Macro and Market Review
While the start of the year was marked by a rotation in global financial markets towards "value" in Europe and China, April was dominated by tariff uncertainty. This story obviously began earlier in the year, but the announcements during "Liberation Day" on 2 April led to a powerful surge in volatility in financial markets. The White House announced a minimum 10% tariff for all US trading partners, with these tariffs potentially increasing up to half the value of the trade deficit maintained with each of them. This new step in the Trump administration's economic policy was initially perceived as a potential catalyst for a deep economic slowdown for both the US and the global economy. Major stock indices plunged on the news, with credit spreads widening in their wake. A few days later, the announcement of a 90-day delay to allow for negotiations, while tariffs were generally brought back to 10% for all trading partners except China, finally led to a recovery in the market – the S&P 500 (and stocks globally) experienced a volatile month to say the least, dipping by about 16% and then rising. With the Federal Reserve still concerned about inflation, long-term rates fell only slightly despite calls from the US administration for more accommodative monetary policy. For now, "hard" economic data remains rather positive, leaving markets hesitant about which investment horizon to consider: the solid short term or the medium term, given its significant uncertainties.
In this context, stocks experienced near-zero performance during the month, with global equities rising 0.74% in USD terms, ultimately driven by the outperformance of "growth" stocks (+3.1%) versus value stocks (-1.6%). The S&P 500 closed the month with a negative performance (-0.8%), as did the Eurostoxx (-1.7%). Credit spreads widened over the period: +30 bps for the US CDX High Yield and +22 bps for the European Xover, with the magnitude of these movements reflecting greater distrust in the bond world than in the stock market. 10-year rates generally fell consistently over the period, by 4 bps in the US and by 30 bps in Europe. Finally, the USD fell 4.5% during the month, as confidence in the American currency eroded. Despite the decline in the greenback, commodities fell by nearly 5%, dragged down by a collapse in energy prices (-18%).
Portfolio Activity
Portfolio exposure decreased sharply over the month as volatility surged following “Liberation Day”, and our risk budget shrank as drawdown intensified. As a result, total portfolio exposure was halved in the first days of April, reaching c60% from c120% at the end of March. As markets recovered, total exposure reverted in the second part of the month, closing the month at c85%. Our volatility estimates increased over the month, with the volatility in equities notably surging above its long-term top quartile for the first time since the August 2024 jump. Our risk appetite indicator turned bearish over the month and remains in risk-off territory – although increasing in the second half of April. Momentum signals weakened across all cyclical assets (commodities, equities, HY credit), cancelling for equities but remaining positive for commodities. On the contrary, signals strengthened across sovereign bond markets, switching off the negative trend captured since the beginning of the year. On the macro side, our economic growth nowcaster continued to show signs of slowing momentum, especially in the US. Our monetary policy signals were unchanged, indicating that central banks’ stance remains dovish. Finally, inflation pressures started rolling over in the US, partly reflecting lower oil prices.
Performance
In April 2025, LO Funds - All Roads was down -1.5% (USD NA share class). Over the month, cyclical assets contributed negatively, with commodities the largest detractors at -95 bps, while equities and corporate credit detracted 60 bps and 35 bps, respectively. Protection assets helped mitigate the fall, with sovereign bonds contributing 70 bps and our long volatility strategies adding 25 bps. Overlays performance was, however, negative, with our Momentum strategy detracting 40 bps – particularly impacted by the sharp trend inversion in commodities – and Macro overlays detracting 25 bps, while Carry remained relatively flat.
Outlook
During May, investors will assess corporate profit health in the first quarter while trying to quantify the influence of US policies on these in the coming quarters. This will occur against a countdown backdrop – the 90-day period will end in June, and May must show significant progress not to reignite market fears of potential growth destruction from the trade war, which continues to rage, even if markets tend to forget about it.
