As tariffs send markets backwards, the hunt for income returns

Sharemarkets have gone backwards since the election of Donald Trump as President and your dividend income is sliding too. So what can you do to arrest this?

All of the market gains made since the election of Donald Trump as US President have vanished. Picture: AFP

Phoosh! … Is that the sound of air coming out of the sharemarket balloon? All of the gains made since the election of Donald Trump have vanished: the US and Australian sharemarkets are now down for the year to date.

If you have been sitting back watching the money roll into your exchange-traded funds thanks to the rising tide of last year, 2025 is looking very different.

In a word, the issue is tariffs: It turns out Trump wasn’t kidding, the global sharemarket is suddenly faced with a potential unwinding of the world order as we knew it.

And the backlash from the markets will come. In fact, it could be argued it has already started.

Here’s a blast from the heart of Wall Street – from David Kelly, chief global strategist at JPMorgan Asset Management, no less: “The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine.”

And that’s the succinct version!

Keep in mind we started the year with the consensus that the ASX might end 2025 flat and the US markets would gain about 8 per cent. Just now, that looks a challenging target.

Most institutional investors still support Trump, believing his agenda ultimately will spur global markets to new heights.

Franklin Templeton fixed income CIO Sonal Desai says: “Most of the action so far has been on tariffs and DOGE [the US government efficiency drive] … We have seen less concrete progress on deregulation and tax cuts, the key to boosting economic growth and containing inflation.”

As my colleague David Rogers pointed out in The Australian this week: “Despite the barrage of tariff headlines this week, culminating in the start of 25 per cent tariffs on Mexico and Canada and an additional 10 per cent tariff on China, there have been increasing technical signs of a bottom in the US and Australian stockmarkets.”

Perhaps, but if you are worried about sharemarkets and the great unknown of a tariff war, there are also plenty of gloomy indicators if you look in the right place. The ASX just fell below the key “technical” level of 8000 this week.

Meanwhile, tariffs or no tariffs, there is the distinct possibility of a US recession. The US has an inverted yield curve – a red light.

The one thing we can say for sure is that the investment news so far this year could only make a cautious investor more cautious still.

The issue for Australian investors, working very much in the shadow of Wall Street (and invariably running far behind it), is that if the US markets continue to fall, there is little chance the ASX will avoid a follow-on.

What’s more, Australia share investors have always worked on the assumption that our market is cushioned by a high dividend yield between 4 per cent and 6 per cent. That assumption is now under threat, with the dividend yield running at about 3.6 per cent after a surge in share prices and some major dividend cuts from miners, as well as ANZ in recent months.

Where to turn? The slide in the dividend yield comes at the same time as savings rates are also on the slide following the first RBA rate cut in four years. Property trusts are being put forward as a potential replacement for the everyday investor – but they don’t offer franked dividends, only “distributions”.

Into this scenario comes a range of providers promising to deliver new answers in the hunt for income – the majority of attention so far this year has been to new initiatives in private equity and private credit.

For the traditional Australian investor, heavily weighted towards local franked shares and cash deposits, it’s quite a jump into “renewable energy or special opportunities”.

The more established alternative is to pay someone else to find income in familiar markets. Leaders in this group have included operators such as Don Hamson and the Plato Income Maximiser funds, which hunt and squeeze every last drop out of the dividends available in the local market.

This week a new entrant set up shop close by. Geoff Wilson, another leader in the local funds market, launched a $510m similar-sounding “income maximiser” fund, though this product extends beyond shares into debt. The Wilson fund aims to return the RBA cash rate plus 2.5 per cent and franked dividends – that would work out “grossed up” at 6.6 per cent on current variables.

Investors will have to find new income to replace the payments sliding away from shares and cash. They may also have to anticipate much less rewards in terms of capital gains than in recent years.

Don’t worry, the market will always provide new answers – it’s up to the individual to choose the source of new income, but the former game of sitting on a rising tide looks over.

James Kirby hosts the twice-weekly Money Puzzle podcast

Originally published as As tariffs send markets backwards, the hunt for income returns