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How We’re Protecting (and Growing) Our Dividends in the Tariff Panic
Michael Foster, Investment Strategist
In the run-up to the reversal of many of President Trump’s tariffs, we saw some true panic selling that turned into what can only be called panic buying: Investors eager to get back in as they realized the selloff was a buying opportunity.
And to no one’s surprise, tariff-related market drama has continued since then.
Last Wednesday’s bounce happened so fast I couldn’t get my response to the selloff published in time. Earlier last week I wrote, “Fortunately, this situation will not last forever. Stocks will ultimately recover their losses from this last week.” Then stocks did recover before those words could get published!
But the key thing to keep in mind is that, over time, stocks do move higher (though they don’t often post a single-day bounce as high as the one we saw last Wednesday!). So buying oversold stocks (and especially deep-discounted high-yield closed-end funds, or CEFs, like those in the portfolio of our CEF Insider service) and sticking with them through market turmoil is a smart move every single time.
After all, losses in the S&P 500 do disappear over time. They’ve done it after every single crash we’ve experienced before.
And there’s an important, but less obvious, fact about this that investors aren’t considering as much as they should: how this situation has affected two of the so-called “safe havens” that have been getting a lot of attention lately: gold and Treasury bonds.
First, let’s look at how index funds tracking the S&P 500 (in purple below), gold (in orange), long-term Treasuries (in blue) and short-term Treasuries (in green) were doing before last Wednesday’s bounce.
Everything Was Crashing
I don’t need to tell you what’s happening in this chart: Trump’s very high tariffs were expected to cause two things: higher prices on goods (since those tariffs will be paid by importers, who will raise prices on the products consumers buy) and slower consumer spending (again, because of those higher prices).
As a result, most Wall Street firms raised their expectations of a recession in 2025. (For the record, I raised my expectations of a recession a month ago, so I’m glad to see the media and analysts finally come around.)
The chart above ends at the close of trading on April 8. Now, when we fast forward the tape to the close of trading on April 9, we see that all of these assets recovered, for the most part, with the S&P 500 seeing the most dramatic recovery of them all.
Stocks, Treasuries and Gold All Bounce
Note that gold surged too, and has continued to do so since. This, again, tells us that there is still some worry in the market about inflation, but the bigger question is: Is gold a good hedge? Should one have gold in one’s portfolio over the long term to protect against downturns like this?
To answer that question, let’s zoom out.
Gold’s Long-Term Showing
We see that, in the last decade, gold outperformed short-term Treasuries by a huge margin and did much better than long-term Treasuries, even considering their interest payments (these are total-return values, including all dividends and other income). Long-term government bonds actually lost money.
And these returns are all before we account for inflation. So much for Treasuries as a safe haven!
The underperformance of short-term Treasuries makes sense. After all, these bonds are liquid and, as you can see from that straight green line, low volatility. That leads us to a couple of takeaways around safe havens.
First up: Long-term US bonds are not a good hedge.
But did gold give us anything in exchange for underperforming stocks? If Treasuries aren’t a good way to diversify away from the aches of the market, is gold?
Well, gold collapsed alongside stocks between the time Trump announced his tariffs and his announcement reversing most of them. So in this case, the answer is no.
But over the long term, gold is also clearly not a great hedge, since it underperforms stocks. In other words, if you have it in your portfolio to hedge your stocks, it just means it’ll drag down your returns. Let’s drill into this point a bit.
Stocks Crush Gold
If we go back 33 years (the earliest data I can easily chart for you), gold had a 6.9% annualized return, as of this writing, while stocks had returned 9.9% annualized. Compound interest means that this difference adds up: For every $10,000 you invested in stocks, you ended up with over $133,000 more in pure profits from stocks than from gold over this time period.
So, our second takeaway around “safe havens” writes itself at this point: Investing in gold will drag down your returns over the long term. And today is a particularly dangerous time to hold gold.
Gold’s Unusual Run-Up
Over the last three years, gold has massively outperformed stocks, with a 17.2% annualized return versus 7% for stocks. This makes sense, considering that the run-up over the last three years began when inflation spiked. Inflation worries have crowded the headlines ever since.
However, remember that gold’s long-term annualized return is 6.9%, meaning it’s outperforming the past by over double. Stocks, however, are underperforming their long-term average.
This means that, not only will investing in gold drag down returns in the long term, but gold is currently overpriced relative to its long-term trendline, and it is likely to revert to the mean. Stocks, on the other hand, are underpriced relative to their long-term trendline, and are likely to revert to the mean, as well.
The Market’s in Turmoil—but These 9.5% “AI-Powered” Dividends Are Made for It
Tariffs are on. Tariffs are off. Stocks are volatile. And as we saw above, so-called “safe haven” trades are no help.
