Members’ savings have performed well throughout the first half of 2025. LD Discretionary, the largest investment fund at The Cost-of-Living Allowance Fund, recorded a positive return of 2.4% for the half-year, whilst The Holiday Allowance Fund recorded a corresponding positive return of 2.2%.
Despite six months of considerable turmoil in the financial markets and the resulting fluctuations in daily share prices, members’ savings are in the black at the halfway point of 2025.
Members stand to benefit from a dollar hedging strategy
In a market characterised by a sharp fall in the value of the dollar, members’ savings have benefited greatly from LD Pensions’ currency hedging strategy, under which all dollar exposure on bonds is hedged, whilst three-quarters of the dollar exposure on shares is hedged.
The strategy has provided significant protection against the weakening of the dollar. Dollar hedging for the equity portfolio alone has resulted in a positive return of approximately 1.3% for LD Discretionary and 2.7% for the Holiday Allowance funds.
Technology shares and new US tariff rates
In the first half of 2025, there were very sharp fluctuations on the global equity markets, driven primarily by technology shares and new US tariff rates. The first quarter was characterised by sharp falls in the share prices of the largest US technology companies, as the Chinese AI model DeepSeek challenged the valuations of the US technology giants. Over the course of the half-year, the so-called ‘Magnificent 7’ companies recorded negative returns of around 25 per cent, but by the end of the first half of the year, returns had returned to positive territory.
The long-awaited ‘Liberation Day’ in the US, when tariffs were introduced at a level far exceeding market expectations, also proved to be a defining moment for the second quarter. Market volatility reached levels last seen during the financial crisis and the Covid-19 pandemic, and long-term US interest rates rose significantly. However, the US President chose to postpone the tariffs by 90 days, which triggered a sharp turnaround in the equity markets.
A robust economy
Despite the uncertainty, the economy has proved resilient, and key indicators do not currently point to a recession. The focus in the US has shifted to domestic politics, with negotiations underway on the first major legislative package to extend Trump’s tax cuts. However, the legislative package is expected to further increase the budget deficit, which has prompted the global analysis and credit rating agency Moody’s to downgrade the US’s credit rating, resulting in rising interest rates and a weaker dollar.
Continued uncertainty
We are therefore still living in unpredictable times. What will happen to the deferred tariff rates in July? How are the US legislative package and debt situation developing? And will geopolitical factors cause further turmoil? LD Pensions is monitoring developments closely and regularly reassessing its expectations where warranted.
