Investors buy the dip in US equities

UK-based investors are looking past the tariff turmoil and continuing to buy US equities, even as economists forecast a recession in the world’s largest economy.  

Fund data group Calastone found that investors added a net £1.51 billion to their North America equity fund holdings in April. It said that the buying began in earnest on 8 April, just as the market began to speculate that President Trump was about to reverse his Liberation Day tariff schedule.

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Global funds, which are heavily weighted to US equities, also saw strong inflows, totalling a net £1.48 billion.  

This comes even as US equities fall. The S&P 500 is 9% lower than its 20 February peak. Due to a weaker dollar, UK-based investors are down nearly 15%.  

Despite the sell-off, US equities are still considered expensive. Data group Morningstar calculates that the S&P 500 has a price-to-earnings ratio of 21 times. This is around 50% higher than the UK market’s valuation. 

So far, investors have been rewarded for buying the dip. In sterling terms, the US market has rebounded 8% since 9 April. This is because President Trump announced a pause on tariffs for 90 days, except for China, where trade negotiations have reportedly begun. 

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The market has bounced back because investors believe that Trump will be forced to negotiate with other nations and the extreme picture of tariffs he painted on Liberation Day will not come to fruition.  

Among the most-bought funds on interactive investor in April were Vanguard’s S&P 500 ETFs (VUAG and VUSA), Fundsmith Equity, Scottish Mortgage and HSBC FTSE All World Index. All offer exposure to US equities and rebounded over the past three weeks.  

Trump recently marked 100 days in office. Figures from FE Analytics show that from 20 January to 29 April 2025, the three worst fund sectors were Investment Association (IA) North American Smaller Companies (where the average fund is down -21.8%), IA Technology & Technology Innovation (-16.1%) and North America (-15.1%). Global funds, which typically have around 60% to 75% invested in the US market, were also among the worst sector performers, with the average fund down -10.7%. 

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Nevertheless, the small number of wealth preservation investment trusts that prioritise protecting investor capital have provided defensive ballast. Three trusts that meet this description are Capital Gearing,Personal Assets and Ruffer Investment Company.  

Each has a low weighting to equities and plenty of defensive armoury, such as low-risk inflation-linked bonds and a small weighting to gold. 

Ruffer Investment Company managed to make money, posting a gain of 4.8%. Personal Assets is also in positive territory, up 1.7%, while Capital Gearing made a small loss of -0.3%. 

The other key fund flow trend in April was that investors poured money into money market funds, which deliver a “cash-like” return by investing in ultra-safe short-term bonds and making use of short-term savings tools offered by banks.  

Yields tend to track the Bank of England interest rate, which is currently 4.5%.  

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Calastone found that money market funds saw inflows of £589 million in April, which was the fifth-best month on record. The last three months have seen the strongest inflows to money market funds than any other three-month period. 

This supports data on the interactive investor platform. In April, there were five money market funds among the most-bought open-ended funds. These were Royal London Short Term Money Market (distribution and accumulation versions), Vanguard Sterling Short-Term Money Markets, L&G Cash Trust and Fidelity Cash.