So what I’m about to say might sound strange: Your best move now is to … buy high-yielding closed-end funds focused on artificial intelligence.
These funds are viciously oversold now, and their dividend yields have soared as a result: In fact, the four AI funds I’m urging investors to buy amid the tariff turmoil are quietly spinning off yields up to 12%. Taken together, they kick out an incredible 9.5% average dividend yield.
Better than sitting in cash. Better than chasing shaky bonds.
Passive income is essentially money that comes in regularly with little active effort once the initial setup is complete. Think of it as an income stream that flows even when you’re not clocking in hours at a traditional job. From dividend-paying stocks and investment trusts to real estate rentals or monetized digital content, the idea is to build an infrastructure—be it financial capital or creative assets—that generates income almost on autopilot.
The term “Passive Income Live” can refer to platforms or resources—like the website Passive Income Live—that offer up-to-date insights on navigating today’s economic challenges while building such income streams. For example, articles featured on that site discuss strategies like leveraging investment trust dividends, diversifying asset allocation, and mitigating the risks that come with market concentration, particularly in highly weighted indices. This kind of analysis is especially useful now, as market fluctuations (from tariff impacts to broader economic shocks) remind investors that even “passive” strategies must be managed intelligently.
For someone in the UK, there’s a growing interest in tailoring passive income strategies to local conditions. Resources such as the article on “6 Best Passive Income Ideas To Make £1,000/Month In The UK” from The Motley Fool outline approaches ranging from dividend stocks to real estate investments and beyond. What stands out is the emphasis on diversification—not putting all your eggs in one basket—to build a resilient financial portfolio that continues working for you over the long haul.
If you’re exploring passive income for yourself, it’s worth reflecting on your own situation: What assets (time, money, skills) can you invest upfront? How comfortable are you with risk? And importantly, how diversified do you want your income streams to be? Building a few different channels can safeguard you against market shifts and boost overall financial security.
I’ve bought for the Snowball 1064 shares in BSIF for 1k.
I’ve took a further ‘profit’ of £200 with MRCH, to re-invest in a higher yielder.
Trusts that got even cheaper in the recent sell-off
Discounts widened for many investment trusts in the post-Liberation Day sell-off.
By Emma Wallis
News editor, Trustnet
Even before ‘Liberation Day’, swathes of investment trusts were trading at wide discounts. Donald Trump’s imposition of crushing tariffs on America’s trading partners at the start of this month sent stock markets into freefall and the share prices of many trusts fell due to indiscriminate selling, causing discounts to widen further.
As William Heathcoat Amory, managing partner at Kepler Partners, said: “Share prices have been buffeted by market volatility and investment flows. It’s not obvious how the likes of Greencoat UK Wind are affected by tariffs or a recession, yet the share price has taken a hit.”
Discounts for alternative investment companies by sub-sector
Equity trusts: Discount movements by subsector, 3-7 April
On 9 April, Trump reduced tariffs to 10% for all countries except China, with a 90-day reprieve from higher ‘reciprocal’ charges. Even so, markets are likely to remain volatile for some time yet.
Amidst the stock market carnage, investment trusts may appeal to investors for several reasons: wide discounts provide an attractive entry point; and many trusts invest in alternative assets such as infrastructure and property that are not closely correlated to global trade, so should be relatively insulated from the impact of tariffs.
The silver lining to the current crisis – according to Charlotte Cuthbertson, co-manager of the MIGO Opportunities Trust – is that US equities are “no longer the only game in town”. “People might sit on their hands for a bit and feel very nervous but they will also be looking for a different source of return,” she said.
Below, analysts highlight trusts for investors who want to diversify their portfolios and snap up a bargain.
Private equity
Even before this month’s turmoil, several private equity trusts were trading on discounts of 30-40%. By 7 April, ICG Enterprise and Pantheon International’s discounts widened to 47% and HarbourVest Global Private Equity reached 45%.
Ewan Lovett-Turner, head of investment companies research at Deutsche Numis, said: “Listed private equity investment companies have been amongst the sharpest fallers in share price terms, given the potential for slower dealmaking and investor concerns around leveraged businesses. Some of the falls have reversed, but the sector remains very cheap and volatility has thrown up numerous discount opportunities.
“We believe [this] offers an excellent entry point. Boards have been more active with buybacks and we would expect this to continue given where share prices are currently trading.”
Discounts widening for alternative investment companies, 3-7 April 2025
Cuthbertson warned investors to look at private equity trusts’ underlying portfolios. Those with exposure to consumer spending could have a tough time, she said.
