How to tariff-proof your investments: These six UK stocks could be a safe haven

Within 100 days of Donald Trump’s election to the US presidency, he managed not only to help send global financial markets into a spin, but also throw into question the future of the current geopolitical status quo.

The S&P 500, which tends to rise in the early days of a presidency, is lower now than it was at the time of the inauguration. When Trump made his tariff announcements on 2 April, the index fell off a cliff.

Elsewhere, most other major indices such as London’s FTSE 100 and Hong Kong’s Hang Seng also tumbled following the announcement.

Not only has Trump’s approval rating slipped to just 45 per cent, from 52 per cent at his inauguration, but data from Quilter shows that a majority, 53 per cent, of fund managers now expect the US to have the worst returns of any region. 

At the time of Trump’s election, these fund managers overwhelmingly expected the US to be the outperforming region.

Tariffs might be paused for now, but in July they could be set to relaunch in full force, and with US equities now accounting for 63 per cent of the MSCI All Country World Index, it is difficult to avoid having exposure to the nation’s firms.

Meanwhile, the US is also the UK’s largest trading partner, with total trade between the two countries worth £314.6billion in 2024 and the US taking some 22 per cent of UK exports. 

This means that choosing to invest closer to home can still mean that you are vulnerable to the whims of US trade policy.

Pivoting away from US exposure could help investors to hedge against the possible negative effects of Trump’s tariffs.

Bet on UK domestic winners

The UK small cap market is cheap and therein lies opportunity.

Chris McVey, deputy head of quoted companies at Octopus Investments, told This is Money: ‘If you look back over the last 25 years, UK small caps have only been this cheap on an Ebit/EV multiple perspective three times in this period, and once was after tech bubble and the other after the global financial crisis.’

This, McVey says, could offer a way for investors to diversify their portfolios away from overweight exposure towards the US.

He added: ‘We should be diversifying and by diversifying we should be buying UK small caps and the UK market in general.’

‘Perhaps some of the larger cap, more global businesses will be more impacted, but we’re focused on UK small and UK growth companies and I think lots of them are well positioned from that perspective.’

McVey says investing in domestic winners that are unlikely to be impacted by happenings across the pond is a way counteract the effects of potential tariff chaos.

Brick producer Brickability Group, for example, holds around a fifth of the UK market share for brick manufacture.

McVey says the firm’s dominant position in the market means that the firm makes a significant margin on managing customer inventory.

He said: ‘This is a stock that traders on about six to seven times price to earnings, so its extremely cheap from a ratings perspective.’

Octopus also highlights Foxtons estate agency, which has refocused its business on lettings in recent years.

McVey said: ‘It has a high-quality lettings book that gives great earnings visibility, but its not ignoring sales… it has started to build back its market share and now has over five per cent.

‘Sales are still modestly loss making but at some point this will swing back.’

In 2024, Foxtons’ sales operating loss narrowed by 58 per cent to £4.1million, from a previous £9.9million loss.

Likewise, Gamma Communications, which offers telecoms-as-a-service, also has strong revenue visibility.

McVey said: ‘These are contracted revenues, meaning it has great cash generation as a result and it’s a stock which I think has been massively oversold over recent months.’

Gamma Communications shares have fallen 24 per cent since the beginning of the year, but has recently upped its dividend.

McVey said: ‘We’re really bullish on the opportunity from here and for the potential of these stocks to rerate and for investors to make significant returns.’

Quality and quantity of UK stock picks

While smaller firms with UK-focused exposure will help to diversify investment holdings away from tariff chaos, investors can also head to the names that will be able to weather any coming storm.

Canaccord Wealth says investors should consider backing quality stocks during tumultuous periods, to make the most of their strong fundamentals and lack of debt.

Simon McGarry, head of equity research at Canaccord Wealth, said: ‘When economic growth slows, investors want companies that have strong balance sheets, consistent earnings and resilient cash flows.’

He added: ‘We have taken a look at quality stocks, those that are seen as a safe haven in times of risk aversion, when investors move to defensive, high-quality names to preserve capital.’

When it comes to UK giants, you can’t get bigger than AstraZeneca.

The pharmaceutical firm, which became a household name during the Covid pandemic, has a market capitalisation of more than £160billion and is that largest listing in the FTSE 100.

McGarry said: ‘With a 25.7 per cent Ebit margin and eight per cent average EPS growth over the past decade, it remains a strong defensive play in the pharmaceutical sector.

‘Its diversified drug pipeline and strong oncology segment make it a compelling investment for long-term stability and growth.’

Fellow FTSE 100 giant Relx is also tipped by Canaccord, with the analytics firm boasting a 34.1 per cent Ebit margin.

McGarry says is a result of its strong pricing power and the scale of its operation.

Relx, the fifth largest FTSE 100 constituent, has posted consistent earnings per share growth over the past ten years.

‘Its stable business model and data-driven services provide resilience, making it appealing for investors seeking reliable growth,’ McGarry said.

McGarry warns that, in part, the movement away from the US comes as a result of concern that the nation’s expensive AI and tech stocks might have a rocky road ahead.

He said: ‘In addition to what’s been happening on a geopolitical level, concerns over high valuations, a potential slowdown in AI-driven demand and a broader shift in investor sentiment away from the more expensive parts of the market have contributed to a rotation out of US equities.’

Despite this, McGarry also tips London-based Softcat which offers IT infrastructure and services.

He said: ‘Softcat has been a standout performer in IT services, with an exceptional 16 per cent EPS growth over the past decade

‘With demand for IT infrastructure and cybersecurity rising, Softcat remains well-positioned for further expansion.’