Welcome to Donald Trump’s volatile world. Detractors (of which there are many) will tell you he has a desire to disrupt anything and everything, including financial markets.
Much of the commentary since the start of 2025 has surrounded the view that volatility would rise after two years of largely untroubled markets. Just 15 months later and this has come to pass for both bonds and equities.
But while tariffs were the story of uncertainty in 2025, the past month has been dominated by the bombing of Iran. After initial hopes that the conflict would be short-lived, we have now moved into an environment that could shroud markets in both the medium and longer term.
After some initial resiliency, markets began to sell off on 3 March. Almost a month later, we have seen growing uncertainty with oil prices surging, gold prices tanking, bond markets showing stress (with the likes of the US 10-year yield jumping to 4.3%) and growth expectations downgraded.
As many of you will know, the VIX is often used as a barometer for volatility as it indicates a 30-day expected volatility of the US market. A number greater than 30 is considered to signal major volatility from increased uncertainty, risk and investor fear. VIX values below 20 generally correspond to more stable, less stressful periods in the markets.
For the past month it has been grinding higher and currently stands at 27.7 – that would put it in the heightened uncertainty bracket.
All global markets are down as a result of this uncertainty, but oil is the obvious issue as it leads to concerns about inflation, which in turn puts pressure on interest rates.
The golden question for investors is how long this uncertainty goes on for and the damage it does in the future. For example, at what point does the continued closure of the Strait of Hormuz start baking into the future oil price as opposed to just today’s figure?
Now is arguably one of those times when you try not to look at your investments – try to remain calm and remember you are only losing money if you crystallise your investments in these periods of uncertainty.
History shows us markets are also resilient – when Russia invaded Ukraine in February 2022 the Euro Stoxx 50 (which represents Eurozone blue-chip companies considered as leaders in their respective sectors) fell more than 12% in the following couple of weeks. Those who held firm have since seen the index rally over 85%.
Investors looking to add to their ISAs are understandably going to be cautious with this heightened level of volatility. The challenge is that you should be careful about not being invested – stock markets have fallen in the past and will continue to do so in the future, but they have also shown remarkable resiliency and flexibility to recover quickly.
Contrast this with the fact that if you held £100 in cash between 2014 and 2024, you lost over a quarter of your purchasing power due to inflation. The biggest investment mistake you can really make is not being invested at all.
With this in mind – here are a few options for those who are more risk-averse and worried about the ongoing uncertainty.
Managing volatility – Rathbone Strategic Growth Portfolio
Managed by David Coombs, this fund targets cash plus 3-5% per annum over a minimum five-year period and has a big focus on delivering this via a risk-controlled framework.
The multi-asset fund focuses not only on returns, but also on risk and correlation of assets. David uses a disciplined asset-allocation framework and a forward-looking assessment of correlation, risk and return as the cornerstone of the investment process.
Asset classes are then divided into three distinct categories: liquidity, equity risk and diversifiers. The liquidity component currently accounts for almost 20% of the fund, including 8% in cash.
Rathbone Strategic Growth Portfolio targets a risk of around two-thirds of equities, so investors are shielded somewhat during market downturns.
Tapping into investment trusts – Capital Gearing Trust
Capital Gearing Trust places an emphasis on capital protection, delivering a positive return to investors in 41 of the past 43 years, whilst also substantially outperforming inflation over the long term.
The trust looks to achieve these returns over the long term through a global portfolio of equities, bonds and commodities offering both diversification and risk management.
Capital Gearing can hold up to 50% in equities; however, the team believe the potential returns on US equities are very low (with almost all assets correlated to the world’s largest economy). As a result, the team currently hold only 24% in equities – by contrast, they hold 45% in index-linked government bonds.
Absolute Return mindset – BlackRock European Absolute Alpha
Of course, past performance is no guide to future performance, but there are also funds that place capital preservation at the heart of their process. One we like here is BlackRock European Absolute Alpha, which is co-managed by Stefan Gries and Stephanie Bothwell.
This is a long/short pan-European equity fund that has low levels of volatility. It has produced positive returns in nine of the past 10 calendar years (it lost 2.7% in 2022). It has returned 48% in the past decade and remains up year-to-date.
The bond all-rounder – Jupiter Monthly Income Bond
A portfolio that, in the manager’s own words, is “not too clever” by using a bottom-up approach to harvest spreads with relatively low volatility.
Managed by Hilary Blandy, the Jupiter Monthly Income Bond fund has returned 20% to investors over the past five years, more than double the average fund in the IA Strategic Bond sector (8.6%), while also being one of the least volatile funds in the sector in recent years. It also yields 6.3%.
It is the simplicity of the portfolio that we like. The fund invests in a blend of investment grade and high yield bonds, with a short-duration bias. It is primarily a bottom-up portfolio.
Hilary believes that the mix of investment grade and high yield bonds, combined with short duration, reduces drawdowns and boosts risk-adjusted returns. The fund’s duration is typically between two and four years. The preference for short duration bonds is because returns can be forecasted with greater confidence.
The diversifier – Polar Capital Global Insurance
Polar Capital Global Insurance typically invests in 30 to 35 companies. Managed by Nick Martin, it has proven its ability to demonstrate alpha in all market conditions.
When assessing individual companies, Nick emphasises underwriting, reserving, balance sheet integrity, management and inside ownership.
Exposure is entirely to insurance firms, but the fund rarely invests in life assurers, believing its remit is to provide exposure to companies in the specialist non-life, casualty and risk sectors.
Darius McDermott is managing director of FundCalibre. The views expressed above should not be taken as investment advice.