SMF - April 2025 update

Top 3 investment themes – April 2025  

1. ‘Liberation Day’ market moves  

Reciprocal tariffs, including 20% in the EU and 34% in China, announced by President Trump to ‘liberate’ the US economy led to a huge global sell-off. The US equity market bore the brunt of the pain and fell by almost -19% from its February highs as well as a fall in the US dollar. To put into context,  the VIX Index, which is a measure of market volatility, reached the 3rd highest level in the 21st century (the other two being the 2008 Global Financial Crash (GFC) and COVID-19 pandemic). Later in the month markets began to calm, with President Trump’s announcement of a 90-day pause on reciprocal tariffs; with the exception of China. Although President Trump later made another U-turn, signalling that tariffs on China could also be lowered. Given the uncertainty the US equity market experienced some big swings, with both its best day since the 2008 GFC and its worst day since the pandemic turmoil in March 2020. Ultimately though, the US equity market ended down just -0.7%.

2. Resilient company earnings      

While markets were reacting to 'Liberation Day', major companies began reporting their first-quarter earnings, which contributed to the uplift in the US equity market amidst the ‘liberation day’ turmoil. Microsoft, Meta, and Alphabet all delivered strong results, boosting optimism about the outlook for AI growth. This was especially notable given the caution surrounding AI following the announcement of Chinese company DeepSeek’s lower-cost AI model in January. These positive results outweighed the performance issues from Tesla. In the round the Magnificent Seven were up 1.3% over the month.  

3. Gold continues its rally

Markets were also shaken this month after President Trump publicly chastised Federal Reserve (Fed) chair Jerome Powell decision to not cut interest rates. This raised concerns that the president might attempt to oust Powell and throw the Fed’s independence into question. Fed independence concerns somewhat cooled, however, after President Trump clarified he had “no intention” of firing Powell, bringing an instant relief rally to markets. Nevertheless, gold soared past a record high of $3,500 per troy ounce in a flight to safety, while the US dollar and US equities sank. Given this, gold was up +25% year-to-date, marking its strongest start to a year since 2006.

April 2025 Market performance (GBP terms) 

Past performance is not a reliable indicator for future performance.

Source: Morningstar as at 30^th April 2025. Equity returns are in GBP, commodity in USD and fixed income is GBP hedged.

How did SMF perform?

Growth assets

April was another volatile month for risk assets, with uncertainty regarding US tariffs dominating markets resulting in key regions ending the month in negative territory. The announcement of US reciprocal tariffs on April 2^nd, and the subsequence 90-day pause on said tariffs resulted in the S&P 500 posting both its worst and best daily performance in recent years. This pause in tariffs also resulted in Japanese and European equities ending the month in positive territory. European equity markets continued their rally, up +9.22% year-to-date, following new German fiscal policies and renewed hopes for a ceasefire in Ukraine, as well as investors potentially favouring European equities over its North American counterparts. Furthering this, equity markets saw a rebound towards the end of month following optimism about a de-escalation in US-China trade tensions, and a positive start to earnings season. Given this backdrop, our underweight positions in European and US equities (now a closed position) were additive to performance this month. Our underweight position in the US Dollar was also additive to performance.

Defensive assets

Global fixed income generally delivered positive returns in April, although longer-dated US Treasury bond yields rose at their fastest pace since March 2020. European bonds benefitted from the volatility within the US market, delivering their strongly monthly performance since November as investors questioned the ‘safe haven’ status of US Treasuries. UK Gilts also performed well over the month as yields trended downward, with a pessimistic report on growth by the IMF suggesting further rate cuts are needed by the Bank of England. In terms of our active positions, our overweight position in Gilts and German government bonds were additive in April, whilst our underweight to French government bonds marginally detracted. Our US Treasury overweight was additive as we trimmed the position at the start of the month before the Treasury sell-off.

Key active management themes in April 2025

1. Reduced our underweight equity position

• We have now closed our underweight position in European equities, given the potential for improved investor sentiment towards the market following the shock of Liberation Day announcements. 

2. Re-allocated our overweight fixed income exposure

• We closed our overweight 10y US Treasury exposure in April, given yields trending higher for long-term bonds, preferring to focus duration exposure in short-term bonds.
• We are now overweight German Bunds, having closed our underweight position in April, as government bonds provide additional diversification in our house-view scenario of a global slowdown in growth over the next few years. 

3. Made changes to RV positions 

• We have now closed our overweight US healthcare (vs broader US market) position to take profit as the broader market has sold-off.
• Have reduced our dollar exposure by closing our long EUR v USD FX position, to open a short USD v JPY position given dollar weakness. 

Past performance is not a reliable indicator of future performance

Source: Morningstar as at 30^th April 2025. Performance of the funds are net of fee.

The launch date of SMF (pension) was 11/12/2017, SMF (bond) 18/02/2019, SMF II (pension) 30/06/2021 and SMF II (bond) 30/06/2021.

SMF Strategic Asset Allocation           

Source: Aviva Investors. This diagram is for illustrative purposes only, asset allocations are subject to change. The reference fund is SMF, based on its strategic asset allocation as at 30 June 2024.

