LD Discretionary, which is the largest investment fund within The Cost-of-Living Allowance Fund, has recorded a negative return of 0.6% as at 1 April 2025. Over the last 36 months, the return stands at 11.0%. The return on the Holiday Allowance Fund stood at -2.7% as at 1 April, and since inception there has been a positive return of 16.2%.
A turbulent start to 2025
The start of 2025 has been marked by considerable uncertainty in the financial markets following announcements by the US administration regarding significant increases in tariff rates on the US’s trading partners. During the first quarter, the tariffs were primarily targeted at Mexico, Canada and China, but following the announcement on 2 April, the US has announced tariff increases against virtually all its trading partners. It is still too early to say whether the trade war will spread and escalate beyond its current level. Trump’s announcement of very high tariffs on the EU, Japan and China is subject to negotiation. However, it is uncertain whether the parties will be able to reach an agreement, meaning that the majority of the tariff increases may be rolled back.
The stock markets have reacted negatively to the announcements, with sharp falls. Government bond prices, on the other hand, have risen sharply as bond yields have fallen due to the risk of an economic slowdown in the US, Europe and Asia. According to the financial markets, the risk of a recession in Europe and the US and a significant slowdown in global growth has increased.
Whether things go that badly will depend on whether the US changes course in light of the falling stock markets and the risk of a recession, which would put the President under domestic political pressure. Furthermore, the nature of the backlash, primarily from China and the EU, will be decisive.
In the US, the administration is trying to secure a tax deal in Congress that will compensate ordinary Americans for the negative effects of rising tariff rates. However, even if the tax package is passed, the relief measures will not begin to have a positive impact until the end of 2025.
Within the EU, the recently adopted military rearmament plans will have a positive impact on growth. This is particularly true in Germany, where the new government, with broad support from several parties in parliament, has scrapped the German debt brake, paving the way for record levels of investment in infrastructure and the military.
China is being hit particularly hard by Trump’s tariff announcements. This comes at a time when the country is trying to kick-start growth, which has been particularly hampered by several years of crisis in the property market. However, the Chinese leadership is planning major fiscal stimulus measures aimed primarily at consumers and private businesses.
Both cost-of-living allowance funds and holiday allowance funds enjoy a certain degree of protection
Overall, as mentioned, there is considerable short-term uncertainty as a result of the turmoil surrounding the trade war, and there is a risk that this could push global growth into negative territory. Conversely, if the situation stabilises as the parties begin negotiations, there are also signs that stimulus measures – particularly fiscal policy in the largest economies – could restore strong growth momentum.
LD Pensions invests its cost-of-living allowance funds using a cautious approach. Within these cost-of-living allowance funds, over 40% of the investment assets are invested in bonds with high credit ratings. These have delivered a positive return despite the turbulence we are currently experiencing. Only around 25 per cent of the assets are invested in shares, and within its equity investments, LD Pensions' strategy is more defensive compared with a global equity index.
Holiday Allowance funds are invested with a slightly higher level of risk than cost-of-living allowance funds, which is why the proportion of shares in the investment portfolio is higher. However, around 25% of the holiday allowance funds’ total assets consist of the employer’s contribution, which provides a stable return of around 3%, regardless of developments in the financial markets. Neither portfolio is immune to the effects of the current market turmoil, but both the cost-of-living allowance funds and the holiday allowance funds are invested in a way that offers some protection in the current situation.
