Tariffs and Tech: What advisors are asking

With the May pause in U.S.-China trade escalations and continued strength in macro and earnings data, investors are shifting from risk-off hedging to more selective risk-on positioning. Below are the top questions we’ve been receiving from investors this May and how we’re thinking about them.

Polling and flows: What are we hearing from investors?

Following the news of the pause on trade escalations with China, investors are feeling more bullish according to our client polling.

• In our May 13th poll, 30% of investors reported feeling more bullish, up from 24% the prior week¹
• However, neutral sentiment remains sticky, suggesting that while macro clarity helped, it hasn’t flipped positioning broadly risk-on
• Notably, 41% of respondents see the most opportunity in European equities over the next 3–6 months, vs. 38% for U.S. equities—indicating that questions around U.S. exceptionalism are growing

Flows tell a similar story:²

• Minimum Volatility ETFs have gathered +$2B month-to-date, and defensive sectors like utilities have added $250M, showing investors may be still hedging portfolios
• Since the China news, however, we’ve also seen a rotation back into cyclicals, with +$2.1B of inflows after ~$3.3B in outflows earlier in the month

Bottom line: investors may not be abandoning U.S. risk, but they are expressing it more selectively—and in some cases, looking abroad for relative value.

Figure 1: Investors return to cyclical exposures

Trade policy: What does the China truce actually mean for investor portfolios?

Short answer: we believe it’s a green light for selective risk-on positioning. While the headline tariff rate dropped from ~145% to ~30%, the broader takeaway is that the effective tariff rate across all trade partners has declined from ~25% to between 10% -15%, which we feel markets are viewing as more sustainable.

This has been a meaningful clearing event for sentiment:

• With investor positioning still light and Q1 earnings stronger than expected, some clarity on macro uncertainty could serve as a near-term catalyst
• We believe this environment favors active rotation across U.S. large-cap factors and themes, especially via rotational active ETFs that seek to capture sentiment shifts while preserving tax efficiency
• That said, valuations remain elevated (S&P 500 back at ~21x), and we continue to advocate for targeted risk reduction within equity sleeves.³ For more risk-averse portfolios, we feel that minimum volatility remains a core tool. Higher risk-tolerance investors may consider quality or growth-at-a-reasonable-price exposures

Company earnings: Did Q1 earnings signal U.S. exceptionalism?

Yes—and no. On the one hand, results were broadly better than expected:

• S&P 500 EPS grew +12% YoY (vs. just +6% expected)⁴
• 78% of companies beat earnings estimates (above average)⁵
• Healthcare, comm services, and tech led the charge⁶

Our desk was closely watching for any evidence of a slowdown in demand, cloud spend, or capex from the megacap tech cohort. Result? No signs of slowing down.

• The Magnificent-7 grew earnings +28% (vs. +9% for everyone else)⁷
• Further, Google and Microsoft both reiterated spending plans, while Meta guided higher⁸
• Capex for the group grew 62% YoY in 1Q (vs. 68% in 4Q), and forecasts look for 35% capex growth in 2025 for hyperscalers, relative to just 6% for the rest of the index⁹

On the other hand, forward guidance is getting murky. Many firms are now citing policy uncertainty and global demand risk as reasons to stay vague—another reason we believe in staying active and diversified.

International investing: Are investors starting to look outside the U.S.?

Increased policy uncertainty and dollar weakness has intensified the underperformance in U.S. assets, leading more investors to consider both international diversification and potential dollar hedges. 

• This trend has been even more notable for some international clients, who briefly exited U.S. equities during the month of April, while many U.S. investors continued to allocate domestically

Figure 2: International investors briefly exited U.S. equities

Why may U.S. investors pay more attention to international opportunities?

1. Home country bias: The average U.S. advisor allocates 77.5% of their equity portfolio to the U.S.¹⁰ We believe diversifying portfolios with both international equity and bond exposures could help investors better navigate domestic market volatility

2. Global revenue exposure: Trade barriers and a weaker dollar could hurt domestic company revenues. We are positive on seeking exposure to international revenue streams and global themes such as infrastructure and the rising middle class in emerging markets

3. Lower correlations: International equities and bonds may offer lower beta to domestic assets, complementing both gold and bitcoin serving as potential dollar hedges in a balanced portfolio

Contributors: Jasmine Fan, Samuel McClellan, Jon Angel, Faye Witherall, and Annie Khanna