Tariffs: how to shield your portfolio from uncertainty and fund picks

interactive investor, the UK second-largest DIY investment platform, explores how investors have reacted and ways to shield their portfolios from market uncertainty.

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Investors buying more than selling amid market uncertainty

• Amid Trump’s trade war, there have been more purchases of investments on interactive investor than sells in March (to 28 March): 60% buys, 40% sells
• There have also been more purchases of US equities on interactive investor than sells in March (to 28 March): 61% buys, 39% sells

Most-traded investments on ii between 1 March – 28 March 2025

Most-traded US stocks on ii between 1 March – 28 March 2025

Will the tariffs be good for the US market?

Alex Watts, Senior Investment Analyst, interactive investor, says: “There are perhaps some benefits on the table for US companies as Trump looks to support domestic businesses, such as through a reduced corporate tax rate for domestic producers. However, the effects of US-imposed tariffs and retaliatory tariffs likely will be a menace for costs and sales volumes of many businesses – and the market has been focussing on this fact. 

“When considering the impact of tariffs on domestic US companies, some relevant questions to consider will be: who are their competitors and where are they based? Are their suppliers based in tariffed regions? Will their exports be subject to retaliatory tariffs from the likes of China or Canada?

“Trump’s protectionist policies may have scope to harm US businesses – with Goldman Sachs predicting that every 5% increase in US tariff rates having the potential to reduce S&P 500 earnings per share by 2-3%. But nonetheless, looking through the near-term noise, amongst the broad US market, a skilled investor or active manager may be able to seek out those domestic companies that could benefit from reduced foreign competition and government incentives over the long-term.

How should UK investors position their portfolios?

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “President Donald Trump’s tariffs war could have far-reaching consequences for Britons, even if the UK manages to escape direct levies.

“If tariffs contribute to higher inflation, central banks may be forced to tighten monetary policy, which can weigh on bonds and borrowing costs. This could impact everything from mortgage rates to corporate investment, potentially slowing economic growth.

“For investors with exposure to US equities - either directly or through pension funds and ISAs - this could translate into market turbulence. Any sell-off in US stocks could drag down the performance of funds with heavy US exposure – not least global funds as they typically have a substantial weighting to US equities.

“That said, long-term investors should resist the urge to make knee-jerk decisions based on short-term market movements. A well-diversified portfolio remains the best defence against geopolitical shocks. As ever, staying the course and ensuring a balanced investment strategy is key.

“Market dips driven by geopolitical tensions, such as Trump’s tariff wars, often trigger knee-jerk sell-offs – but they could present prime opportunities to buy quality investments at a discount. Short-term volatility can mask the underlying strength of well-established companies, meaning those with strong fundamentals could be trading at unjustifiably low valuations. Timing the market is nigh impossible, but for those willing to ride out the storm, picking up undervalued assets during periods of uncertainty can prove a rewarding strategy over time.”

Beware of US tech exposure when diversifying

Myron Jobson says: “The ‘Magnificent 7’ tech stocks (Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla) account for over 19% of the FTSE All World index. The fortunes of these stocks will deliver a greater effect on funds tracking the index than the entire allocation to the UK, which is just 3.54% of the FTSE All World index.

“Diversification is critical to good investing theory, so if you already hold a lot of US tech stocks, you need to think about how including an investment in your portfolio will affect your overall diversification and exposure to economic shocks that could affect the US's performance.”

Fund picks

Neuberger Berman US Multi-Cap Opportunities Fund

Alex Watts says: “One option to consider for the long-term, offering a broader exposure across market caps within US equities is the Neuberger Berman US Multi-Cap Opps Fund. The fund is unconstrained in being able to seek opportunities from large/mega-cap down to small-cap. While still able and willing to selectively invest in mega-cap stocks, the portfolio also houses businesses of varying scale and from a diverse and differentiated set of sectors to capitalise on the breadth of the US market. It’s notable that the fund has a slightly higher revenue exposure to the US (c.68%) than its S&P 500 benchmark (c.60%). 

UK equities

“As markets fall in the wake of the materialisation of tariffs that were interpreted as just rhetoric in the months since Trump’s election, it may be worth to consider those regions that simply are less affected. One such region could be the UK, though with negotiations ongoing between British and US negotiators, the future is not yet clear. Still, it is little wonder that UK equities have outperformed US equities year to date.

“Fidelity Special Values Ord (LSE:FSV)trust takes an all of market approach to finding out-of-favour UK equities. Managers Alex Wright and Jonathan Winton follow a look for companies that are undervalued by the market, and are also permitted a small overseas allocation. The portfolio typically holds companies trading at lower valuation multiples than the wider market. This valuation and contrarian focus makes for benchmark differentiation, and typically leads the managers to allocate heavily to small/mid-cap, with FTSE small-cap and FTSE 250 making up 67% and 38% of the portfolio respectively.

“While capital appreciation is the predominant goal for FSV, the yield of 3% is not insubstantial and, as per the managers’ dictum, makes for a smoothing of returns over the long-term. Despite a strong track record for the trust, FSV trades on a current discount of over 6%, which looks cheap compared to its longer term averages.

“JPM UK Equity Corefund is a core option for gaining active exposure to UK equities, aiming to outperform the FTSE All-Share over the long-term. The portfolio is constructed using fundamental and quantitative analysis. It’s benchmark aware, deviating a small amount through stock and sector over/underweight positions, but still has outperformed over the long-term. 

“Accordingly, the fund is heavily biased to large-cap - companies over £10 billion market-cap comprise 75%+ of the fund. The current yield is around 3.2% and the fund is competitively priced at 0.30%, or an ETF version of the strategy is available (Ticker: JUKC) at an even cheaper 0.25%.”