Market Overview
In a turbulent month, equity markets worldwide retreated in March amid mounting uncertainty about the global economic outlook.
During the month, all eyes were on the U.S., where on-again, off-again tariff announcements from the administration, and speculation about the scope of these import taxes, sowed uncertainty and confusion that hung over markets. With recent surveys indicating that U.S. business and household confidence was already eroding due to concerns about the inflationary effects of tariffs, investors grew increasingly nervous that this uncertainty will lead to a pullback in company and consumer spending, which could tip the U.S. economy—the world’s largest—into a recession.
Concerns about a global trade war spread far and wide and its potential impact on the world economy was a significant risk factor that was considered by major central banks in their latest monetary policy decisions. As expected, the Federal Reserve (The Fed) held rates steady at its policy meeting in March, marking the second consecutive time the U.S. central bank has done so after sharply reducing borrowing costs late last year. The Fed acknowledged rising pessimism among businesses and consumers in recent surveys and stated that it was anticipating higher inflation and slower domestic economic growth because of the recent shift in policy. At the same time, the Fed stated that the U.S. economy remained solid and affirmed its previous forecast of two rate cuts this year. The Fed’s comments about the health of the U.S. economy and its interest-rate policy path, which were less hawkish than expected, sparked a brief relief rally in global stock markets. The yield on the benchmark 10-year U.S. Treasury note ended March at 4.21%, 1 basis points (bps) lower than a month earlier.
Across the Atlantic, the European Central Bank (ECB), as widely expected, lowered interest rates for a sixth consecutive policy meeting with a 25-basis point reduction in March. Despite relatively low regional inflation and weak economic growth in the eurozone, the ECB hinted that a pause in its rate-cutting campaign was on the horizon. In the UK, the Bank of England (BOE) held interest rates steady at its policy meeting in March, adhering to its cautious approach to policy, as data suggested that the British economy remained weak and domestic inflation remained above the BOE’s target. Elsewhere in Europe, Sweden’s Riksbank also held interest rates steady and predicted they will remain at their current level in the near term while the Swiss National Bank marked the likely end of its monetary easing cycle by lowering its main interest rate for a fifth consecutive policy meeting with a 25-bp cut that left it just above zero, as inflation in Switzerland appeared well contained. Europe has been engulfed in uncertainty and risks over the past several months, as it finds itself in the crosshairs of U.S. import taxes that could weigh in economic growth across the Continent and amid concerns about the commitment of the Trump administration to abide by security obligations. In March, the yield on the 10-year German Bund, Europe’s principal safe-haven asset, rose 38 bps, ending the month at 2.75%.
Meanwhile, in Japan, the Bank of Japan (BOJ) held interest rates steady at its policy meeting in March, citing concerns about that the impact a global trade war will have on the country’s export-reliant economy. After earlier denying Japan’s request to be exempted from U.S. tariffs, the Trump administration announced late in the month that the U.S. would impose a 25% tariff on automobile imports, rattling Japan’s stock market and raising fears that the action could undercut the country’s economic recovery.
The conclusion of the new earnings season provided investors with the latest update on how company profits have held up amid shifting market dynamics. In the U.S., 75% of the companies in the S&P 500 Index topped consensus estimates, which was above the long-term average of 67%. The fourth-quarter earnings growth rate increased 18.2% from a year earlier. In Europe, 53% of the companies in the STOXX 600 Index posted better-than-expected earnings, slightly below the 54% that do so in a typical quarter. The year-over-year fourth quarter earnings growth rate expanded 4.5%. In Japan, 58% of the companies in the TOPIX reported positive earnings surprises, surpassing the 54% beat rate over the past four quarters. The fourth-quarter earnings growth rate increased 23.7% from a year earlier. In Hong Kong, 59% of the companies in the Hang Seng Index registered better-than-expected earnings, surpassing the 48% beat rate over the past four quarters. The fourth-quarter earnings growth rate increased 14.7% from a year earlier.
