The funds delivering under Trump as US shares drop

Four winning investment themes have emerged so far in 2025, as investors sell US shares due to economic risks associated with tariffs and a lack of certainty about President Trump’s policies.

The latest fund manager survey from Bank of America showed that professional investors cut their US holdings by the largest month-over-month amount ever in March, as they feared that Trump’s erratic tariff policy could lead to a US recession and an end to the exceptionalism of US companies.

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They said that stagflation (low growth but high inflation) and a global trade war were a risk to US shares.

US shares, in sterling terms have fallen 9% so far this year, while the tech-dominated Nasdaq 100 index is down 12%.

But four winning themes have emerged amid the big declines for US and tech-focused funds: gold, banks, China and Europe. We explain why and look at some of the best-performing funds.

Gold

The first winning fund sector is gold, or more specifically, funds that invest in gold mining companies.

The gold price broke through $3,000 (£2,300) this year as investors looked for a safe haven amid geopolitical and economic uncertainty. The price of gold also tends to rise when interest rates fall, which is something that Trump wants to see in the US.

While gold exchange-traded funds (ETFs) have risen about 12% so far this year, funds that own miners have done even better.

The top funds so far this year, to 19 March, are Jupiter Gold & Silver (29.8%), WS Charteris Gold and Precious Metals (27.6%) and iShares Gold Producers ETF USD Acc GBP (LSE:SPGP) (27.5%).

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Francesco Sandrini, head of multi-asset investment at fund manager Amundi, says the strong run for gold can continue.

His view is that falling bond yields are good news for the gold price, which generally appreciates when yields fall as it pays no income, making it more attractive relative to other defensive assets. Sandrini says that a 5% allocation to commodities is prudent.

Data from 1 January to 19 March 2025. Source: FE FundInfo. Past performance is not a guide to future performance.

Banks

European banks and other financial shares are performing well this year, as bond yields rise, which increases the return that banks can generate on their deposits. European bond yields are rising as investors digest news of increased government defence spending, and therefore borrowing requirements.

The Amundi Euro Stoxx Banks ETF Acc GBP (LSE:BNKE) fund has risen 38.5%, while the SPDR® MSCI Europe Financials ETF GBP (LSE:FNCE) is up 21.7%. The iShares Euro Dividend ETF EUR Dist GBP (LSE:IDVY), which is 61% invested in financials, is up 21.5%.

Bank of America says that European Union banks trade at an average price/earnings (PE) ratio based on this year’s forecast earnings of just 7, about half the 14 that US banks command. This shows that despite the rally, European banks are still cheap versus US peers relative to their history.

Banks also have attractive dividend yields, with the SPDR MSCI Europe Financials Ucits ETF yielding around 4%.

Data from 1 January to 19 March 2025. Source: FE FundInfo. Past performance is not a guide to future performance.

China

Chinese shares are soaring this year, as investors respond positively to technology breakthroughs and government stimulus.

The so-called DeepSeek moment earlier this year, when the Chinese artificial intelligence (AI) company managed to match what many US firms had achieved in AI, with supposedly less computing power, restored optimism that Chinese tech firms were not being left behind.

The Chinese government has also rallied around the sector, which increased investor optimism that it would be allowed to keep growing, innovating, and generating profits.

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Valuations are also lower in Chinese assets, with the MSCI China PE ratio at around 15 times, compared with about 26 for US companies. This comes even after a 25% jump in the index so far this year.

Dale Nicholls, manager of Fidelity China Special Situations (LSE:FCSS) investment trust, says: “While tariffs and regulatory concerns have impacted sentiment, the focus on domestic revenue-generating companies and supportive government policies offer a cautiously optimistic outlook.”

Data from 1 January to 19 March 2025. Source: FE FundInfo. Past performance is not a guide to future performance.

Europe

Similar to China, European shares are good value compared with US shares. While the S&P 500’s PE ratio is about 26, the Stoxx Europe index trades at about 17.5 times.

The largest shares in the index are tech firms ASML Holding NV (EURONEXT:ASML) and SAP SE (XETRA:SAP), but then financials, healthcare and industrial firms are prevalent.

Emerging Europe, such as Polish stocks, are also doing well as a peace deal between Russia and Ukraine becomes more likely.

The top funds so far this year include: iShares MSCI Poland ETF USD Acc GBP (LSE:SPOL), JPM Emerging Europe Equity, iShares Euro Dividend ETF EUR Dist GBP (LSE:IDVY), iShares Edge MSCI Europe Value Factor ETF €Acc GBP (LSE:IEFV), Xtrackers Euro Stoxx Quality Dividend ETF 1D GBP (LSE:XD3E).

Bank of America found this month that a net 60% of respondents in its investor survey expected stronger European growth over the coming 12 months, up from 9% two months ago. This optimism is now close to the high seen last May, with a large majority considering German fiscal stimulus as the main catalyst for stronger growth, followed by EU defense spending.

It noted that there was a record rotation out of US shares and into European shares.

Data from 1 January to 19 March 2025. Source: FE FundInfo. Past performance is not a guide to future performance.