Trump’s 25% auto tariff: Should mutual fund investors with exposure in auto funds be worried?

President Donald Trump's proposed 25% tariff on auto imports has ignited discussions among investors and analysts, particularly concerning its potential impact on mutual funds with significant holdings in automotive stocks. This tariff, aimed at bolstering domestic automotive manufacturing, could lead to increased costs for auto manufacturers.

Consequently, the profitability and stock prices of companies within the automotive sector might be adversely affected, thus impacting mutual funds heavily invested in these stocks.  As auto companies encounter heightened import costs, these funds could experience a downturn in value.

The potential for diminished profitability within the automotive sector may prompt fund managers to reconsider their investment strategies, possibly reducing their allocation in auto stocks to mitigate potential losses. Mutual funds, which typically spread risk across various sectors, may need to rebalance their portfolios to guard against potential losses in the automotive sector. 

Funds in focus

Five notable funds — SBI, HDFC, ICICI Prudential, UTI, and Bandhan — are tapping into this theme with high allocations to auto stocks and logistics-related businesses.

While SBI’s fund maintains the highest exposure to auto stocks (96.98%), Bandhan has the lowest (71.37%), indicating varying degrees of diversification across logistics and mobility ecosystems. Common holdings across most funds include Maruti Suzuki, Tata Motors, M&M, TVS Motor, and Eicher Motors.

Source: PersonalFN

Financial experts suggest that investors should closely monitor developments related to the proposed tariffs and their impact on mutual funds. As markets adjust to potential new tariffs, active management of investment strategies will be crucial.