President Trump has consigned the existing world order to the refuse heap
On 2nd April President Trump delivered from The White House Rose Garden a tariff regime unlike anything the world had seen since the 1930s. No country was spared and within the space of a few minutes easy access to the lucrative US economy was no longer guaranteed. An entrance fee was now effectively in place. Global markets appear to have been caught completely off guard, both by the extent of the tariffs and their breadth. The resulting volatility, particularly in equities (stocks), is probably only comparable to the moves associated with the Global Financial Crisis.
In the months that have followed we have had to contend with the threat of reciprocal tariffs, postponements thereof and also the announcement of several bi-lateral trade deals. Markets appear to have now moved past the tariff issue and we have seen a steady recovery in asset prices. It is as if nothing happened and the uncertainty which was unleashed by their implementation will have no wider economic consequences. We are unconvinced.
The great repricing of US Assets
It is often said that markets hate uncertainty. What could possibly be more unpredictable than Mr Trump’s second term in the White House. Whilst there may be some grand strategic vision in mind, most of the actual day-to-day policy making appears to be somewhat chaotic. Pronouncements appear on X (previously Twitter) regarding all manner of important issues, including, but not limited to, changes in personnel, military action, legislative matters etc. etc. The United States has always had its faults, but it was generally considered a safe haven. It seems to us that investors are beginning to ask themselves whether they have too much exposure to US assets and that perhaps they had better diversify. If they answer this question in the affirmative there will be profound implications for portfolios all over the world.
Cybersecurity and Defence, no longer discretionary spending
Our investment philosophy at Whitman is thematic in character. As we write, Cybersecurity and Defence is probably the most relevant of all twelve of our themes. We cannot see this changing. Not a week goes by without a headline grabbing IT security breach. The most notable recent example was the M&S ransomware attack. Management teams at both large and small companies should accept that cybersecurity is not-negotiable. If for no other reason than the insurance industry will expect protection in place before issuing a policy.
Defence spending in contrast is primarily the responsibility of the state. Significant amounts of money will be spent globally in the next decade on recognisably 20th century weaponry such as armoured vehicles and fighter jets. However, the battlefields of the future will probably contain autonomous weaponry (drones), hypersonic projectiles and may not even take place exclusively on earth itself. Yes, space itself may become a theatre of war. We do not have the expertise to assess which new technology might succeed. Therefore, we have begun adding an ETF known as First Trust Global Aerospace and Defence to portfolios. This instrument has exposure to the traditional defence contractors but also has exposure to several novel defence technologies. The idea being that portfolios benefit from whatever warfare looks like in the years ahead.
Portfolio positioning: Risks remain elevated and cash levels to rise
Thus far the global economy has weathered the tariff storm, and economic growth has held up. Markets have recognised this with most equity indices at or above their levels prior to 2nd April,2025. It is our opinion that notwithstanding the improvement in mood regarding tariffs, there are risks to growth. As we move into the summer months it is our intention to raise the levels of cash in portfolio and assume a defensive posture. No one can know for certain what happens next and staying invested is generally the best bet. Nevertheless, within the permitted tolerances applicable to each client’s mandate we intend to be defensive.
