20 May Investing through volatile markets and the fast-changing odds of a global hard landing
As published in FA News and Moneyweb on 19 May 2025
The exceptional market turbulence and ever-changing tariffs, which have resulted in constantly shifting goalposts, are testing investment managers’ ability to predict where the markets are headed, respond appropriately, and manage downside risk in their portfolios. Evidence of how quickly things can change is that halfway through May, the number of fund managers expecting a global economic hard landing in Bank of America’s latest Global Fund Manager survey halved from 50% in April, a month when US stocks experienced their most volatile month in market history.
April’s market drama underscored the need for nimble portfolio management, with the S&P 500 experiencing one of the steepest two-day declines in market history, plunging 10% to start the month before recovering most losses by month-end. This volatility was primarily triggered by Trump’s implementation, followed by the postponement, of tariffs.
The goalposts shifted again in May, when Trump walked back the 145% tariffs imposed on China, as American ports emptied and US consumers faced the prospect of empty shelves by the end of May due to these punitive tariffs. As a result, equity markets have continued to rise and expectations of recession have waned.
Flagship Asset Management has responded to the changing investment landscape by refreshing its investment strategy to weather the Trump-era market turbulence. “As the uncertainty started becoming more visible this year, we decided to take some risk off the table,” explains Philip Short, global portfolio manager and co-manager of Flagship’s global funds with JD Hayward.
Derisking for Volatility
In February, the investment team significantly decreased its overall equity exposure from an 87% equity allocation in the Worldwide Flexible Fund to 73%. Of that, US equity exposure was reduced from 53% to 38%, and the portfolio’s cash holdings increased to 20%. This tactical shift came in response to concerning macroeconomic signals, including declining US consumer sentiment, rising inflation expectations, and deteriorating business outlook – all indicators suggesting potential market and economic vulnerability amid Trump’s unpredictable trade policies.
Flagship has also increased the diversification in its portfolios, which now hold approximately 70 stocks. “When you have concentrated portfolios with positions 10% in size, and you are surprised to the downside, your portfolio could take a major knock,” Short explains. This diversification strategy has reduced single-stock risk substantially, with the top 10 positions now accounting for only about 30% of the fund.
The Fund’s investment exposure is also sector-neutral relative to its benchmarks. “We believe it is extremely risky to be significantly underweight an entire sector, especially one that’s big, just because it’s expensive,” says Hayward. Instead, they focus on selecting the best stocks within sectors while avoiding major sector-level deviations.
Flexibility as a Competitive Advantage
Perhaps most critical to Flagship’s investment approach is its style agnosticism. “Our process is 100% style agnostic, which allows us to incorporate all investment styles and take advantage of all opportunities, regardless of market conditions,” Hayward notes.
“During bear markets or long downturns,” he adds, “we will actively look for the best value we can find. But when markets are strong, like they’ve been in 2023 and 2024, then we want the portfolio to have a more growth-centric tilt.” This flexibility has proven particularly valuable during the rapid market shifts that have characterised the early months of Trump’s return to office.
The firm’s holding period philosophy has also evolved to prioritise adaptability. “We do not mind closing out a position that we only held for a short period of time if we see that position moving against us,” Hayward states. Meanwhile, their approach to winning positions is to allow them to run and grow organically within the portfolio.
Combining fundamental, quantitative, and technical tools, with earnings momentum a key metric, Flagship likes to invest in companies that are able to constantly grow their earnings and share prices would generally follow that same trend.
Positioned for an Uncertain Future
With trade policy outcomes still uncertain and geopolitical factors, such as the ongoing Russia-Ukraine conflict, adding further complexity, the investment landscape in 2025 is likely to remain unpredictable and volatile. Flexibility, diversification, and risk management will remain paramount in protecting capital and outperforming in this era of dramatic market swings and ever-shifting potential economic outcomes.
