PUTNAM
All Roads Conservative

MACRO AND MARKET REVIEW

The month of March significantly disrupted first-quarter performances. The acceleration in the rise of new US tariffs eventually overcame the most optimistic outlooks, and stocks generally declined over the month as uncertainty weighed on corporate profit prospects. Tariff numbers continued to emerge from the White House throughout March, increasing and extending to a growing number of sectors, with the final official announcement scheduled for "Liberation Day" on 2 April. While awaiting this moment, stocks and credit spreads showed high volatility. Analysts have widely considered this market decline as a period of upward reassessment of recession risk, with declining profit prospects and potentially lower short-term rates. Looming tariffs created an environment of uncertainty regarding the future path of both growth and inflation, placing the Fed in a tight spot. Europe announced investment plans in a rapid response to the new US economic and military policies. Such is March's assessment.

In this context, stocks generally experienced a decline. The MSCI World index fell by 4.6%, with "growth" stocks falling more sharply (-7.6%) than "value" stocks (-1.6%). US stocks remained volatile, declining by nearly 6% (S&P 500), while European stocks lost only 4%. Emerging market stocks, the big winner during this period of uncertainty, ended the quarter on a positive note (+1%, MSCI EM), led by China (+2%). In this context of recession risk "repricing," US short-term rates declined by 10 bps while long-term rates remained stable. In Europe, the announcement of investment and remilitarisation plans led to an increase in long-term rates by approximately 30 bps. As the only clear refuge during this troubled period, commodities continued their upward trend, rising globally by 3.5%, while the USD declined by the same amount.

The tariff announcements should help markets find a clearer direction, but the economic risk they pose to the US could continue to divert investors away from US assets. Europe, on the contrary, provides visibility to investors, which could fuel a continuation of the Q1 rotation in the coming months. For now, April should be a month of digesting White House announcements from both a stock and bond perspective.

FUND PERFORMANCE AND PORTFOLIO REVIEW

In March 2025, PUTNAM - All Roads was down -1.1% (EUR NA share class). Over the month, sovereign bonds were the largest detractors with -80 bps while equities detracted 45 bps, particularly dragged by developed markets. Commodities contributed positively 45 bps while corporate credit and emerging debt detracted 30 bps. Overlays performance was slightly negative, with our Trend strategy up and our Carry and Macro overlays down, the combination detracting 10 bps. Portfolio exposure decreased over the month as risk budget shrunk, closing the month slightly above 120%. Our volatility estimates increased over the month, with the developed equities volatility notably surging above its long-term median for the first time since December 2024. Our Risk appetite indicator remained in neutral territory over the month, with acute dispersion between its components. Momentum signals were rather unaffected by the volatile environment, remaining negative for sovereign bonds markets and positive for other asset classes. On the macro side, our economic growth nowcaster is showing signs of a slower momentum, while our monetary policy signals continue to indicate that central banks’ stance remains dovish, in spite of higher inflation pressures.