News & Insight • Market Insights
10 April 2025 | William Buckhurst
Thoughts on 2025 - Beat to Quarters
YFS VP Portfolio Funds
Over the first three months of the year, the Vermeer Partners Portfolio Fund returned -0.53% and the Growth Portfolio Fund (which will have a higher equity content and, therefore, higher risk profile) returned -2.00%. The estimates for the ARC GBP Steady Growth PCI were -1.18% and the ARC GBP Equity Risk PCI -1.70%.
Since launch (16th October 2023), the Portfolio Fund has returned +8.00% while the Growth Portfolio Fund has returned +6.46%. The estimates for the ARC GBP Steady Growth PCI were +12.68% and the ARC GBP Equity Risk PCI +14.49%.
The estimated historic dividend yield on the Portfolio Fund is 3.02% and on the Growth Portfolio Fund it is 2.54%.
“Beat to Quarters”
We have been thinking a bit about quarters. In Patrick O’Brian’s epic Napoleonic naval series – 21 full-length novels beginning with Master & Commander in 1969 and adapted into a blockbuster film in 2003 with Russell Crowe at the height of his powers – the command “Beat to quarters” signalled the crew to prepare for imminent battle.
In our commentary at the end of last year, we noted that US stock market exceptionalism – the idea that US equities would outperform other regions, as they have almost every quarter since the Global Financial Crisis – had become deeply entrenched and, in our view, increasingly questionable. What we did not anticipate was how suddenly and dramatically that trend would reverse this last quarter.
A combination of stretched valuations, technology sector jitters sparked by the release of the (apparently) cheaper Chinese AI start-up Deep Seek, and then (more of which later) the escalation of a full-blown trade war, exacerbated by ill thought-out Trump tariffs, sent shockwaves through markets with US equities bearing the brunt of the selling.
Meanwhile, Germany’s incoming government agreed an historic plan to loosen government borrowing limits (the so-called “debt break”), allowing it to spend heavily on defence and infrastructure to offset America’s pivot away from Europe and try to end years of economic stagnation. The announcement led to a rally in European equity markets and a slump in German government bonds.
Over the quarter, US equities fell by 4.3%, while the tech-heavy NASDAQ fell by 10.3%. In contrast, UK equities rose by around 6% and Germany’s DAX index climbed approximately 11% (all in local currency terms). Even Asian, a persistent underperformer over the past three years, performed well with the Hang Seng index up 16%.
We wouldn’t normally comment on market trends and performance over just one quarter (one of our competitor firms once remarked that their favourite client used to talk in terms of quarters being 25 years long) but this was emphatically not the quarter to be “all-in” on the US.
But as we write, in the second week of April, events have rather taken over. Anyone hoping that Trump’s self-styled “Liberation Day” on 2nd April was going to be more bark than bite have been severely disappointed. It is now clear that in the economically dubious world that President Trump and his team live in, tariffs are not just a negotiating tool but weapons of warfare and political props in a nationalist performance designed to appeal to his core vote. Stock market – and economic – outcomes appear, for now, to be low down his agenda. In what one Trump staffer referred to as a “glorious day” the President announced a universal baseline tariff of 10% on all imports into the US, employing the same emergency powers he used to impose tariffs on Canada and Mexico.
For those countries with whom the US has large goods trade deficits, Trump announced even higher reciprocal tariffs – up to 50% (on tiny Lesotho!), while the EU will be charged at 20%, Vietnam at 46%, Japan at 24%, and India at 26%. Faced with tariffs far greater than expected, all markets moved in lockstep, and, at the time of writing, global equities are experiencing a four-day sell-off almost as severe as the worst weeks of the 2020 Covid-pandemic and the Global Financial Crisis of 2008/09. Returning to quarters, this quarter looks, so far, to be more of the same.
Portfolio activity
Since the start of the year, we made a number of changes to both Funds. We exited a long-term favourite, Compass Group, on valuation grounds having seen the shares appreciate materially over time. We also sold Toyota in early March due to increasing concerns about the potential impact of tariffs on the company’s profit margins.
