Fund managers turn away from US exposure amid tariff fears

Fund managers are expecting to see poorer investment returns in 2025 for those with US exposure, as fears remain that Donald Trump will reintroduce tariffs.

Following Trump's election win in November, the US was overwhelmingly backed by fund managers to be the best performing region, whereas the EU was pegged to perform the worst, according to data from Quilter.

Six months later, the narrative has flipped, with 53 per cent believing that they US will have the worst returns, while 44 now say the EU will have be the best performer in 2025.

Quilter surveyed 21 of the leading fund management institutions, representing £22trillion in assets.

The expected change in fortunes comes on the back of Trump's swathe of tariff announcements in recent months.

Lindsay James, investment strategist at Quilter, said: 'It is not surprising, therefore, to see investor expectations for US equity returns and economic growth to be downgraded.

'White House polices have been pinpointed by fund groups as the cause for sentiment in the US to swing so dramatically in a negative direction.

'Whilst many have sought to tread carefully to avoid overt criticism of the recent policies, the investment community is in widespread agreement that the current approach is damaging on many fronts.'

Four out of five fund managers said they think tariffs will be partially reintroduced by Trump when last month's tariff pause comes to an end on 8 July.

Around 13 per cent said they expect the tariffs to be largely brought back in full, though none expect them to take the same shape as they did when first introduced. Just seven per cent expect them to be dropped in full.

The consensus among managers is that Trump's tariffs are likely to trigger reciprocal action from Europe.

Three quarters of fund managers told Quilter that it is somewhat or highly likely that the EU would place retaliatory tariffs on the US, with one commenting that they expect the EU to distance itself further from the US.

There have been suggestions that Trump's actions could push Europe into the arms of China.

The UK, on the other hand, did not take retaliatory measures and has become the first nation to strike a trade deal with the US, although the full details of the agreement could take years to negotiate.

James said: 'Following a trade deal with the UK and the US and China relenting in their brinkmanship, the question on investor lips right now is "what happens after the 90-day pause on Trump's reciprocal tariffs expires?".

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'President Trump has clearly been prepared, or forced, to listen to markets, and fund groups are expecting this will translate into a better programme of tariffs compared to 2 April.

'But he also will not want a repeat of his backtracking. As ever with the current US administration, the only certainty is uncertainty, and that in itself is not good for markets.'

On the back of this uncertainty, a third of those survey said they expect the US to achieve less than one per cent of GDP growth in 2025, with the possibility that it will fall into recession.

While forecasts for the eurozone and UK have also slipped, they haven't fallen to the same extent.

James added: 'Europe looks like it will continue to be the main beneficiary over the course of the year, despite strong performance already being driven by the shift in attitude to defence spending.

'US equities may have performed well in recent weeks, but this survey highlights that Europe stands to be the winner of the cautious outlook ahead.'