Fund Return 2024-2025

Graph of returns to 31.03.2025

Please click here to see a graphical illustration of funds to 31.03.2025

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Global equity and fixed income performance was mostly negative in March. US equities materially underperformed international developed and emerging market equities. Global small caps outperformed large caps, while US value outperformed growth, although both were negative in absolute terms (as measured by Russell 3000).

Tariffs continued to dominate news headlines in March. At the start of March, an additional 10% tariff on China and the previously deferred tariffs on Mexico and Canada went into effect. Canada announced retaliatory tariffs. The US announced an additional 25% tariff on steel and aluminium imports from Canada, to which Canada countered with even more tariffs of its own. The EU also announced a retaliatory tariff set to take effect on April 1st. At the end of March, President Trump announced 25% tariffs on overseas-made auto imports. Equities fell on tariff announcements due to the uncertainty the ongoing negotiations create for businesses and consumers. Markets are awaiting the reciprocal tariff announcement on April 2^nd.

Economic data was generally weak. Nonfarm payrolls for February were slightly weaker than expected rising to 151k. The unemployment rate increased slightly to 4.1% in February. US consumer sentiment as measured by University of Michigan Survey fell to its lowest level since November 2022. The Five-year consumer inflation expectations rose to 3.9% the highest since the 1990s. US services PMI rebounded into expansionary territory from a two-year low, but manufacturing PMI fell into contractionary territory.

Headline inflation in the US surprised to the downside rising only 2.8% year-over-year in February. Core CPI also rose less than expected. PCE inflation, on the other hand, came in ahead of forecasts. Headline inflation in other developed markets eased for February. Despite easing headline inflation, the Federal Reserve left rates unchanged, noting that uncertainty around the inflation outlook had increased. The BOE and BOJ also left rates unchanged.

President Trump continued efforts to de-escalate the conflict in Ukraine and brokered a deal for a maritime ceasefire between Russia and Ukraine, though Ukraine has claimed Russia did not adhere to it. The US also proposed new critical minerals deal to Ukraine. Tensions in the Middle East escalated as Israel conducted airstrikes against Hamas and sent ground troops back into Gaza. There also was a resumption of conflict between Israel and Hezbollah in the north. These two escalations scrapped previously negotiated cease fires. These conflicts did not offset expectations of lower energy demand caused by tariffs, resulting in falling oil prices. In the UK, the chancellor announced the Spring Statement with fiscal spending cuts as the major headline. In Germany, the parliament passed the incoming government’s plans to loosen the debt brake and increase defence and infrastructure spending.

The US dollar weakened during March amid broad economic uncertainties and retaliatory tariffs. Rate-sensitive real assets such as global REITs had weak returns whilst listed infrastructure was positive through March. Natural resource equity performance was positive as oil prices increased. Gold prices had strong returns of 10.6%, outperforming equities and fixed income.

Outlook

On 2 April, President Trump held a press conference where he announced an executive order invoking a series of reciprocal tariffs on a number of trading partners globally. Starting with a baseline tariff of 10% on all imports to the U.S., President Trump announced additional reciprocal tariffs on approximately 60 countries that have significant trade imbalances with the U.S. The U.S. administration views these tariffs as reciprocal because they are based on the tariffs imposed by these countries on U.S. goods.

While our expectations ahead of these announcements was for substantial tariffs to be introduced, these country-by-country tariffs are larger than many, including ourselves, expected. There are numerous estimates circulating around the effective average US tariff rates, ranging from 20% - 25% with some forecasting as high as 30%.

The tariffs act as a big fiscal tightening with the collected revenues leading to an improvement in the US fiscal deficit. There is considerable uncertainty as to how long these tariffs will last, how much of them will be negotiated and substantially lowered/eliminated. Our initial assessment is that should if these tariffs are implemented as planned and without significant fiscal stimulus—which appears unlikely in the near future we are of the view that they will cause a US recession in the near term.

However, it is worth noting that given these tariffs were higher than most people expected, there is room for positive surprises if they are negotiated away. Notwithstanding, the complex interplay of second order effects from these policies.

In summary, at the time of writing, latest developments have skewed global growth risks to the downside while increasing inflation risks.

March 2025 Market Outlook - Dated received and updated 16.4.2025

Notes