Top 10 Equity holdings   

Source: Aladdin, as at 30 April 2025. The reference fund is SMF. The companies mentioned are for illustrative purposes only, not intended to be an investment recommendation.                                                                                                                            

SMF & SMF 2 Fund Price Adjustments (FPA)

There were no fund price adjustments in April 2025.

Market outlook and positioning: what do we believe happens next?

With signs of trade deals being made during this 90-day pause, there is a broader positive outlook for equities despite challenges to the growth outlook. Regarding our fixed-income allocation, we maintain an overweight positions in US Treasuries, German Bonds and Gilts, with the latter also vs an underweight in French OATs. Within the US, we have focused our duration exposure in shorter-term bonds which are less exposed to long-term bond sell-offs. In the case of Europe, most notably the UK, downside growth risks could lead to continued central bank easing, above that currently expected by investors. For France, we have opened an underweight position as we see specific fiscal risks where higher increases in spending, compared to the rest of Europe, are likely to put downwards pressure on bond prices. 

Any companies, or markets, mentioned are for illustrative purposes only, not intended to be an investment recommendation.

Key risks

• Investment not guaranteed: The value of an investment is not guaranteed and can go down as well as up. You could get back less than you’ve paid in.
• Specialist funds : Some funds invest only in a specific or limited range of sectors. This will be set out in the fund’s aim. These funds may be riskier than funds that invest across a broader range of sectors.
• Suspend trading : Fund managers are often able to stop any trading in their funds in certain circumstances for as long as necessary. When this happens, cashing in or switching your investment in the fund will be delayed. You may not be able to access your money during this period.
• Derivatives: Derivatives are financial contracts whose value is based on the prices of other assets. Most funds can invest partly in derivatives so that the fund can be managed more efficiently or to reduce risk, but there’s a risk that the company that issues the derivative may default on its commitments, which could lead to losses. Some funds also use derivatives to increase potential returns – this is known as ‘speculation’ – and an additional risk warning applies to those funds.
• Foreign exchange risk: When a fund invests substantially in overseas assets, its value will go up and down in line with movements in exchange rates as well as the changes in value of the fund’s investments.
• Emerging Markets: Where a fund invests substantially in emerging markets, its value is more likely to move up and down by large amounts and more frequently than a fund that invests in developed markets. Emerging markets may not be as strictly regulated, and investments may be harder to buy and sell than in developed markets. Emerging markets may also be politically unstable which can make these funds riskier.
• Smaller Companies: Where a fund invests in substantially the shares of smaller companies, it’s more likely to move up and down by large amounts and more frequently than a fund that invests in the shares of larger companies. The shares can also be more difficult to buy and sell, so smaller-companies funds can be riskier.
• Fixed Interest: Where a fund invests substantially in fixed-interest assets, such as corporate or government bonds, changes in interest rates or inflation can contribute to the value of the fund going up or down. For example, if interest rates rise, the fund’s value is likely to fall.
• Derivatives: Some funds also invest in derivatives as part of their investment strategy, not just for managing the fund more efficiently. Under certain circumstances, derivatives can cause large movements up or down in the value of the fund, making it riskier compared with funds that only invest in, for example, company shares. There’s also a risk that the company that issues the derivative may default on its commitments, which could lead to losses.
• Cash/Money Market funds : These are different to cash deposit accounts, such as those held with high-street banks, and their value can fall. Also, when interest rates are low, the fund’s charges could be higher than the return from the investment, so you could get back less than you’ve paid in.
• Property Funds: When a fund invests substantially in property funds, property shares or directly in property, you should bear in mind that: · Property isn’t always easy to sell, so at times the fund may not be able to cash-in or switch part or all of its holdings. You may not be able to access your money during this time. Property valuations are made by independent valuers, but effectively they remain a matter of judgement and opinion. Property transaction costs are high due to legal costs, valuation costs and stamp duty, all of which affect the value of a fund.
• High Yield Bonds: These are issued by companies and governments that have a lower credit rating. When a fund invests substantially in high yield bonds, there’s a higher risk that the bond issuer might not be able to pay interest or return the capital that was invested. The value of these bonds is also more greatly affected by economic conditions and interest rate movements. There may be times when it’s not easy to buy or sell these bonds, so cashing-in or switching your investment in the fund may be delayed. You may not be able to access your money during this period.
• Reinsured Funds: Where a fund invests in a fund that’s operated by another insurance company, you could lose some or all of the value of your investment in the fund if the other insurance company became insolvent.
• Long-Term Asset Funds: The fund invests partly in one or more long-term asset funds (LTAFs), giving access to sectors such as infrastructure, venture capital, private equity and debt investments. LTAFs add diversity to the fund, but it takes longer to move money out of them than from many types of asset. This could mean that in exceptional circumstances cashing-in or switching your investment in the fund may need to be delayed. To reduce this risk, we set strict limits on how much of the fund can be invested in LTAFs and monitor this closely.

Important information

THIS IS A MARKETING COMMUNICATION

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but, has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment. In the UK this is issued by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178.