How to Trump-proof your portfolio

Like it or hate it, the leader of the free world knows how to throw a good tantrum, and markets are terrible at handling it.

As we can see on the very front of our trading screens, markets are on edge, and for good reason. Donald Trump’s on-again, off-again tariff threats have sent shockwaves through global equities, leaving investors grappling with sudden swings in sentiment.

One moment, trade negotiations seem optimistic, the next, the rug is pulled out with a tweet. The result? A surge in the VIX, falling stock prices, and an increasingly anxious investing public.

For some, this volatility is maddening. For others, it’s an opportunity. The key question for investors right now is: how do you build a portfolio that can withstand the turbulence of Trump’s trade wars, shifting policies, and erratic market moves?

To find answers, we turned to three market experts:

• Sebastian Mullins, Head of Multi-Asset and Fixed Income, Australia at Schroders
• Arian Neiron, CEO and Managing Director, Asia Pacific at VanEck
• Alexandre Ventelon, Head of Wealth Management Research at Morgan Stanley Wealth Management

Their insights cover defensive positioning, tactical opportunities, and the best ways to shield your portfolio from the uncertainty that Trump’s policies create.

First, where are we now?

Before we dive into positioning, let's put matters into context. Volatility on the ASX 200 has surged to its highest since August 2024, when markets were debating the prospects of a hard or soft landing in response to US economic data and whether the Fed had left it too late to cut rates.

It’s important to note that this level of volatility in an absolute sense isn’t very high. In fact, relative to events like the COVID-19 crash and European debt crisis of the 2010s, volatility right now is modest.

Furthermore, Kerry Sun also produced a great graph showing that since 2000,the ASX 200 has consistently posted positive returns one year after entering a technical correction. This suggests that even challenging periods — whether market downturns or turbulent times like the 2017-2021 Trump era — eventually give way to recovery.

Meanwhile, if you look at a chart of the S&P 500 over a long horizon, the selloffs, corrections, and crashes often look like mere blips.

Nonetheless, investors want reassurance, and there’s nothing wrong with trying to make portfolios more resilient or taking advantage of opportunities. So, let’s see what our experts have to say.

Schroders leans towards selective credit, warns against U.S. small caps

According to Schroders' Mullins, Trump’s tariff rhetoric has introduced a significant risk of stagflation in the U.S., with slowing growth and rising inflation. If these policies are implemented aggressively, global trade could weaken, corporate investment could stall, and consumer confidence may decline - leading to a potential global slowdown and eventual rate cuts.

“For the U.S., this policy approach could lead to stagflation, marked by lower growth and rising inflation. Attempts to stimulate demand with fiscal measures may encounter supply-side deterioration, worsened by higher tariffs that could drive up goods inflation," he says.

While this scenario is not Schroders base case, prolonged bluster could diminish business confidence, causing business to delay hiring or capital expenditure. Similarly, consumers may increase savings due to job uncertainty, resulting in economic slowdown, even if Trump later retracts his decisions.

While equities and bonds remain volatile, Mullins favours holding high-quality carry assets. In Australia, corporate bonds still offer attractive spreads compared to global credit markets, particularly in infrastructure and utilities, which provide inflation-protected earnings.

“Certain parts of the Australian credit market, like BBB infrastructure or utility names, have inflation-protected earnings which could insulate them if we enter a period of stagflation," he says.

However, he warns against U.S. small caps, which were previously a favored Trump trade. Their reliance on low interest rates and protectionist policies now seems questionable, especially with forward price-to-earnings ratios appearing stretched.

“If Trump goes ahead with his protectionist policies without a deal, this could put this trade into question. U.S. stagflation would limit the ability for the Fed to cut and lower growth would impact revenues. With the Russell 2000 forward price-to-earnings ratio at 23x, this seems rich given the potential risks," Mullins says.

Schroders has responded by raising cash, cutting U.S. credit exposure, and increasing duration in U.S. Treasuries to hedge against a slowdown. Additionally, they’ve allocated to the Japanese yen (JPY) as a safe-haven play.

Key takeaway: Investors should stay flexible and proactive, favouring high-quality assets like investment-grade credit while hedging with safe-haven plays such as Japanese yen and U.S. Treasuries. Given the risks of stagflation and rich valuations, caution is warranted in U.S. small caps, and a defensive tilt may help weather policy uncertainty.

