Tariffs Take Toll: How Trade Policies Are Redefining Investment Landscape

In recent weeks, global financial markets have faced significant turbulence due to sweeping tariff announcements. This economic upheaval has left investors scrambling to adjust their strategies and mitigate potential losses. Among the hardest hit are several mutual funds and ETFs that have seen substantial declines in value. In this article, we'll explore the impact of tariffs on the stock market and identify the funds that have suffered the most.

Understanding Tariffs and Their Impact

Tariffs are taxes imposed on imported goods, and they can have widespread effects on both the economy and financial markets. The tariffs announced in early April 2025 have escalated trade tensions and led to a sharp decline in stock values. These tariffs have raised the average effective U.S. tariff rate to 22.5%, the highest since 1909[2]. This drastic increase is not only affecting domestic markets but also influencing international trade dynamics.

Key Tariff Announcements

Several key tariff policies have been implemented in 2025, including:

• 20% Tariff on Chinese Imports: This tariff has been in effect since February 4 and increased further on March 4.
• 10% Tariff on Canadian Energy and Potash: Announced on April 2, this tariff targets specific Canadian imports.
• 25% Tariff on Mexican and Other Canadian Imports: Implemented on March 4, with exemptions for U.S. content.
• 25% Tariff on Automobiles: Announced on April 3, with U.S. content exemptions.
• 25% Tariff on Steel and Aluminum Imports: This tariff began on March 12[2].

Funds Hardest Hit by Tariffs

The recent tariff turmoil has disproportionately affected certain types of funds, particularly those focused on small-cap stocks and innovative technologies.

Mairs & Power Small Cap Fund

The Mairs & Power Small Cap Fund has underperformed significantly during the tariff crisis. Its portfolio includes companies heavily impacted by trade policies[1].

ARK Innovation ETF (ARKK)

ARKK is known for its focus on transformative technologies like AI and biotechnology. Stocks like Tesla (TSLA), Roku (ROKU), and Roblox (RBLX) have been key holdings, but these companies have seen significant declines in the wake of tariff announcements. On April 3, Tesla fell nearly 5.5%, while Roku plummeted 15.6%[1].

Morgan Stanley Institutional Discovery Fund (MPEGX)

This fund also emphasizes growth and speculative companies. Its top holdings, such as Cloudflare (NET), have suffered heavy losses, contributing to a nearly 8.7% decline in the fund's value on April 3[1].

Strategies to Mitigate Losses

Given the volatility caused by tariffs, investors should focus on diversification and strategies that historically perform well during economic uncertainty.

Diversification Across Asset Classes

• International Exposure: Non-US equities have held up relatively better than domestic stocks. Funds like Federated Hermes International Strategic Value Dividend and Invesco S&P International Developed Low Volatility ETF have even seen gains[1].
• Value Stocks: Historically, value investments outperform growth stocks when interest rates are between 4% and 5%[3].
• Low Volatility Funds: ETFs like Invesco S&P 500 Low Volatility and iShares MSCI USA Minimum Volatility Factor have reduced losses compared to the broader market[1].

Conservative Investments

• Dividend-Focused Funds: These funds tend to offer more stability and often perform better during market downturns. Examples include American Century Equity Income and ClearBridge Dividend Strategy[1].
• Bonds: While bonds may struggle during rising interest rates, they can stabilize once rates peak. Broadening bond exposure can help manage risk[3].

Economic Impacts of Tariffs

The tariffs implemented in 2025 have significant economic implications beyond the stock market.

Consumer Impact

• The price level increase due to all 2025 tariffs amounts to 2.3% in the short run, resulting in an average household loss of $3,800[2].
• For low-income households, the impact is more pronounced, with losses reaching $1,700 annually[2].

GDP Growth

• U.S. real GDP growth is projected to be 0.9% lower in 2025 due to the tariffs, translating into long-term economic losses[2].

Conclusion

The recent wave of tariff announcements has sent shockwaves through financial markets, particularly impacting funds with exposure to small-cap stocks and innovative technologies. As investors navigate this challenging landscape, focusing on diversification, conservative strategies, and understanding broader economic impacts will be crucial for mitigating losses and positioning for future growth.

By considering these factors and adjusting investment strategies accordingly, investors can better navigate the complexities of today's market and find opportunities for resilience amidst uncertainty.