On the other hand, Seraphim Space looks promising because it will benefit from European governments’ pledges to increase defence spending and it is not exposed to the consumer, she noted.
The MIGO Opportunities Trust has just increased its exposure to Chrysalis Investments following its sale of InfoSum to WPP, which has generated cash for the trust’s buyback programme – a catalyst that is not impacted by trade wars.
Chrysalis has not been unaffected by the tariff crisis, however. It holds Klarna, which has postponed its initial public offering due to market volatility, Cuthbertson noted.
Real assets
As investors look for steady income streams to anchor their portfolios through turbulent times, infrastructure and renewable energy trusts could see renewed interest.
Dividend yields are at all-time highs following last week’s sell-off, according to Stifel research analysts Iain Scouller and William Crighton. “The yield on the infrastructure funds sector has moved close to 7%, which is near the previous peak in October 2023. The renewables funds sector yield is at an all-time high of 10% and this compares with an 8% yield a year ago. Of the 11 renewables funds we cover, the dividend yield is now in excess of 10% on five of them,” they said.
Infrastructure and renewables dividend yields vs UK 10-year gilt yield
Sources: Stifel, Datastream to 9 Apr 2025
Furthermore, if central banks cut interest rates, lower yields from cash and bonds could prompt income investors to look elsewhere and the discount rates used in portfolio valuations should stabilise, Scouller and Crighton said. However, weaker power prices could be a headwind for the renewables sector.
Heathcoat Amory thinks Greencoat UK Wind could do well in the current environment. “Higher inflation in the UK will be a positive for the trust. But at the same time, it appears central banks may be poised to cut interest rates to minimise the risk of recession, which may mean a lower discount rate applied to valuations. At the very least, [rate cuts would] make the trust more attractive on a relative basis, given it currently offers a dividend yield of 9.9%.”
Cuthbertson thinks trusts investing in solar power should not be too badly impacted by trade wars. “The sun will still shine and you’ll still have power created from a solar panel and it’s not that America suddenly doesn’t need any power,” she pointed out.
In a similar vein, one of the MIGO Opportunity Trust’s largest holdings is PRS REIT, which focuses on residential rental properties. Regardless of trade wars, people will still need to rent homes, she said.
Lovett-Turner also highlighted specialist debt trusts such as TwentyFour Income (9.4% yield) and TwentyFour Select Monthly Income (8.4% yield), as options for investors in search of consistent cashflows.
Exit opportunities
Several investment companies have exit opportunities coming up and these may appeal to tactical investors. “We believe that volatile markets can often present an opportune time to invest with the comfort that some or all of the holding can be redeemed close to NAV [net asset value], although clearly there will still be market risk,” Lovett-Turner explained.
Mobius and Strategic Equity Capital have full exits approaching in November at NAV and are currently trading on discounts of 11% and 13%, respectively.
Another trust worth watching is Polar Capital Global Healthcare, which is on an 8% discount and is at the end of its fixed life. The trust is working to bring forward proposals for a corporate reorganisation in 2025, with the potential for a cash exit offered as part of the reconstruction, he said.
Caveat emptor
Cuthbertson said many investment trusts looked cheap before the tariff crisis and have become even cheaper in recent days but that does not mean their share prices cannot fall even further. “They could halve again,” she said. “In wild markets when investors are nervous, share prices fly around everywhere.”
Investors need to look under the hood at investment companies’ underlying assets and ascertain whether they have confidence in the valuations of those assets. “Are the discounts real and how stale is the NAV?” she asked.
Unlike equity trusts, the NAVs of alternative investment companies are not marked to market daily, so have not moved in recent days and thus do not reflect current market conditions. Investors, if they are lucky, receive valuation updates monthly, but valuations are more likely to be revised quarterly and, in some cases, every six months.
She expects valuations to be revised downwards eventually and believes the discount rate is likely to increase due to bond market movements and also because the world has become riskier. Some valuers will add 50 basis points or 1% onto the discount rate to factor in that additional risk, she explained.
“It’ll take time to work out where discounts are going to settle. It’s a really bumpy ride,” she concluded.
A market rally could be coming for UK stocks: here’s what I’m buying
A market rally could be coming for UK stocks: here’s what I’m buying© Provided by The Motley Fool
While I’m extremely cautious, there’s some evidence the correction appears increasingly overdone. While UK exports to the US represent 2.2% of our GDP, our post-Brexit regulatory flexibility positions the UK uniquely compared to EU counterparts. What’s more, analysis from Aston University suggests that UK exports to the US could surge by 17.5% through trade diversion effects if the EU and US fail to hammer out a deal.
