Tariff-Fueled Volatility Reveals Access to Best Ideas

Key takeaways

Even in periods of extreme volatility, researching a wider range of manager views can reveal important nuances that offer clarity to investors.
While the future remains uncertain, our recession risks have eased slightly while we continue to monitor manager sentiment.
Most managers on our platform expect core inflation to rise moderately in the coming months and are forecasting multiple Fed rate cuts
Within alternatives, hedge fund managers have lowered their net exposure while boosting their hedging activity

In times of market stress, relying on a single viewpoint can be risky. When volatility surges, as it did on “Liberation Day,” cutting through the noise and accessing a range of perspectives becomes essential to making sound investment decisions.

Indeed, different managers may interpret risks and impacts differently, with some views being more accurate or more in-depth than others. Additionally, a manager’s prior performance is no lasting guarantee, which is why we draw on the best ideas from across the industry and form our own conviction.

Russell Investments’ open platform of best-of-breed managers gives investors the tools to do the same. To showcase the benefit of our business model, we have put together a post-tariff outlook based on the insights of portfolio managers from around the world.

Understanding April 4

When volatility spiked on Friday, April 4, we immediately drew on insights from dozens of sub-advisors across equities, fixed income and hedge funds. Using AI-driven analytics, we synthesized their views to shape a more complete picture of the market.

A few key themes quickly emerged:

Rising recession risk: While estimates varied, some economists increased their U.S. recession probability to over 60%, which was a sharp jump from prior forecasts of 35%–40%. Still, many managers believed the underlying economic fundamentals offered resilience. Our takeaway is that while the risk of recession has grown, it’s not yet seen as inevitable.
Inflation expectations: Research quickly showed there was broad consensus that the new tariffs would lift inflation in the near term. Most managers expect core inflation to rise by 1–2 percentage points during the next few quarters.
Fed in focus: Our manager research also confirmed that markets are now pricing in multiple rate cuts this year, with many managers anticipating at least two cuts aimed at cushioning economic activity.

Manager positioning

Equity: Following the reciprocal tariff announcements and their subsequent pause, the equity managers we researched favored high-quality stocks with strong balance sheets, focusing on sectors less impacted by tariffs such as health care, utilities and consumer staples. Conversely, these managers did not favor sectors more exposed to global supply chain disruptions, such as autos, industrials and tech hardware.

Fixed income: We found that managers in fixed income reduced their credit risk and saw attractive opportunities emerge due to widening credit spreads and selectively added exposure to high-quality bonds at good valuations. This reflected the manager consensus that businesses with a domestic focus, especially those with stable demand and strong pricing power, were expected to fare better in the new tariff environment.

Hedge funds: Our research also found that hedge fund managers lowered their net exposure while increasing hedging activities. Many hedge funds kept cash ready to deploy quickly when opportunities arise, with some using cash in their trades. Additionally, managers noted increased liquidity gaps and volatility driven by algorithmic trading, as well as cautious execution strategies.

Manager sentiment

Beyond immediate positioning, our manager research showed anxiety over the deeper long-term implications of sustained geopolitical and economic shifts. There was concern around a longer-term move toward protectionism and potentially reversing decades of globalization. The U.S. dollar, traditionally viewed as a safe-haven currency, exhibited unusual weakness during the recent events. That said, markets rebounded meaningfully following the announcement of a 90-day pause on certain tariffs, indicating that optimism still exists among managers.

Clarity of vision

Our insights show that even in periods of extreme volatility, broadening the lens to include a wider range of manager views can reveal important nuances that provide greater clarity. While the future remains uncertain, our recession risks have eased slightly while we continue to monitor manager sentiment. Thanks to our unconstrained access to a diverse lineup of managers, our overall post-tariff outlook remains largely unchanged.

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