By Matthew Rees, Tom Farrington
How unconstrained strategies can help investors navigate volatile environments.
Recent weeks have witnessed a significant level of market volatility in both directions, driven by uncertainties in trade, fiscal and immigration policies. The market may have been expecting some turbulence, but the extent of it took almost everyone by surprise. This volatility, however, could present opportunities for active investors, and we believe an unconstrained approach could be well suited to navigating this challenging environment.
Markets were particularly focused on President Trump’s ‘Liberation Day’ at the start of April, announcing steep increases to tariffs on the US’s trading partners. However, this stance has since been moderated, albeit there have also been concerns about central bank independence, with President Trump expressing his dissatisfaction with US Federal Reserve Chair Jerome Powell.
Investors have reacted by selling US assets, challenging the previous consensus position that US was in an exceptional economic position. Returns on both US government and corporate debt underperformed other developed markets during April – particularly longer-dated US government bond yields, which rose sharply[1]. 
With the US Economic Policy Uncertainty Index now at its highest level for more years, we believe no investor should be attempting to predict the path of US policy. Instead, it’s wise to prepare for a wide range of outcomes by looking for signposts to guide us down the many potential ways forward. Despite all the volatility, our key marker points have not changed since the beginning of the year – the health of US employment, the scale of fiscal largesse globally, and the strength of investor demand for fixed income.
An end to secular stagnation?
Our central investment thesis since the pandemic has been that a seismic shift from monetary policy to fiscal policy has taken place across the globe. Governments that are currently sitting on large deficits will need to focus on growth – austerity is not an option. Germany has already capitulated on its previous fiscal constraints.
In the US, this is truer now than ever, as we believe the new administration could look to even higher fiscal spending to offset some of the economic hits from the tariff proposals. Higher fiscal spending could result in better growth as well as higher inflationary outcomes, which means we remain cautious on duration risk.
Follow the flows…
Investor demand for fixed income has been strong over the past few years as yields have become attractive in our view, following the rate-hiking cycle across most developed markets. Despite some market outflows during April, demand for fixed income has returned as markets have bounced back. Some of the market outflows have been concentrated in shorter maturity assets, which we think could present some interesting opportunities for nimble investors.
We have also seen sustained demand for longer-duration US investment grade credit, from both domestic pension funds and international buyers. Meanwhile, Asian demand for higher yielding assets has also remained robust.
A murky outlook
As the investment ‘looking glass’ for 2025 is unusually murky, we believe it is now more important than ever to maintain a wide range of investments across fixed income asset classes and to adapt quickly as market dynamics change and develop. The key to success lies in the ability to cut through the noise coming out of the US administration and focus on what matters most over the longer term. This is why we believe a thoughtful but nimble approach is required in order to balance opportunity-seeking and risk-taking.
The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested. Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.
[1] Source: Bloomberg as at 15 May 2025.
Disclaimer:
The value of an investment and any income from it is not guaranteed and may go down as well as up, and the investor may get back less than the amount originally invested. Past performance is not an indicator of future performance.
Important information The information contained in this document is intended for professional investors and their advisers only. This document is for informational purposes only and we do not solicit any action on its basis. The information in this document does not constitute an offer or recommendation to buy or sell securities or follow any particular investment strategy, nor does it constitute investment, legal or tax advice. Any investment decisions you make should be based on your own analysis and judgment (and/or that of your professional advisors) and not on us or the information you provide.
A summary in English of the investor’s rights associated with an investment in the fund is available at www.lgim.com/investor_rights.
The risks associated with each investment fund or strategy are set out in the key investor information document and the prospectus or investment management agreement (as applicable). These documents should be reviewed before making any investment decisions. A copy of the English version of the prospectus and the key information document for each fund is available on www.lgim.com and can also be obtained from your Client Relations Manager. Where required by national regulations, the key investor information document will also be available in the local language of the relevant EEA Member State.
A decision may be taken at any time to terminate the arrangements made for the marketing of the fund in any EEA Member State in which it is currently marketed. In such circumstances, shareholders in the EEA Member State concerned will be informed of this decision and will have the opportunity to redeem their shares in the fund without any commission or deduction for at least 30 working days from the date of such notification.
Information on the sustainability aspects of the funds is available on https://fundcentres.landg.com/. The decision to invest in funds should take into account all the characteristics or objectives of the fund, as described in the prospectus and the key investor information document relating to the fund.
This document has been prepared by Legal & General Investment Management Limited and/or its affiliates (“L&G”, “we” or “us”). The information contained in this document is the property and/or confidential information of L&G and may not be reproduced in whole or in part, distributed or disclosed to third parties without the prior written consent of L&G. Not intended for distribution to persons residing in jurisdictions where such distribution would be contrary to local law or regulation.
Neither party shall have any right of action against L&G in relation to the accuracy or completeness of the information contained in this document. The information and opinions expressed in this document are believed to be accurate and complete as of the date of publication, but noshould not be considered final and may be subject to change without notice. We are under no obligation to update or change the information contained in this document. Where this document contains third-party data, we cannot guarantee the accuracy, completeness or reliability of such data and do not accept any liability for it.
This financial promotion is issued by Legal & General Investment Management Limited.
In the European Economic Area (EEA), this document is issued by LGIM Managers (Europe) Limited, authorised and regulated by the Central Bank of Ireland as a UCITS fund management company, in accordance with the European Communities Mutual Funds in Transferable Securities Regulations 2011, as amended, and as an Alternative Investment Fund Manager, in accordance with the European Union Alternative Investment Fund Managers Regulation of 2013, as amended. The registered office of LGIM Managers (Europe) Limited is located at 70 Sir John Rogerson’s Quay, Dublin, 2, Ireland, and is registered with the Irish Companies Register Office under company number 609677.
LGIM Managers (Europe) Limited operates a network of branches in the European Economic Area, subject to the supervision of the Central Bank of Ireland. In Italy, the branch of LGIM Managers (Europe) Limited is subject to limited supervision by the Commissione Nazionale per le Società e la Borsa (CONSOB) and is registered with the Bank of Italy (No. 23978.0), with registered office at Piazza della Repubblica 3, 20121 - Milan, company register number MI - 2557936. In Sweden, the branch is subject to limited supervision by the Swedish Financial Supervisory Authority (SFSA). In Germany, the subsidiary is subject to limited supervision by the German Federal Financial Supervisory Authority (BaFin). In the Netherlands, the branch is subject to limited supervision by the Dutch Financial Market Authority (AFM), is included in the register kept by the AFM and registered in the Trade Register of the Chamber of Commerce under number 74481231.