What’s more, the US exceptionalism narrative is weakening as inflation concerns mount. With US tariffs potentially adding 2.2 percentage points to American inflation, capital will likely seek alternative havens. Meanwhile, the 30% GDP gap between Europe and the US may begin to narrow once again. I’d also suggest that Trump’s constantly changing tariffs have worsened investor sentiment. I’m finding it hard to add to my US holdings
Here’s what I’m buying
Despite the possibility of a rally, I moved to a largely cash position early in the Trump presidency. However, I’ve been slow to initiate positions in UK stocks. I think it’s best to be extremely cautious. The one that I that I have bought is JET2.
I think Jet2 should be getting more attention for its strong financial position. It currently boasts a net cash reserve of £2.3bn and a market cap of £2.7bn, making its enterprise value just £400m. That’s equivalent to just one year of forecasted net income. But it’s not just me. Institutional analysts highlight its undervaluation, with an average price target 66% higher than current levels.
The company plans to invest £5.7bn by 2031 to modernise its fleet, transitioning to a predominantly Airbus configuration, which could enhance operational efficiency and reduce costs in the long term.
My bullishness simply comes down the valuation. Jet2 essentially has a net cash adjusted price-to-earnings ratio of one. That’s so many times cheaper than its peers.
Thursday 17 April
Baillie Gifford Shin Nippon PLC ex-dividend date
Foresight VCT PLC ex-dividend date
JPMorgan American Investment Trust PLC ex-dividend date
JPMorgan China Growth & Income PLC ex-dividend date
Merchants Trust PLC ex-dividend date
Montanaro UK Smaller Cos Investment Trust PLC ex-dividend date
Nippon Active Value Fund PLC ex-dividend date
North American Income Trust PLC ex-dividend date
Octopus Apollo VCT PLC ex-dividend date
TwentyFour Income Fund Ltd ex-dividend date
US Solar Fund PLC ex-dividend date
I’ve took £250 ‘profit’ with MRCH
‘Profit’
A ‘profit’ is not a profit until the whole position is sold or the seed capital has been withdrawn or the amount of earned dividends equals the amount invested.
MRCH is a long term buy and hold so any ‘profits’ will be withdrawn and re-invested in a higher yielding Trust, or could be re-invested in MRCH if the price falls and the yield rises.
£5,000 invested in the S&P 500 at the start of 2025 is now worth…
After a stellar finish to 2024, the S&P 500 seemed as if it was primed to continue surging in 2025. Yet following the announcement of worldwide tariffs, the US stock market has subsequently proceeded to plummet, with its flagship index down more than 15% since the start of the year and over 12% since the start of April. At least that was the case until last week when tariffs were delayed, and US stocks shot back up.
Year to date, the S&P 500 was still down almost 9% as of 11 April. However, ignoring the recent rebound, any investor who put £5,000 to work at the start of the year with an index fund would only have £4,250. And the situation was even worse for those who concentrated on the Magnificent 7. On an equal-weighted basis, shares of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia (NASDAQ:NVDA), and Tesla crashed. They were down over 25%, taking a £5,000 initial investment all the way down to £3,750.
There’s no denying it was a painful start to the year, especially for newer investors. Yes, last week’s upward surge helped take some of the pain away. But plenty of S&P 500 stocks are still trading lower today compared to the start of the year.
Investing during volatility
When investing in a volatile environment, ensuring we have some dry powder is often a prudent move. Apart from providing some helpful savings during economic turmoil, this cash offers the flexibility. It can allow investors to start buying shares when prices are in freefall. After all, some of the biggest gains we can make are during a stock market crash.
Another handy tactic is keeping a list of top-notch stocks to buy once the share price looks more attractive. That way, investors don’t need to spend countless hours investigating opportunities when disaster strikes. By being prepared, there’s a lower risk of missing out on potentially lucrative investments.
US stocks to consider in 2025?
It’s impossible to know for certain when the latest round of volatility will reach its bottom. As such, deploying a dollar cost-averaging buying strategy is likely prudent. And one Mag 7 business that I’ve got my eye on in this market is Nvidia.
The GPU chip designer is proving to be the dominant business in the AI infrastructure landscape, with some phenomenal growth under its belt. And despite US economic concerns, spending on AI-accelerator chips is set to reach $315bn in 2025.
Semiconductors have been excluded from the announced US tariffs. While the same isn’t true for other raw materials that go into Nvidia products (like steel and aluminium), customers might still just pay the higher cost to get their hands on Nvidia hardware.
After its 30% tumble this year, Nvidia shares now trade at a forward price-to-earnings ratio of 21. That’s significantly cheaper than its historical average of 52. With that in mind, assuming that AI adoption doesn’t hit a wall, steadily drip-feeding capital into the S&P 500 stock might be an investment worth considering throughout 2025.
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