Are you tariff proofing your portfolio?

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.

It’s hard to keep up with each new installment in the tit-for-tat tariff series. The initial shock and awe that shook markets was followed by a glimmer of hope this week on the back of Japan sparking US trade talks, only to be snuffed out with Chinese tensions escalating. For now, the US-China standoff is taking centre stage but making investors’ job trickier is the sheer volume of nations lining up to negotiate with President Trump.

With so many moving parts of unequal influence, it’s very likely we’ll see further volatility ahead. The start of this week has shown just how difficult it is to call where the next big move will come from and, importantly, how it will affect the market.

With so much cross-border uncertainty still to be resolved, notably with the EU and tensions rising with China, it’s worth looking at how some investors are navigating the storm. This isn’t a sign to do anything similar. As we can see, the landscape seems to be shifting by the day. Rather, these are just to illustrate how the market is interpreting and assessing it all.

So, what strategies are we seeing and what’s driving them?

A lot of portfolios will have been tech-heavy heading into the tariff announcements. That means investors have likely been exposed to the record concentration of the US tech sector in the S&P 500 index, as well as their supply and demand chains stretching around the globe, including China. Now that those value chains face significant disruption, some investors are pulling back even further from the tech trade, having started to leave earlier this year on high valuation concerns and the emergence of DeepSeek.

Whereas Europe had been the initial beneficiary of the flight from the Magnificent Seven, the EU being hit with 20% tariffs has halted that rotation. Instead, we’re seeing interest grow in sectors likely to be less exposed to international trade disputes like utilities, healthcare and consumer staples.

Utilities are often naturally domestically focused, have stable cash flows and tend to carry attractive dividends - while they are worlds away from the tech scene, these tend to be attractive qualities in times of market strife. Healthcare firms make most of their money from their home markets too and, as their products can be particularly important to their consumers, demand tends to stay steady. When it comes to the consumer staples we pick up off the shelves without even thinking, investors are banking on us sticking to our favourite brands even if prices rise. This ‘pricing power’ tends to keep revenues fairly stable and gives an element of margin protection, as long as prices don’t rise enough to divert loyal buyers to supermarket own-brand alternatives.

Investors have also started to turn away from large caps with sprawling revenue streams, towards small and mid caps more dependent on domestic revenues. The theory here is that companies serving their home markets will suffer less, if at all, from tariffs coming in. They might still struggle if inflation rises across the board, as that’s likely to dent consumer demand, but not having to raise prices to offset tariffs could help.

There’s a clear theme of tilting towards firms serving domestic audiences, and whose products and services carry minimal international exposure. That also means stocks dependent on export, with high exposure to China and already caught up in tariffs, like auto makers, are having a tough time. If this continues, we are likely to see a much more protectionist attitude especially in the US. The rest of the world could well strike new deals, diversifying revenue streams and supply chains, and making up US shortfalls by expanding into new territories.

As the tariff narrative develops, as investors we need to be nimble enough to respond and clearheaded enough not to panic. This week has been a perfect example of how difficult it is to time exit and entry points so hunkering down and staying invested may well be the best course of action. The best days in the market often follow the worst, and selling up when times get tough can mean you move onto the side lines just as better news lifts shares.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.