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Investing through geopolitical uncertainty
In the last twenty-five years there have been numerous geopolitical events that have led to volatility in markets. Front of mind as we write is clearly the war in Iran, which has caused severe disruptions in oil and gas supplies. Stepping back, however, each geopolitical event brings something to worry about, but the critical question is whether the event is just a source of short-term market noise to be ignored, or a more consequential development that demands action within portfolios.
This article is a follow up to our initial summary of market events from early March.
All geopolitical events are different and require distinct analysis. Most create short-term volatility that is quickly ignored by markets in the callous way that they operate. Some, however, inflict significant damage on the macroeconomic environment, requiring meaningful changes to portfolios. What separates events that cause lasting damage from short-term volatility is their impact on corporate earnings, economic growth, and inflation. What makes these events challenging is that sometimes, they start off terrifying and are quickly resolved (such as the market panic caused by the hedge fund Long Term Capital Management in 1998), whilst others start out as seemingly benign and morph into something far more damaging. What’s critical is having a disciplined process run by an experienced investment team capable of responding as facts change. This often must be done with incomplete information in a highly volatile environment.
Activity within Managed portfolios in March 2026
Earlier this year, several themes performed strongly, including value equities and artificial intelligence opportunities trading at attractive valuations. These areas had delivered strong returns and notable outperformance versus the wider market for portfolios over the past nine months. However, when markets experience a sudden shift in sentiment, positions that have performed well can sometimes move together, even if they are fundamentally different. With that in mind, we took the opportunity to lock in profits and reduce overall equity tracking error. In practical terms, this involved:
Phase I – Tracking Error Reduction
- Reducing allocations to AI-related thematic investments (“AI at a discount”)
- Trimming value equity exposures across EM, US, Global equities.
At the same time, we tactically added exposure to areas where we were previously underweight, including:
- US Mega and Large Cap
- Canadian equities which benefit from higher energy prices
Phase II – Equity Reduction
As it has become increasingly clear that this conflict is likely to continue for longer than President Trump initially envisaged, we have reduced our exposure to equities on a highly tactical basis, with a broad-based reduction across:
- UK Equities
- European Equities
- Japanese Equities
- US Equities
Fixed Income
Fixed income markets have also reacted to the conflict in the Middle East, with bonds selling off as investors reassess inflation and growth expectations. Our positioning within fixed income has been beneficial. Portfolios have been:
- Underweight duration
- Overweight inflation-linked bonds
- No exposure to High Yield (or Private Credit)
This positioning has helped mitigate the impact of the recent move in bond yields.
Alternatives
We sold the small position in UK REITs, which are at risk of higher bond yields and rates in the UK. Gold has been one of the stronger performing assets this year, rising around 8% year-to-date in sterling terms. After the strong rally in January, we reduced our position in gold and gold miners. We are not surprised to see it caught up in a de-risking of global markets. However, we continue to see a strong long-term case for gold as a diversifier within portfolios.
Diversifying assets - adding downside protection
Given the range of possible outcomes from the current geopolitical situation, we have also taken steps to enhance protection against extreme market events within portfolios by adding to our position in the Goldman Sachs Tail Risk Strategy. This provides an additional layer of protection in the event of a sharper equity market decline while allowing us to maintain exposure should markets recover.
Looking ahead
This is clearly a fast-moving situation which we are monitoring closely, and we will continue to adjust portfolios to ensure they reflect our views on the prevailing market conditions.
If you have any questions or concerns about your investments or your future plans, don’t hesitate to get in touch with your TPO Adviser or contact us through our website.
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This information in this article is correct as at 30/03/2026.
This market update is for general information only, does not constitute individual advice and should not be used to inform financial decisions. Investment returns are not guaranteed, and you may get back less than originally invested; past performance is not a guide to future returns.
