That morning latte and avocado toast could get a lot pricier.

Long-awaited tariffs of additional 10% on imports from China are slated to go into effect today, after levies on Canada and Mexico were pushed back late yesterday. And, the European Union could be up next. Experts say import-dependent sectors, like Big Tech and the automotive industry, are firmly in the line of fire, as well as certain commodities, like oil and gas, and you guessed it … coffee and avocados. 

Sure, President Trump has used tariffs as negotiation tactics before and some argue that the eventual levies end up being less dramatic than first advertised. Still, the uncertainty is forcing advisors to consider shoring up their client portfolios in the near term to help navigate what could turn into a global standoff. “Investors are well-timed to think about portfolio hedges,” said Paisley Nardini, managing director at Simplify Asset Management. 

Watch Out for the Tariff-raff 

The markets have largely not priced in tariff threats yet, but diversifying equity exposures can help fend off any adverse effects, Nardini said. She suggested building in tail-risk hedges to help smooth out extreme stock market swings, or adding leveraged strategies that can hedge losses. “Strategies, which can dynamically adjust, can be prudent ways to actively manage unknown risks,” she said.

Higher inflation is certainly expected, according to a JPMorgan report. Just 10% hikes could take overall US tariffs to 50-year highs and possibly to levels not seen in almost a century. The 2018 US-China trade war increased prices by 30 basis-points alone, the research found. Not to mention, there’s the risk of inciting that whole trade-war thing with our neighbors. The January report found: 

• Prices could rise by 40 basis points over the next two years, due, in large part, to significantly higher tariffs on China.
• The ensuing inflation could force the Federal Reserve to keep interest rates higher for longer. JPMorgan analysts expect the rate to fall to just 3.5% to 3.75% by the end of the year.

“Until we have certainty on timing, scope and amounts of proposed tariffs, making widespread portfolio changes may be ill-advised,” Nardini told The Daily Upside.

Did You Study Abroad? International equities have lagged domestic benchmarks over the better part of a decade, but that could be changing. While tariffs are a global problem, the downside risk could be greatest here in the US, said Dan Petersen, director of ETFs at New York Life Investments. With soaring valuations and a historically over-concentrated stock market, advisors may want to take another look at foreign stocks for safer harbors. Top holdings in New York Life’s international equity ETF that Petersen oversees include Germany’s SAP ES, Netherland’s ASML, and Denmark’s Novo Nordisk.

“With everything happening in the political arena, tariffs are definitely playing into those decisions,” he told The Daily Upside.

As prices rise on everything from housing to a hot cup of Joe, it’s refreshing to at least see investing fees getting slashed. 

Vanguard, well known for its affordable products, has doubled down on cost by cutting expense ratios on dozens of its mutual fund and ETF share classes. The largest fee reduction in the asset manager’s 50-year history is expected to save investors more than $350 million this year alone, the company said. With Vanguard shaving prices, the pressure is on for competitors to do the same. “Lower costs enable investors to keep more of their returns, and those savings compound over time,” Vanguard CEO Salim Ramji said in a release. 

Bond, James Bond

Vanguard will lower fees on 168 mutual fund and ETF share classes across 87 funds with an average reduction of about 20%. Prices for its fixed income products were also lowered. “Bonds are poised to play a crucial role in investors’ portfolios going forward,” company CIO Greg Davis said in the release. He expects bond yields to settle at levels higher than those seen over the past 15 years, meaning fixed income could play a larger role in client portfolios:

• Today, 86% of Vanguard mutual fund and ETF assets are in the lowest-cost decile of their Morningstar categories, the company said.
• Vanguard’s fixed-income ETFs now have an average expense ratio of just four basis points. The company’s equity index ETFs charge roughly five basis points.

Another notable fund getting a trim is Vanguard’s S&P 500 Growth ETF, which holds growth stocks in the Magnificent 7 and will see its expense ratio drop from 10 basis points to just seven.

Race to the Bottom? The price chopping is Vanguard’s latest move in an ever-raging fee war among asset managers. State Street cut fees on 10 of its core ETFs in 2023 and Fidelity trimmed prices on one of its high-yield ETFs in November. 

Over the last two decades, the average fee paid by fund investors has more than halved — from 0.87% in 2004 to 0.36% in 2023, according to Morningstar. However, fees have begun to decline at slower rates starting in 2023. Looks like Vanguard is bucking trends yet again.

The 1990s may be long gone, but we’re definitely hitting a new alternative era.

Alternative assets, like private equity, venture capital, and private debt, are quickly making their presence felt in client portfolios. Wealth managers are expected to oversee more than $3 trillion in alts in the US by 2029, according to Fuse Research Network. That’s a huge jump from today, when broker-dealers and RIAs manage about $1.7 trillion in private investments.

The new-found popularity is enticing traditional asset managers, like BlackRock, Nuveen, and Thornburg, to diversify into alts products that come with higher margins than traditional mutual funds and ETFs. It’s also creating a new way for advisors to open up potentially profitable investments to their clients. 

“We wouldn’t be surprised by many advisors having a 20% allocation to alternatives by 2030,” said Thomas Kiley, chief distribution officer at Calamos Investments.

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