Against this backdrop, equity markets in the developed world fell in March while those in the developing world gained. In the U.S., the S&P 500 recorded its worst monthly performance since December 2022, as investors worried about the impact that tariffs will have on the domestic economy. In Europe, the STOXX 600 declined but outperformed, thanks to the combination of lower interest rates and expectations of increased military spending, which boosted the stock prices of defense contractors. In Japan, the TOPIX climbed, as the sharp rise in the stock prices of lenders stemming from expectations of further rate hikes from the BOJ was partially offset by news of the Trump administration’s plan to impose 25% tariffs on automobile imports. In China, the Hong Kong-based Hang Seng Index rose, thanks to an improving outlook for earnings and valuations.
Information technology was the worst-performing sector in March, as the industry sold off shares of U.S.-based chipmakers and semiconductor equipment manufacturers due to worries about tariff risks, lofty valuations, and uncertainty about the earnings outlook of these companies in the wake of a Chinese start-up’s Artificial Intelligence (AI) breakthrough. Energy was the best-performing sector, as shares of oil producers gained in sympathy with the rise in crude oil prices.
Outlook
Increased uncertainty surrounding the U.S. economic outlook and key policy measures, including specifically tariffs, are now weighing more heavily on markets and have interrupted what had previously been, in our opinion, a clearer line of sight towards decelerating inflation and strong likelihood of success achieving an economic soft-landing. Our base case expectations for moderate economic deceleration have been further thrown in doubt in early April as the announced U.S. tariff measures were more punitive than anticipated and triggered a wide range of retaliatory responses as well as grave warnings from key stakeholders of U.S. commerce and industry.
While markets continue to wrestle with considerable uncertainty, we expect Infrastructure to continue to exhibit critical defensive qualities and remain an invaluable diversification component for investment portfolios given the essential nature and real asset characteristics of the asset class. In contrast to businesses and industries where valuation is underpinned primarily by revenue growth and competitive profit margins, critical infrastructure derives considerable valuation support from its high fixed cost of investment and high visibility, high margin cash flows collected over long periods of time [to recoup the initial capital outlay].
This important combination of characteristics tends to lend itself to superior defensive positioning, in our view, against global trade uncertainty, inflationary pressure, economic recession and market volatility. On the risk side of the ledger, however, we include typically above-average levels of balance sheet leverage and sensitivity to interest rates.
From a sectoral standpoint, we see a number of multi-year critical infrastructure investment trends likely to continue largely undeterred by recent tariff and trade uncertainty. Electrification and the growing demand for power serves as an example, in our view. Utilities were a key positive contributor to performance during 2024 and have been a defensive respite thus far in 2025. While we maintain a favorable sector outlook for Utilities and foresee scope for upward earnings revision, valuations have also re-rated higher, and we do not expect the same pace of returns for utilities to continue in the U.S. On the other hand, we continue to find very compelling valuations and opportunities in utilities outside the U.S.
Outside of the utilities sector, we believe U.S. midstream energy, namely oil & gas storage and transportation, continues to offer a compelling combination of attractive valuation and improved capital allocation discipline. And while increased uncertainty regarding global trade and the risk of global recession now weighs more heavily on energy prices and the sector earnings outlook generally, the vast majority of the cash flows associated with the portfolio’s midstream holdings are fee-based and enjoy strong support from take-or-pay contracts and spread differentials at key access points.
Elsewhere within the portfolio, we see an abundance of opportunities stemming from large-scale investment in transportation infrastructure, information technology and energy development & security, leading to increased demand for materials, capital goods and industrial equipment.
We believe the portfolio remains well-positioned to take advantage of these opportunities in real asset infrastructure businesses as well as key enablers, including materials, services, and technologies, that will both facilitate and benefit from increased investment in infrastructure.
The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
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Allocations and security selection are subject to change. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including additional costs, competition, regulatory implications, and certain other factors.
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Published on April 24, 2025.