How Trump’s tariffs are re-writing the ISA ‘rule book’

In my opinion, an ISA should contain a number of different stocks to help spread risk across multiple positions. The precise number is often the subject of debate, although there appears to be some consensus that 25-30 is the optimal number. Personally, I think the size of a portfolio needs to be taken into account. After all, any gains from investing £1,000 in 30 different companies are likely to be wiped out by fees.

Warren Buffett, possibly the world’s most famous investor, appears to be more sceptical. At the 1996 Berkshire Hathaway shareholders’ meeting, the American billionaire said “diversification is a protection against ignorance” and argued that it makes “very little sense for anyone that knows what they’re doing”. Taking the argument to its extreme, he pointed out that if an investor owns everything, “nothing bad” will happen relative to the market as a whole.

But as well as holding several stocks, I think it’s important to invest in different types of companies. A blend of defensive and growth shares offers some protection against the cyclical nature of the global economy. Understandably, an individual’s attitude to risk will determine the mix. But those of a more cautious nature are likely to prefer defensive stocks.

One example

And traditionally, that’s why some people have invested in Bunzl (LSE:BNZL), the FTSE 100 international distribution and services group. It sells low-cost critical items. These include cleaning and hygiene products, food packaging, and safety equipment.

According to the DirectorsTalk Interviews website, it’s a “stalwart” of the consumer defensive sector and has “long been a reliable bastion for investors seeking stability amidst market volatility”.

Well, this was turned on its head this week (16 April), when the company’s shares tanked over 25%.

Not as expected

Investors didn’t like the group’s latest trading update which reported a disappointing start to its 2025 financial year. In particular, sales were lower than anticipated in North America. The group also warned of “significant uncertainties relating to tariffs and their impact on inflation and economic growth”.

However, noting that inflation is usually a benefit to the group — an acknowledgement of the stock’s defensive qualities — it said that any potential benefit has been excluded from the updated guidance.

And this last statement makes me think that investors have over-reacted to the news. I don’t think the group’s now worth a quarter less than previously.

It’s still expecting moderate revenue growth for 2025. And looking at the group’s 2024 numbers, the predicted 0.3 percentage point fall in the operating margin is ‘only’ a £33m reduction in operating profit.

To me, this doesn’t justify a £2.5bn hit to the group’s market cap.

But investors don’t like surprises. And until the situation becomes clearer, the group’s share price is likely to remain volatile. However, one benefit of the pullback is that the yield’s been pushed up to 3.3%. However, if the uncertainty persists this year’s payout could be cut. With 31 consecutive years of dividend growth, it would be a shame to end this run.

On balance, I think the stock still has some defensive qualities. And I think now could be a good time for bargain hunters to consider Bunzl. Of course, with President Trump in the White House, I wouldn’t expect a quick bounce back in its share price.

The post How Trump’s tariffs are re-writing the ISA ‘rule book’ appeared first on The Motley Fool UK.

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James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.