Introduction

The first half of 2025 is raising fresh questions—and perhaps useful lessons—for equity investors. In particular, tariff-related announcements from the U.S. president, which sent shockwaves through markets during April 2025, have sharpened focus on the macroeconomic theme of de-globalization With certain industries theoretically more vulnerable to trade barriers, this month’s Market Review takes a closer look at the subject of sector exposures. In particular, we examine active equity manager sector positioning, risk and performance in the U.S. and Europe. Here, we consider active managers’ exposures to sectors largely viewed as ‘tariff-sensitive’ and assess the extent to which these positions may have affected outcomes during recent market developments.

Key takeaways:

• U.S. active managers with higher exposure to four ‘tariff-sensitive sectors’ (Technology, Cyclical Consumer, Industrials and Basic Materials) have exhibited significantly greater active risk over both three-year and three-month time horizons. In the U.S., the funds with the lowest exposure to tariffsensitive sectors show an active risk of less than 5% p.a. on a three-year basis, versus over 7% p.a. for those with higher exposure. Additionally, despite the sector-induced differentiation between funds, a significant portion of the additional active risk observed across all U.S. funds during the quarter leading to the end of April was driven by fundamental factor exposures rather than sectors.
• European active managers, meanwhile, show an inverse story. Here, higher ‘tariff beta’ appears to be associated with lower active risk over both long-term and short-term time horizons. Moreover, that effect appears to have been exacerbated by the April 2025 upheaval.
• Managers with higher exposure to tariff-sensitive sectors have broadly delivered weaker performance in both the U.S. and Europe over the past three years: in the U.S., managers with lower exposure have lagged the S&P 500 by around 1% per annum net of fees (on average), while those with higher exposure have fallen behind by around 2% per annum.

While stocks may have rebounded as presidential policy shifted course, de-globalization is not a transient topic. Greater friction in inter-country relationships supported by nationalist political dynamics has become a key subject of the current decade, with evolving (and potentially volatile) trade barriers representing just one part of a broader structural trend.

Readers can keep an eye on the sector exposures (and various other characteristics) of their own equity managers and portfolios on the Scientific Portfolio Platform.

Authors

Matteo Bagnara, PhD
Quant Researcher,
Scientific Portfolio ……………………………………….

Shahyar Safaee
Deputy CEO and Business Development Director,
Scientific Portfolio

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