April and May 2025 saw a tale of two markets, heavily influenced by the Trump administration’s aggressive trade and tariff agenda. In April, markets faltered as investors digested escalating trade tensions driven by the administration’s threats of broader tariffs on Chinese and European imports. Business investment took a hit — U.S. core capital goods orders dropped 1.3%, reflecting uncertainty in corporate planning. Equity markets responded sharply: the S&P 500 fell over 4%, its worst month since October 2023, and small caps underperformed as higher costs and global volatility weighed on earnings forecasts. While inflation data stayed tame and consumer spending edged up, sentiment remained cautious amid the unpredictability of White House policy.
That caution turned to relief in May, as a federal court ruling struck a major blow to the administration’s tariff powers, declaring parts of the trade order unconstitutional. The decision sparked a broad market rally, with the S&P 500 climbing over 6% and the Nasdaq surging nearly 10%, driven especially by tech stocks that had been vulnerable to global trade disruptions. Investor optimism was further buoyed by the Federal Reserve’s dovish tone and inflation remaining near target at 2.1%. Globally, markets rallied in sync as the ruling reassured investors of limits on unilateral trade measures. The Trump administration’s actions have injected volatility but also triggered judicial and political counterbalances that are now shaping a new phase of investor expectations.
Holdings of the Family Income Fund were not spared from the volatility but at the portfolio level, the impact has been contained between negative 1 to 2% mark to market losses. Projected cash income from its holdings continue to bolster any near term fluctuations with a current yield of 5.3%.
Cash positions with relatively high US exposure were closed or parred down with positive total returns, namely PIMCO GIS Income Fund, PIMCO Dynamic Income Fund, and United Hampshire REIT. In May, we also exited the non-core position in IREIT Global at an annualized loss of 5.75% to better deploy capital.
During the 9 April turmoil, we added into existing S&P 500 index positions with tax-deferred SRS funds, with a long term view to take advantage of the present correction. Markets have since recovered, albeit with great uncertainty as the tariff impact has yet to be realized in the real economy.
Notably in April, the Family Income Fund entered into a maiden 6-month rolling secured debt facility of $0.1mil at an average cost of 2.73% to leverage on falling rates. Collaterals of primarily bond funds which pay between 5% to 6.5% dividends and fixed deposits remained relatively stable in value throughout the April and May volatility with mark to market returns of negative 1% to 2.5%. Given the positive carry in cash flows, higher drawdowns on the debt facility may be taken in September if the rate environment is favorable. This will both increase AUM and expand the fund’s options for investments.