Otso Monthly - April 2025
Performance overview
April was a volatile month. However, by the end of the month, the total return was little changed. In AUD terms, the fund fell 0.8% (relative to a benchmark decline of 2.3%). In USD terms, the fund was up 1.3%. However, there was significant intra-month volatility, owing to “Liberation Day” on 2 April, its aftermath, and subsequent recovery.
What happened in April?
April was extremely volatile. The volatility started around 2 April, when President Trump announced the “Liberation Day” tariffs. This is clear from the below graph. These tariffs were large and widely criticized. The criticism and market-disruption reached such proportions that President Trump paused most tariffs for 90 days. This gave the market hope that a the US would moderate tariffs.
The volatility impacted most companies and industries. This especially includes companies that rely significantly on China for inputs. However, even some Chinese ADRs have mostly recovered from the early decline. Furthermore, in the initial stages, tech companies suffered significantly. This partly reflects both their high sensitivity to business conditions and vulnerability to tariffs.
The fund benefited from not being fully invested at the beginning of April, partially insulating it from the initial downturn in April. Throughout the month, we have taken a relatively conservative investment approach. This includes focusing on broad-based diversification, akin to the equally weighted index. We expect that tariff volatility could resume as we near the end of the 90-day tariff pause and are focusing on companies that might have less adverse exposure.
We maintain a long exposure to the market, albeit with caution about tariff-related risk exposure. This is for several inter-related reasons.
1. We agree with the market consensus that there is scope for positive returns over the next 12 months. Indeed, the analyst consensus is for a return of around 16%. Indeed, of the analysts recorded in Factset, only 5% have a sell recommendation.
2. We do not presently expect a recession in the US. We do anticipate GDP growth to be lower than target. However, the analyst consensus (of 77 analysts) reported in Factset points towards 1.9% GDP growth in 2025. The decline in GDP in Q1 appears to be at least partly driven by a surge in imports, which itself was partly attributable to companies trying to pre-empt tariffs.
For the foregoing reasons, we maintain a positive position towards the broader market. As always, we aim to enhance returns via derivative overlays. We thank all our investors for their support thus far. Don’t hesitate to contact if you would like to discuss the fund more.