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 equities had a strong month despite continued trade whipsaws, and elevated volatility. Non-US developed and emerging markets equities were both positive, though they underperformed US equities. Global small caps slightly outperformed large caps while growth outperformed value.

Trade remained the main market driver in May. The US and the UK announced a trade deal in early May with quotas announced on key exports. President Trump announced a 90 day pause on reciprocal tariffs in China, leaving in place a 30% duty for national security reasons. The S&P 500 surged 3.3% the day of the announcement. Negotiations between the US and the EU gathered momentum. At the end of the month, a federal court ruled against reciprocal and the 10% baseline tariffs, though it left sector-specific tariffs in place. The Trump administration said it would appeal the decision, and current tariffs will remain in place during the appeal. Equity markets rebounded over the month as investors assumed that the worst-case tariff scenarios were unlikely.

Bond markets fell over the month. Moody’s joined S&P and Fitch in downgrading the credit of US debt from AAA status. The subsequent auction of 20-year bonds sold at a yield over 5%, the highest since November 2023. The Republican-led House of Representatives shortly thereafter passed Trump’s “Big, Beautiful Bill.” Current tax cuts will be made permanent and new tax cuts will be introduced. Little was done to cut spending, raising concerns about the bill’s impact on the deficit.

Economic data was mixed but generally positive for the month. The unemployment rate remained at 4.2% in April, jobless claims increased less than expected, and nonfarm payrolls remained stable. US consumer sentiment as measured by University of Michigan Survey fell to its lowest since mid 2022, but April retail sales increased over March, exceeding expectations. Q1 US GDP contracted slightly, but by less than expected and far less than in 2022 Q1. This paints an overall picture of a stable or moderately slowing economy rather than an imminent recession.

Headline inflation in the US surprised to the downside for the third consecutive month, rising only 2.3% year-over-year in April, very close to target, and the lowest since early 2021. Headline inflation in other developed markets increased more than expected, with inflation rising to 3.5% in the UK, 2.2% in the Eurozone, and 3.6% in Japan. In a split vote, the Bank of England cut rates by 25bps. The Fed held rates steady.

The US dollar was slightly weaker in May. Real asset returns underperformed broad equities, even if returns were positive in absolute terms. Oil prices bounced back strongly as recession fears receded. Gold fell slightly by -0.1%, due to improving risk sentiment.

Outlook

Following almost half a century of globalization, the last 15 years have seen a directional shift towards a factionalized, multi-polar world. We believe that we are now in a world that is fracturing into blocs, not just between countries but also between allies, at least to some degree.

We also see persistent geopolitical uncertainty amid numerous unresolved conflicts across the globe. This has important ramifications for trade flows, supply chains and global security, creating both opportunities and risks for investors.

In a more geopolitically charged world, trade and national security become intertwined. From this, we see the following trends as a likely outcome for the decade ahead:

·         The US is taking dramatic steps to negotiate more favourable trade deals, with access to its enormous consumer market becoming an important negotiation tool. If the tariffs are maintained, then this implies both fewer imports and fewer exports. A complete and abrupt decoupling between the US and China has become a strong possibility. China is continuing to strengthen regional trade alliances.

·         Trade and geopolitics are intertwined; new trade deals with allied countries may be possible, but certain areas critical to national security (i.e. steel, aluminium, AI technology) will be subject to more permanent restrictions with few exceptions, even for allies (see Nippon – US Steel). Adversaries may see more stringent restrictions. Reviving the manufacturing sector in the US, especially in critical areas, will serve an economic and geopolitical dual objective.

  May 2025 Market Outlook - Dated received and updated 18.06.2025

  Notes