This has been an extraordinary year for geopolitics, economics and markets: from the launch of DeepSeek, President Trump’s Liberation Day Tariffs, major conflict in Europe and the Middle East, stock and bond market volatility, through to UK and US interest rates staying higher for longer. Despite this environment, at the halfway stage of the year, European markets posted significant gains, the FTSE 100 had generated high single digit growth, and the US was roughly back where it started 2025.
The soundtrack to market movements in the US among retail investors this year has been “Nothing much happens” and “Buy the dip”. US retail investors, for example, bought a record $4.7 billion worth of stocks in a single day on 3 April (Source: JP Morgan/Morningstar 4 April 2025). This phenomenon was not contained to the US; there were reports of a flurry of buying by UK retail investors in April as well.
The investment philosophy behind buying the dip is clear: invest when shares are “cheap or cheaper” so that you can realise gains when prices have recovered or have continued to rise. The trend of buying the dip may be so popular because we have seen several quick recoveries in markets after sharp declines in recent years.
This is not an easy investment strategy to execute, however. Trying to time markets successfully by buying when they have fallen is challenging, especially in a period of volatility. And indiscriminate buying does not necessarily mean you will find investments with long-term value. Your timing may also let you down and you could end up missing out as a result.
History shows it is very rewarding to stay invested in markets over the long run given the power of long-term compounding of investments. Had you bought the market through the FTSE All-Share Index on 30 April 1985, for example, your return would have been 3,180% over the following 40 years. Had you invested £10,000 on 30 April 1985, kept it invested and reinvested your dividends, then the value of your investment would be £327,979 (Source: Bloomberg, Liontrust 30 May 2025. Data between 30 April 1985 and 30 December 1985 is the All-Share Price Return. Data after 30 December 1985 is FTSE All Share Total Return index). Had you missed the 10 best days of the FTSE All-Share over this period, however, your ending value would “only” have been £167,462, meaning you would have roughly halved your gain. The difficulty with market timing is these best days often come when the news flow is still unrelentingly negative.
“Nothing much happens” can be applied to the medium-term impact that political events and announcements typically have on investment markets. In the short-term, political factors can overwhelm any fundamentals such as corporate earnings or even macro-economics. 2025 can be regarded as a microcosm of what can happen; we have gyrated from a big sell-off to a big rally in global equity markets and the only real variable has been political announcements.
But focusing on such sentiment can often be an enemy of sensible long-term planning. At times of uncertainty, it is reassuring to reflect on what we know and what is tangible for investors. Entrepreneurial spirit and a desire for success has, on average, led to significant returns for long-term investors, and through all the events of the past 40 years markets have managed to progress rather well.
Looking forward, we are positive in our overall view for stock markets. We have come through a challenging period of news flow relatively unscathed and it seems likely that interest rates will drift down over the course of this year. Equity markets outside the US do not look stretched from a valuation perspective and the corporate landscape is positive, with revenues coming through. There is also still a lot of cash sitting on the sidelines of markets.
One risk to this benign environment is the unknown effect of tariffs, both threatened and imposed. So far, the indications suggest they have not had a big impact, but there is a risk that they do later in the year.
Amid the political and market ups and downs of the past few months, it appears that investors are beginning to search for returns beyond the US, including in Europe and the UK. This tallies with our view that parts of the large cap end of the US market were priced close to perfection at the end of 2024. Six months later, we still have a neutral view on the US.
A key way of mitigating portfolios against short-term volatility is through genuine diversification - across regions, asset classes, investment styles, actives and passives, for example. Such diversification should reduce a portfolio’s sensitivity to any particular source of risk and is the closest we get to a free lunch in investment management. We should embrace the risks that look reasonably priced and reduce our sensitivity through diversification to those that do not.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds and Model Portfolios managed by the Multi-Asset team may be exposed to the following risks:
- Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value;
- Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss;
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- Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time;
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- Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates;
- Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices.
The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
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This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
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