VanEck: It's time to play defence

VanEck's Neiron highlights the growing investor preference for defensive assets amid heightened trade tensions. He notes that Trump’s policies risk reigniting inflation while simultaneously stalling global economic growth - a precarious mix for markets.

“President Trump’s trade tariffs have already introduced volatility into financial markets, prompting investors to shift away from U.S. equities in favour of safe haven assets, defensive equity sectors, and international markets,” Neiron observes.

In this environment, Neiron sees gold as a compelling hedge. Both gold bullion and gold miners via the VanEck Gold Bullion ETF (ASX: NUGG) and VanEck Gold Miners ETF (ASX: GDX) present opportunities, particularly as inflation expectations rise.

"Recent market movements show investors are already pivoting towards gold, with the gold price steadily increasing over the past two weeks," he says.

Long-duration government bonds, such as Australian 5-10 year and 10+ year government bonds strategies via ASX: 5GOV and ASX: XGOV, respectively, also offer stability, while emerging market bond funds such as VanEck Emerging Income Opportunities Active ETF (ASX: EBND) have outperformed developed market bonds over the past five years.

“Tariff risks have largely been priced into emerging market bonds, and structural changes in these economies have made them more resilient compared to debt-ridden developed markets,” he adds.

Defensive equity sectors, such as healthcare VanEck Global Healthcare Leaders ETF (ASX: HLTH), VanEck FTSE Global Infrastructure (AUD Hedged) (ASX: IFRA), VanEck Australian Property ETF (ASX: MVA) and VanEck FTSE International Property (AUD Hedged) ETF (ASX: REIT) have historically outperformed in inflationary environments.

Neiron warns against high-growth stocks with elevated valuations, particularly those reliant on supply chains affected by tariffs.

“The complexity of global supply chains makes it difficult to quantify the potential disruptions across the economy. However, industries with substantial exposure to China could be at risk if the country’s economic growth is impeded," he says.

Key takeaway: Investors should embrace diversification across asset classes, geographies, and industries to mitigate downside risks.

Morgan Stanley says buy the dip in quality stocks, India

Ventelon of Morgan Stanley sees a tactical opportunity amid Trump-induced market weakness. While near-term sentiment is fragile, he believes that extreme policies could eventually lead to a ‘buy the dip’ opportunity once uncertainty clears.

"We believe that the feedback loop from ‘extreme’ policies could turn tactical weakness into a strategic opportunity to ‘buy the dip’, although for that to take place we also need to clear more headlines regarding the less market-friendly policies," he says.

Morgan Stanley has revised its U.S. growth outlook downward due to trade policy risks, expecting slower economic expansion and a temporary rise in inflation. While they don’t foresee a recession, they acknowledge elevated downside risks if tariffs persist.

“Tariffs not only impact trade partners but also the US itself - leading to higher prices, weaker consumer demand, and slower manufacturing output.”

Their asset allocation strategy has shifted to an equal-weight (EW) stance on equities in the short term, maintaining a preference for quality stocks, including growth at a reasonable price (GARP) and financials. They remain overweight (OW) on Japanese equities and see Indian markets as an attractive opportunity.

"Indian equity markets are relatively attractive, with India's relative earnings growth expected to advance based on even the more conservative consensus forecasts," Ventelon says.

Both Global X and Betashares offer exposure to Indian equity markets via their and Global X India Nifty 50 ETF and Betashares India Quality ETF, while the Ellerston India Fund, listed investment company, offers an active way to play the world's fifth-biggest economy.

Morgan Stanley also continues to like alternatives in the current environment and are positioning with a mix of commodities (including gold), hedge funds as well as select private investments to enhance returns, lower portfolio volatility and manage equity beta risk.

While Ventelon advises investors to brace for continued volatility - and potential recoveries - this year, he warns against making sweeping portfolio changes or going to 100% cash. Instead, he expects the second half to be calmer than the first.

'We do not recommend dramatic shifts in portfolio asset allocation,' Ventelon explains. 'Rather, we suggest adjusting positioning as the outlook evolves, especially since markets remain highly sensitive to unexpected developments, both positive and negative.'

Key takeaway: While caution is warranted, investors should look for tactical entry points in quality stocks and explore alternatives for risk management while staying the course. India, a market known for its strong historical capital growth, is also trading at very attractive valuations.