At the time of writing, President Trump has paused most of his new tariffs for 90 days.
While VT Gravis UK Infrastructure Income and VT Gravis Clean Energy Income have not been immune to recent volatility in capital markets, the underlying companies in the Funds should be in relatively good shape in a world of tariffs, and this should be recognised by market participants.
Both strategies have overarching exposure to contracted cash flows that are derived from operational infrastructure projects providing critical services. These are not companies whose revenues are derived from selling goods into the US, or trading products across borders generally, where new trade barriers would create a direct headwind.
VT Gravis UK Infrastructure Income, by definition, is UK-centric and its exposures, which include water utilities, energy generators, specialist property owners, companies with concessions to manage hospital/education/government facilities, power transmission network operators, etc. should be largely unaffected.
With respect to VT Gravis Clean Energy Income, which invests globally in companies that own and operate low carbon energy generation and related infrastructure assets, US companies would incur higher import costs of course (they do need components). However, when we look at the US renewables sector, the Inflation Reduction Act has spurred significant investment in domestic manufacturing capacity and the onshore wind sector supply chain is well supported, for example. For solar projects, developers and asset owners will be protected in the near-term owing to an approximate 50GW of solar modules sitting in US warehouses that were imported from Southeast Asia ahead of time, according to Bloomberg New Energy finance. In contrast, the Batteries Storage sector, which has seen strong growth in the US in recent years, is likely to suffer owing to its heavy dependence on imported materials.
It is worth noting that the US clean energy sector is well-accustomed to operating under a slate of trade barriers (see table below) and may be better equipped to navigate such an environment relative to other industries.
VT Gravis UK Infrastructure Income and VT Gravis Clean Energy Income are defensive in nature with cash flows derived from infrastructure assets tending to be non-cyclical in nature while also benefiting from elements of inflationary protection. If President Trump does follow through with implementing broader tariffs globally, these actions are expected to prove recessionary and inflationary, which we view as a net positive for the Funds. In such a scenario, it remains to be seen whether the Federal Reserve would prioritise supporting the economy through interest rates cuts rather than containing inflation, but the potential for lower interest rates sooner would be incrementally helpful for the strategies.
As equity markets began to rollover recently, we started to see more defensive companies and assets outperform. While the turmoil in markets ultimately engulfed everything, it will be interesting to see if that dynamic re-emerges in coming weeks.
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