In the face of Trump tariffs, bond fund inflows plummet while equity investors "buy the dip"

Since Trump's tariffs rocked the stock market in April, investors have been responding

Trump's tariffs have caused a massive sell-off in bond funds, while more optimistic investors have been purchasing the decline in US stocks.

The announcement of a number of new trade tariffs by US President Donald Trump last month shook stock markets.

Investors have been cautious about the economic impact, even though the UK may have since negotiated a better trade deal.

According to the most recent Fund Flow Index from data provider Calastone, UK investors withdrew funds from bond funds in April 2025 at the quickest pace since the pandemic began in April 2020.

Some astute investors, however, have viewed this as a buying opportunity while prices are low in the hopes of a recovery, as the uncertainty weighed on stock markets and drove indices like the SandP 500 lower.

Others have been looking for places that are considered safe.

The terrible April for the stock market had the following effects on investor sentiment.

Havens of safety soar.

April was the fifth-best month on record for money market fund inflows, with 589 million.

Money market fund inflows have been the strongest over the last three months compared to previous three-month periods, according to Calastone.

It was a bad month for bonds.

April saw a net withdrawal of £1.24 billion from fixed income funds by investors, the highest amount since the pandemic and the second consecutive month of heavy selling.

According to Calastone, the April outflow was still far less than the £3.37 billion that was taken out in April 2020 as lockdowns swept the globe.

Despite this, net selling in April 2025 was 46% higher than in September 2024, the third-worst month. Additionally, it comes after a very poor March, which was the fourth-worst month for the industry overall.

It comes as governments and central banks have had to adjust to the new US trade policy and geopolitical tensions.

Calastone's head of global markets, Edward Glyn, stated: "If the global economy slows as much as many are currently forecasting, there are obviously worries about government finances, and this could be a factor.

Similarly, the bond market appears to be the only force that has managed to control the US president's most irrational impulses and the resulting volatility thus far. This could be the reason why so much money is being stashed in safe-haven money market funds and bond fund investments are being pulled out.

Purchasing the dip.

Although stock markets may have declined as a result of the US tariff announcements, many analysts believe that this is a good time for long-term investors to purchase the best investment funds at a discount.

Investors added a net £1.52 billion to their equity fund holdings in April, marking the fourth consecutive month of improvement, demonstrating how many people have taken notice of this.

In fact, funds that invest in North Americaparticularly index-tracking fundswere the biggest beneficiaries. Investors increased their holdings in North American equity funds by a total of £1.51 billion. The net buying started on April 8th, when the market started to speculate that President Trump might reverse his Liberation Day tariff schedule.

Strong inflows also occurred into global funds, which have a significant weighting to US stocks, bringing their total to a net £1.48 billion.

However, Calastone experienced the worst month on record for emerging markets due to significant net selling of Asia-Pacific and emerging market equity funds, with outflows of 591 million and 534 million, respectively. The net selling of European equity funds was 145 million.

Further net selling occurred in UK-focused equity funds in April as well, but Calastone said that at 521 million, it was the least severe since July 2024.

"The interest in US stocks in April might just be a buy the dip strategy," Glyn continued. Inflows undoubtedly decreased by the end of the month, by which point the US stock market had recovered half of the losses it had sustained from the middle of February to the beginning of April.

The relative outperformance of the UK market so far this year is reflected in the slowdown in outflows from funds with a UK focus. The United Kingdom market is up so far in 2025, despite still being below its February peak. However, this hasn't been sufficient to persuade UK investors to revise their pessimistic outlook on UK stocks.

Financial instability can affect emerging markets, which are heavily reliant on China. Given that China has been singled out for Trump's most severe tariffs, investors' concerns about economic growth are undoubtedly the cause of their withdrawals from emerging market and Asia fund holdings.