HL Multi Manager Special Situations Trust – navigating market volatility

Markets rarely move in straight lines, the past quarter was a sharp reminder of that. After a reasonably strong start to the year, global tensions again became the main source of volatility. Increasing Middle Eastern conflict pushed up oil prices, unsettling inflation and interest rate expectations, creating uncertainties globally.

For long-term investors, this is exactly the kind of environment that tests confidence but also reinforces a key principle – diversification matters more when the world feels less predictable.

This article isn’t personal advice. Remember, investments rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice. Past performance isn’t a guide to the future.

Our investment strategy

The HL Multi-Manager Special Situations Trust is a globally diversified equity fund which aims to grow the value of your investment over any 5-year period.

As a flexible solution, our expert managers look for the best opportunities by blending other specialist fund managers to achieve its long-term objective. In times of uncertainty, it’s important to hear from our managers on how they’re running this portfolio and managing risk.

Ziad Gergi, our Head of Multi-Manager and a co-portfolio manager for the fund said “Markets do not like uncertainty, but they do adapt. What we are seeing now in the markets is a repricing of risk in the short term rather than a breakdown in fundamentals.”

An important perspective, because while headlines have been noisy, there are layers to the underlying story.

United States

The US took a step back this quarter with sharp falls in some sectors. Investors were initially cautious around the sustainability of AI-driven growth, only to feel extra burden later with higher oil prices adding pressure to inflation expectations.

Our managers believe the reaction was less about the quality of the firms in the market deteriorating, but more about short term expectations resetting. Ziad believes “the US had been leading markets for some time so when expectations are high, it does not take much for investors to lose confidence.”

United Kingdom

The UK told a different story. We saw some gains in the market supported by exposure to energy and commodities. While inflationary pressures exist, there were sectors benefiting from rising oil prices. Beneath the surface though, the more domestic focused firms were under pressure, reflecting ongoing concerns as a direct result of the conflict.

The UK is a great example of why looking at the headline index can be misleading, especially given its multi-national nature. Global earners have held up well, but domestic growth remains under pressure.

Europe (ex UK)

In Europe, returns were negative as energy concerns dampened optimism, similar to what we saw with the Russia-Ukraine conflict. With the region more reliant on imported energy, investors were quick to reassess the outlook.

David Smith, co-portfolio manager of the fund advised, “Europe is sensitive to energy shocks so when oil moves, sentiment tends to follow. That does not mean the long-term story is broken, but does mean volatility is likely to stay elevated.”

Japan

Japan, though positive, felt more subdued this quarter after last year’s run. Markets took a breather with performance held back by currency moves, particularly a weaker yen.

The bigger story though is seeing corporate reforms, improved governance and a growing focus on shareholder returns as the market takes new shape.

David believes that “Japan is not about short-term momentum and there is real change happening at the company level”.

The direction of travel for this economy remains positive and importantly, very different to other major markets.

Emerging Markets

Emerging Markets were a mix of results with performance varying wildly in this group, but overall flat. Latin America showed some strength, benefiting from commodity exposure, while parts of Asia were more vulnerable to higher energy prices and a stronger US dollar.

The broad nature of this market can’t create a single unified story. There are many economies reacting in different ways and that’s why selective and expert exposure is key.

The bigger picture

If there’s a single takeaway from the quarter, it’s that leadership in markets is shifting again. Energy helped parts of the UK, the US took a pause, Europe was under pressure and Emerging Markets diverged. This is not a problem though, it’s the exact point. It’s why global diversification remains central to how the fund is managed.

Amid all this, it’s worth stepping back. The fund is now 25 years old and has navigated everything from financial crises to pandemics and geopolitical shocks.

Since launch, the fund has delivered a return of 483.2%*. Though past performance is not an indicator of future returns, this shows that £10,000 invested from the beginning would be worth £58,321 now. Periods like this should not derail long-term investing but rather reinforce discipline and the need for diversification.

Portfolio changes

During the quarter we implemented two tactical trades. In January, we tilted our US allocations towards value stocks, which we believe will benefit from the broadening out of earnings growth. This trade worked in our favour, reaching our target in February which prompted us to take profit and close the trade. In February we also initiated an overweight to emerging markets equities, funded from global equities. We believe Emerging Markets equities are enjoying strong earnings and economic growth and can benefit from longer-term US dollar weakness.

Fund performance

The fund outperformed its comparator for the quarter by 0.5%. Over the last year, the fund has returned 13.5% outperforming it’s comparator by 2%.

HL Special Situations Trust is managed by Hargreaves Lansdown Fund Managers Ltd, part of the Hargreaves Lansdown Group.