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 generally ended slightly positive in April after experiencing major market swings and elevated volatility. US equities underperformed international developed and emerging market equities, which both had weak returns in local currency terms but posted positive returns for unhedged US investors as the dollar weakened significantly. Global small caps outperformed large caps, and US growth outperformed value by a wide margin (as measured by Russell 3000).

Trade tensions were the main market driver in April. Liberation day reciprocal tariffs included a 10% US universal tariff on most countries, and much higher tariffs for certain countries with large trade imbalances with the US, as well as material tariff and non-tariff trade restrictions on US imports. While most countries did not retaliate, China announced retaliatory tariffs on US goods, escalating tit-for-tat series of tariff hikes. On April 9th, President Trump announced a 90-day pause on all tariffs above the 10% baseline as well as temporary exemptions on electronic items and a reprieve for car makers late in the month. While the market reaction to the event was dramatic, it was mostly reversed for US equities and fully reversed for bonds when the 90-day pause, and numerous exemptions were announced.

Economic data was generally mixed for the month. The unemployment rate increased slightly to 4.2% in March, still very low. US consumer sentiment as measured by University of Michigan Survey fell to its lowest level since July 2022, but March retail sales jumped to the highest level in two years, exceeding expectations. The one-year consumer inflation expectations rose to 6.5% in April the highest since 1981. Q1 US GDP growth was negative due to a surge in imports prior to expected tariffs, even if consumption and investment remained solid.

Headline inflation in the US surprised to the downside for the second consecutive month, rising only 2.4% year over-year in March. Core CPI also rose less than expected. Headline inflation in other developed markets eased for March, with UK and Europe inflation slowing to 2.6% and 2.2%, respectively. As a result of easing inflation, the ECB continued their rate cutting cycle. Public tensions between the White House and the Federal Reserve eased when President Trump announced that there were no plans to remove the Federal Reserve Chairman.

Headline inflation in the US surprised to the downside for the second consecutive month, rising only 2.4% year over-year in March. Core CPI also rose less than expected. Headline inflation in other developed markets eased for March, with UK and Europe inflation slowing to 2.6% and 2.2%, respectively. As a result of easing inflation, the ECB continued their rate cutting cycle. Public tensions between the White House and the Federal Reserve eased when President Trump announced that there were no plans to remove the Federal Reserve Chairman.

The US dollar weakened during April. Real asset returns were outperformed broad equities with positive returns for global REITs and listed infrastructure. Natural resource equity performance was negative as oil prices were sharply down amid concerns around global demand. Gold had a strong returns of 5.4%, due to high investor demand for safe haven assets amid falling yields and a weaker US dollar.

Outlook

We have commented on the possible economic impacts of tariffs previously and our position remains unchanged as of end April 2025. Our base case is for the US to enter a mild recession, although there are risks to both the upside and downside. The impact of tariffs on other economies will be less pronounced as they will feel the hit via slower global growth and increased uncertainty but will not experience any notable fiscal tightening. For example, the recently announced changes in German and EU-wide fiscal policy to allow a significant rise in infrastructure and defence spending boosts Europe’s growth rate in the medium to long-term, offsetting some of the headwinds coming from tariffs.

We think that the increase in US inflation will ultimately be a one-off and that it will fall back to target in due course. Other economies may face disinflation pressure as growth slows. In terms of monetary policy, we think the Federal Reserve will cut interest rates several times this year, possibly bringing them to sub 3.5% by year end.

Given the increased risk of a growth shock, we expect the European Central Bank to continue with rate cuts. In Asia, China’s response is likely to be more focused on the fiscal side. Local inflation and growth dynamics may warrant further rate hikes by the Bank of Japan unless there is a pronounced global recession

April 2025 Market Outlook - Dated received and updated 19.05.2025

  Notes