Sticking with Japan, we switched the holding in the Jupiter Japan Income Fund into the Alma Eikoh Japan Large-Cap Equity Fund. We have met the Alma Eikoh team several times over the past year and have been consistently impressed by their investment process, disciplined philosophy and long-term track record.
In what proved to be a challenging quarter for timing entry-points, we initiated new positions in Accenture and Sumitomo Mitsui Financial Group.
Accenture, the US-listed consultancy business with a multi-billion revenue stream from AI-consulting, traces its origins to the 1950’s as the consulting arm of Arthur Anderson. It conducted a study for General Electric to install a UNIVAC I computer – believed to be the first commercial use for a computer – and its clients today include over 90% of Fortune Global 100 companies. The digital transformation is real, and Accenture is exceptionally well placed to benefit from structural growth in technology spending – spending that remains largely non-discretionary, even in a downturn. While the shares traded at close to 30x forward earnings at the start of this year, we purchased the shares on around 23x which we felt was a more attractive entry point. There is, or course, an element of cyclicality around Accenture’s business model; however, this a high-quality company that has consistently delivered around 10% revenue growth a year, generates returns on invested capital (ROICs) above 30%, and maintains a robust balance sheet with minimal debt.
Sumitomo Mitsui Financial Group (SMFG), one of Japan’s largest financial institutions and parent to Sumitomo Mitsui Banking Corp, stands to benefit from Japan’s changing macroeconomic backdrop. Inflation and wage growth have returned after decades of stagnation, and with that, higher bond yields. SMFG shares traded at the time of purchase on around 11x earnings and below 1x book value, making the valuation attractive relative to the improving fundamentals.
We also initiated a new position in the Driehaus US Small-Cap Equity Fund in both funds. Managed by Jeff James and his team since 2006, the fund is part of the family-owned boutique firm Driehaus, which oversees approximately $10bn in US mid, small, and micro-cap equities. Based in Chicago, the team has been remarkably stable with no departures in over 15 years. The strategy focuses on companies with above-average earnings growth and market capitalisations between $500m and $7bn. Driehaus employs a blend of fundamental research, sell-side input, and industry data. Performance has been consistently strong: the fund has outperformed the Russell 2000 Growth Index in nine of the past ten years (excluding 2022). With around 100 holdings, positions typically enter at 0.5% and are capped (though not rigidly) around 3%. The fund is currently around $900m in size.
We exited our holding in Supermarket Income REIT (SUPR). While the income was attractive and we had hoped the undervaluation might attract a takeover bid (in line with trends seen in other UK REITs and infrastructure vehicles), the board’s decision to “internalise” management—effectively transferring control to the current external advisers, Atrato—suggests a lack of interest in realising the underlying asset value for shareholders. Internalisation reduces, though does not eliminate, the likelihood of a bid. Proceeds were used to top up LondonMetric Property and add to the 4.25% 2032 UK Gilt in the Portfolio Fund. In the Growth Fund, we bought back into LondonMetric Property, a name we had sold previously.
We also sold our position in the CG Real Return Fund. While it has served as a useful diversifier over time, it has underperformed global (non-UK) index-linked bonds over the last two years. Given its substantial US dollar exposure, we saw an increased risk of further weakness.
We modestly increased equity exposure over the quarter. In the Growth Fund, equity weightings rose from 79% to 83%, while the Portfolio Fund increased from 63% to 65%. Notable top-ups included Ashtead Group, Nike, Alphabet, and IBM.
The two funds continue to reflect their respective risk profiles. The Portfolio Fund currently holds around 3% in sterling cash (with an additional 3% in BBGI, which is subject to a takeover and thus serves as proxy cash), 18% in fixed income—three-quarters of which is in short-dated government or investment-grade bonds—and 2% in gold. Both funds maintain ample liquidity, providing flexibility should further dislocations in equity markets offer compelling entry points. At the time of writing, it remains unclear whether the recent correction represents a tactical buying opportunity in previously dominant names or a more structural shift—one that may demand new leadership and earnings models altogether. Volatility is at extreme levels and, in our experience, the best course of action is to sit tight – or, returning to the world of Napoleonic naval warfare, “Stand fast”.