MAPS 2Q25 Update: Adjusting our portfolios amid growing uncertainty

• Reduced US equity exposure by 5% as tariff related headwinds are likely to weigh on economic growth and corporate earnings in the coming quarters. 

• Reallocated 2.5% each to European and emerging market equities, lifting them from Underweight to Neutral. 

• Exited all tactical positions and reallocated proceeds into strategic allocations, where we currently have higher conviction. 

• In this rebalancing exercise, we also made several fund switches to ensure our selections remain current and aligned with the best available opportunities in the market.

In the latest round of rebalancing, we have made several changes to our portfolios, summarised in Table 1 below. In this article, we will share in detail what these changes are, and the rationale behind each of them.

Table 1: Changes implemented in the May 2025 rebalancing exercise

1. Adjustments to our US exposure

In May, we trimmed our US equity exposure by 5%, reallocating 2.5% each to European and emerging market equities. This shift changes our US equity positioning from Neutral to Underweight, while lifting both Europe and emerging markets from Underweight to Neutral.

Our decision to underweight the US reflects a cautious near-term outlook, driven by uncertain trade policy and an increasing risk of economic slowdown—or, in the worst case, a recession. Recent weeks have stood out as one of the most unpredictable and volatile periods in 2025 as the chaotic rollout of tariffs roiled both equity and fixed income markets. 

President Donald Trump has argued that tariffs benefit the US economy by promoting domestic manufacturing, creating jobs, and generating fiscal revenue. However, in our view, the drawbacks of tariffs are significant - ranging from higher prices to retaliatory measures by other countries, which will likely result in weaker consumer and business confidence. Excessive tariffs may even eliminate trade altogether, which can lead to zero revenue. 

Amazon, which initially planned to list tariff costs on their website (but eventually abandoned the idea following criticism from the Trump administration) serves as a clear indication that tariffs are inflationary and ultimately borne by the consumer. Walmart’s planned tariff price hikes (which also drew criticism from Donald Trump) further reinforce this point. 

Higher prices will inevitably lead to lower consumption, which is the cornerstone of the US economy. Businesses are also likely to delay investments and hiring due to the uncertainty surrounding the extent and duration of the tariffs. Taken together, we believe that if President Trump does not significantly rollback his tariffs, the US economy could enter a stagflationary recession. 

Although recent developments, such as the 90-day tariff truce between the US and China is a positive step forward, tariff-related uncertainty is likely to remain elevated in the short to medium term, as negotiations may take months or even years to conclude. Just as quickly as tariffs have been reduced, they can just as swiftly be reinstated in the event trade talks break down. 

Overall, while the easing of trade tensions may reduce the risk of a full-blown recession, higher costs from tariffs in the interim —combined with weakened business and consumer confidence — are likely to weigh on US economic growth and corporate earnings in the coming quarters. This is likely to persist until the US provides clearer and more coherent policy direction.

Figure 1: US GDP growth estimates for 2025 has been revised down from 2.3% in March to 1.4% in May

Looking across the Atlantic, we see better opportunities in Europe. Despite year-to-date gains, European equities continue to trade at attractive valuations. Macro tailwinds, such as the lifting of its debt brake and the potential for further interest rate cuts adds to the region’s investment appeal. 

Beyond Europe, emerging markets also present attractive opportunities. Chinese equities may be poised for a re-rating as the government implements decisive measures to support the economy—including interest rate cuts and stronger backing for the private sector. In response to the US tariffs, China has been accelerating its trade diversification efforts, expanding its network of trading partners and establishing new free trade zones. 

Evidence of these efforts is already beginning to emerge. April’s trade data showed a robust 8.1% year-on-year increase in exports—well above the market consensus of 1.9%. While exports to the US fell sharply by 21.0%, this was more than offset by strong gains in shipments to ASEAN (+20.8%), Taiwan (+15.5%), and Japan (+7.8%). The largely domestic focus of Chinese companies also makes them less vulnerable to the impact of tariffs. 

Other emerging markets, such as South Korea and Taiwan, are also well-positioned to benefit from structural megatrends like AI and digitalisation—particularly through their globally competitive electronic/chipmaking industries.

On the product level, we removed the Dimensional US Core Equity Fund, leaving only the Vanguard S&P 500 ETF and the JPMorgan US Quality Factor ETF for our US equity exposure. Both ETFs are strategically aligned with our outlook, as they primarily target large-cap US equities. As its name suggests, the JPMorgan US Quality Factor ETF aims to provide exposure to high quality US companies, such as those with robust balance sheets and stable earnings—which we view as better positioned to weather current market uncertainties.

2. Removed tactical allocations

We divested from the Principal ASEAN Dynamic Fund and JPMorgan Funds Global Natural Resources Fund, and reallocated the proceeds back into our strategic allocation where we have greater conviction at the moment. That being said, if suitable opportunities arise in the future, we remain open to revisiting tactical positions to enhance portfolio returns.

3. Product changes

As part of this rebalancing exercise, we made three fund switches to ensure our selections remain current and aligned with the best available opportunities in the market.

i. Replaced JPMorgan Funds - Asia Pacific Equity with iShares Core MSCI Asia ex Japan ETF

The iShares Core MSCI Asia ex Japan ETF seeks to replicate the returns of the MSCI AC Asia ex Japan Index, which comprises of a basket of large and mid-cap equities from Asian markets such as China, India and Taiwan. 

With an annual management fee of just 0.28%, this ETF offers a cost-effective way to gain diversified exposure to the Asia ex Japan region. Its sector allocation is tilted toward information technology, communication services, and consumer discretionary—which together make up approximately 51% of the portfolio. These are sectors we believe will do well going forward.

ii. Replaced Capital Group Global Corporate Bond with PIMCO Income Fund 

Unlike the Capital Group Global Corporate Bond Fund whose investments are limited to only investment grade corporate bonds, the PIMCO Income Fund offers greater flexibility, allowing it to invest in a broad range of fixed income securities, ranging from investment grade bonds to securitized credit such as commercial mortgage-backed securities. The more flexible mandate of the PIMCO Income Fund should enable it to navigate the volatile fixed income landscape better.

The PIMCO Income Fund offers stronger income generation, with an annualised distribution yield of approximately 6.5% compared to 5.0% for the Capital Group fund, and has also outperformed the Capital Group Global Corporate Bond Fund on a total return basis across multiple time periods.

iii. Replaced Blackrock Asian High Yield Bond with United Asian High Yield Bond

Lastly, we replaced the BlackRock Asian High Yield Bond Fund with the United Asian High Yield Bond Fund to adopt a more defensive stance within the Asian high yield space. United’s stronger performance, combined with significantly lower volatility, are qualities we believe are crucial in today’s uncertain environment.