most compelling combination of valuation and growth over a five-year time horizon.
A valuation-led mindset
Valuation is approached on an absolute basis meaning that ‘target’ prices are linked to the real returns (when accounting for inflation) required to compensate for the risks of investing in emerging markets. The team favours predictable, secular growth and uses straightforward valuation tools to enhance clarity and facilitate internal debate.
Clear sell discipline
A company is sold when it no longer offers sufficient return potential or if growth expectations are downgraded. Stocks may remain on the watchlist post-sale for future consideration.
Performance
The team has a strong track record of delivering consistent outperformance through different market cycles, while keeping overall risk levels lower than the peer group. Their approach has resulted in lower volatility and impressive risk-adjusted returns over time.
Importantly, the strategy has typically experienced smaller drawdowns during market declines, reflecting the high quality of the companies they invest in and the strength of their investment process. The team has also shown a strong ability to participate in market gains while limiting losses during downturns.
Source: Saltus, Morningstar
The fund has performed remarkably well given the recent volatility, as can be seen in the above graph. Please note that the Skerryvore fund appears as Bennbridge on the chart due to data feeds not yet reflecting a recent acquisition. Year to date the fund has posted +10.7% return which is significantly higher than the MSCI Emerging Markets index which has returned +3.4%. The return is even more impressive when looking at the broader equity market where the S&P has posted a -5.8% return on the year to April 28th.
Saltus Investment Case
This is a high quality, well-managed emerging markets equity fund that follows a disciplined investment philosophy and approach. It offers access to an experienced team with a strong track record of delivering long term outperformance, while also managing large portfolios.
The team’s long-standing history of working together, in some cases across multiple firms, brings valuable continuity to both their investment process and decision-making. This consistency, combined with a deep knowledge of their investment universe, often built over many years of following the same companies, supports the fund’s ability to deliver repeatable, sustainable results.
Saltus use this fund as part of a diversified portfolio. This is not a recommendation to invest in this fund. Saltus will not be liable for any losses incurred as a result of investing in this fund. Past performance is not a reliable indicator of future results.
Asset Allocation Committee
The committee consists of several senior members of the investment team, all partners, who invest their own money alongside clients. The committee consists of:
Article sources
Editorial policy
All authors have considerable industry expertise and specific knowledge on any given topic. All pieces are reviewed by an additional qualified financial specialist to ensure objectivity and accuracy to the best of our ability. All reviewer’s qualifications are from leading industry bodies. Where possible we use primary sources to support our work. These can include white papers, government sources and data, original reports and interviews or articles from other industry experts. We also reference research from other reputable financial planning and investment management firms where appropriate.
The views expressed in this article are those of the Saltus Asset Management team. These typically relate to the core Saltus portfolios. We aim to implement our views across all Saltus strategies, but we must work within each portfolio’s specific objectives and restrictions. This means our views can be implemented more comprehensively in some mandates than others. If your funds are not within a Saltus portfolio and you would like more information, please get in touch with your adviser. Saltus Asset Management is a trading name of Saltus Partners LLP which is authorised and regulated by the Financial Conduct Authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested. Tax rules may change and the value of tax reliefs depends on your individual circumstances.