Following a strong start to the year, global equities have endured a turbulent few months – much like the funfair, participants’ buoyant mood has changed to fear as market volatility has returned with a bang. Rarely have investors faced so many simultaneous challenges, from tariff U-turns and exchange rate instability to macroeconomic and geopolitical uncertainty.
Against this backdrop, the MSCI All Country World Index has zig-zagged from a February all-time-high to an April correction and is now up 1% year-to-date in USD, helped by a weak dollar (the same benchmark is down 7% in both EUR and NOK). Beneath the choppy surface, there have also been some significant market shifts this year, with US equities flagging (notably the previously unstoppable Magnificent 7), while Emerging Market and particularly European stocks are higher with the German Dax Index hitting an all-time-high last week.
Relative strength
Also encouraging has been the performance of SKAGEN’s funds so far this year. Although currency headwinds mean that absolute EUR and NOK returns are negative, all five are ahead of their respective benchmarks. Exchange rate movements can mask underlying portfolio performance and may create a perception of loss, even when the fundamentals remain intact – we remain confident in our approach and the resilience of our holdings.
With so many moving parts, it is no wonder investors find it difficult to see the wood for the trees. The landscape has become so complex and the short-term outlook so unpredictable, that some companies used their first quarter reports to cancel their own forward guidance.
In such times, it is more important than ever to ‘stick to the knitting’ and focus on identifying strong, undervalued companies committed to creating shareholder value. Rather than chasing trends or reacting to daily headlines, we continue to follow our disciplined investment processes and look through short-term noise.
It is important to remember that volatility, although uncomfortable, is not inherently negative and often presents opportunities for investors. Historically, when the Vix Index of market volatility has risen above 40 – as it did last month for the first time since COVID – equity markets have delivered strong positive returns over the following 12 months. This underscores the value of maintaining a cool head and a steady hand amid the rising market noise.
It is also useful to remember that valuation is still the best guide to long-term performance. Globally, forward P/E multiples are only slightly above long-term averages and there are clear pockets of opportunity in areas like Europe and Emerging Markets where earnings multiples are at the bottom end of their historic ranges and remain at steep discounts relative to the US, for example.
Another positive is that earnings – a key driver of share price performance – are still expected to grow across all regions in 2025, reflecting our view that companies are generally adept at meeting new challenges and finding new markets. Earnings growth is also anticipated to be broader than last year – a healthy sign – particularly in the US where the very large gap between the Magnificent 7 and the rest of the market is forecast expected to shrink in 2025.
Market guardrails
We believe that the recent turmoil, particularly surrounding tariffs, represents a temporary market dislocation, rather than the world entering an era of protectionism, isolationism and conflict. We also take comfort that market guardrails remain firm with Trump seemingly announcing his 90-day suspension of reciprocal tariffs following the steepest equity declines. Prices tend to correct and recalibrate on their own terms, often finding stability once noise gives way to clearer signals, and ‘Mr. Market’ typically has the final say.
Living with uncertainty is nothing new for our portfolio managers and SKAGEN’s patient approach helps them to remain focused on finding quality companies with strong potential that can adapt to changing environments. As our own strategy illustrates, patience, persistence and discipline remain the most reliable compass to navigate today’s complex and uncertain world.
NB: All figures as at 08/05/2025 unless stated.