A growing number of defined contribution (DC) master trust providers are reassessing their US equity allocations as a result of the recent tariff-driven market volatility, research from Isio has revealed. 

The Liberation Day tariff announcement at the start of Q2 sparked a sharp equity sell-off as investors moved into safe-haven assets.

Although markets rebounded quickly when most tariffs were suspended, Isio found that the volatility had already highlighted ongoing risks for DC schemes heavily weighted to the US market.
 
Isio's survey of 12 major UK DC master trust providers showed that, in Q2, more providers reduced their US allocations, reflecting concerns over tariff uncertainty, potential dollar weakness, and concentration in a small number of richly valued mega-cap growth stocks. 

Although the US continues to dominate global indices, Isio pointed out that its weighting is significantly higher than its share of world GDP, prompting a broader reassessment of strategic equity exposures.
 
However, Isio clarified that, despite the initial turbulence, growth phase portfolios recovered strongly as equities bounced back.

And whilst Isio said that there is value in the discussions emerging this year around growing scrutiny of US exceptionalism and its implications for strategic equity allocations over longer timeframes, it also stressed the need to remember that members who are decades from retirement benefit most from long-term investment discipline, warning that reacting impulsively to short-term shocks risks undermining compounding returns.

The research also highlighted the importance of diversification, reveakubg that all the retirement-phase strategies Isio assessed delivered positive returns in Q2.

Despite material differences in asset allocation, Isio found that performance was clustered within a narrow range, underlining the resilience of diversified portfolios in volatile conditions.

According to the provider, the most diversified at-retirement strategy recorded the strongest performance, demonstrating the value of spreading risk appropriately to protect members’ outcomes.
 
Isio director, Sukhdeep Randhawa, highlighted these findings as a reminder of two key principles for DC investing: "don’t panic in the growth phase and diversify appropriately in retirement".

"While tariff turmoil sparked short-term market shocks, the bigger picture is that providers are now reconsidering how much reliance they place on US equities over the long-term," he continued.

"For members, it is clear that strategies built for discipline and diversification remain best placed to deliver resilience and long-term value.”

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