Fiduciary managers (FMs) are turning more defensive as trade disruption and geopolitical risk reshape global investment markets. Recent research from Isio highlights a clear pivot in fiduciary portfolio management following ‘Liberation Day’, when President Donald Trump introduced sweeping tariffs on countries around the world, with half (50%) of FMs adjusting tactical equity allocations and one-third (33%) downgrading their overall equity outlook.
Renewed interest in IG credit
FM sentiment on global equities has deteriorated since Liberation Day, with two-thirds (66%) saying the tariffs have a negative impact on return opportunities. This has paved the way for renewed interest in investment grade credit. Isio found that one third (33%) of FMs believe the asset class is now more attractive for short term returns, noting that widening credit spreads after a prolonged period of tightening presents an attractive opportunity for some fiduciary managers.
Despite the turmoil caused by tariffs, most FMs are sticking to their guns. Three quarters (75%) maintained their long-term strategic asset allocation, largely avoiding reactive decision making in response to short-term market volatility and believing in their ability to navigate periods of economic stress. Outside of equity markets, Isio found that most FMs advocated for rebalancing activity only, allowing portfolios to drift with market movements and ride-out choppy markets.
Preparing for further volatility
Isio’s research reveals that FMs were generally well-prepared ahead of ‘Liberation Day’ and the subsequent market volatility. Almost all (91%) FMs reported being underweight in the magnificent 7 US tech stocks, mitigating exposure to the most volatile market moves and limited downside for schemes otherwise heavily invested in growth assets.
Moving forwards, Isio found that liability hedging targets remain broadly unchained, given that FMs typically hedge close to 100% of assets where affordable. However, FMs are currently holding higher levels of cash as collateral to support liability hedging arrangements, in order to respond to any attractive market dislocations.
Paula Champion, Partner & Head of Fiduciary Management Oversight at Isio, comments: “Fiduciary managers have responded well to a shifting investment landscape, where global uncertainty and evolving market dynamics are prompting a more defensive stance. The reduction in equity exposure and growing interest in credit demonstrates a pragmatic response to near-term risks and opportunities.
“What stands out is the clear distinction between short-term tactical moves and long-term strategic discipline. While there may be opportunities to utilise market dislocation, lower equity pricing and widening credit spreads, investor confidence has been damaged, and we can expect volatility to continue. Fiduciary managers have proven they are adept at responding to volatility without losing sight of the long-term plan but, against the current backdrop, schemes will be seeking confidence that the plan is still the right one to meet their objectives.”
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