After the two-week ceasefire between the US and Iran caused oil prices to slide, wealth managers discuss their preferred asset allocation, highlighting the need for diversification and a preference for gold in an uncertain environment.
Dr Luca Bindelli, head of investment strategy at Swiss private
bank Lombard
Odier, says he prefers quality assets and gold in an
uncertain geopolitical environment.
“History underscores the importance of maintaining resilient and
diversified portfolios in response to an uncertain geopolitical
and macroeconomic landscape. We favour quality assets and gold,”
Bindelli said in a note. “We continue to see diversification
benefits in gold. We expect the yellow metal to recover further
after its recent consolidation, as US dollar strength fades and
markets start to reverse recent monetary policy tightening
expectations.”
In risk scenarios, gold’s role as a store of value and hedge
against geopolitical risks and policy uncertainty becomes more
pronounced. Historical geopolitical shocks show that gold
performs best either when real rates fall sharply or when
confidence in major currencies is challenged, Bindelli
added, These conditions would prevail in a ‘stagflationary’
context, and even more so in a recessionary scenario. He believes
that gold should therefore provide diversification under
inflation as well as growth shock scenarios. Bindelli maintains a
small gold overweight in portfolios.
Aakash Doshi, global head of gold strategy at State Street
Investment Management, also said that oil price volatility may
create short-term noise, but ultimately reinforces the regional
supply/demand dynamics that will increase the value for gold in
the medium term. He highlighted the resilient gold demand
trends in China, even in this high-price regime.
Bindelli”s stance was echoed by Mark Haefele, chief
investment officer at UBS
Global Wealth Management, who said uncertainty about the
Middle East ceasefire has prompted swings in equity markets. He
continues to recommend that investors diversify their portfolios.
Haefele has advised investors to be mindful of the potential risk
of re-escalation, and to diversify their portfolios with quality
bonds, gold, and broad commodities.
The conflict has had a sharp impact on oil prices in the first
quarter of the year, causing them to surge and recently
fall. It has highlighted both the vulnerability of the energy
supply system and the lack of strategic reserves for many
countries. Whatever the outcome, Malcolm Melville, fund manager,
commodities at Schroders, believes that
these events have raised the long-term floor for the oil price.
Other wealth managers like Edmund Shing at BNP
Paribas Wealth Management believe that the increased need for
energy security has
accelerated the energy transition. Shing is still positive on
the outlook for gold and emerging market equities, despite
volatility arising from the conflict.
Equities, fixed income
Lombard Odier’s portfolios are neutral in equities and fixed
income. In Bindelli’s base case, he expects equities to play a
valuable role in portfolios; he favours quality and
resilience. Within equities, Bindelli retains an overweight
position in Japan, where he sees an opportunity for
valuations to rebound if the oil price normalises further. Within
emerging markets, he prefers South Korea and China, and
information technology among sectors. He balances these exposures
with a preference for high-quality dividend stocks, and
additional sector preferences for healthcare and utilities.
Haefele also believes that the secular trends of AI,
electrification, and ageing demographics remain, and that
exposure to structural opportunities is key in long-term wealth
accumulation and preservation. He remains positioned for
medium-term upside in equities.
Within fixed income, Bindelli remains underweight in government
bonds and overweight in emerging market hard currency bonds. At
this stage, he believes that US government bonds are unlikely to
provide strong portfolio diversification. He prefers short-dated
maturity bonds in the US and selective exposure to UK and
Australian bonds where valuations are attractive. He retains a
preference for emerging market bonds denominated in US dollars
over developed market sovereign bonds.
Meanwhile, Haefele sees appealing risk-reward in short-duration,
high-quality eurozone bonds, which offer attractive yields
and resilience if growth concerns intensify. He thinks further
easing should support the performance of equities in the medium
term, and continues to favour quality bonds.