Despite rapid moves in oil prices and the broader market, equity managers have kept overall positioning mostly stable, according to Russell Investments.
In the first weeks of the Iran war – now two months on from its 28 February onset – active equity managers have taken a more measured approach than market reactions might suggest, according to Russell Investments senior analyst Chris Banse.
While oil prices and volatility have moved quickly, with Brent crude climbing back above US$100 a barrel this week amid ongoing Strait of Hormuz supply concerns, Banse said portfolios have not broadly repositioned to the conflict.
Rather, he said managers have been focused on effects bubbling beneath the surface, concentrating on where the impact is most visible.
“What stands out is where activity is happening. Managers are not changing the top of the portfolio, but they are adjusting exposures underneath it, particularly in areas tied to energy, input costs, and supply chains.”
According to Banse, that shift matters because it is these channels that will drive earnings and differentiate outcomes.
“Companies with higher input sensitivity, including chemicals and industrials, are being reassessed based on their ability to manage rising costs. Managers are maintaining or adding to companies with pricing power, while trimming exposure where margins appear more exposed.”
At the same time, he noted that selective de-risking is still occurring.
For instance, exposure to areas such as airlines is being trimmed in some portfolios, while exposures linked to energy security, defence and infrastructure are gaining weight. MLC portfolio manager Anthony Golowenko recently told Investor Daily the firm sees global listed infrastructure as “really constructive” in the current environment.
Overall, Banse said the market response is shifting away from headline volatility toward company-level micro drivers.
“This suggests outcomes will be driven less by market direction and more by how portfolios are exposed to pricing power, cost structures, and supply chain risk.”
Australian manager response
Speaking to Investor Daily, Banse’s Sydney-based colleague and senior portfolio manager Alex Cousley agreed that Australian managers are also not materially shifting positioning in response to events in Iran.
“Most see the inflation as being short-lived and don’t want to be too reactionary to potentially short-dated geopolitical events,” Cousley said.
This is despite the war continuing well beyond US President Trump’s initial four-to-five-week timeline, and Australia’s headline inflation accelerating sharply in March, with annual CPI rising to 4.6 per cent in the first full month of data since the war began.
He added that, alongside Iran, domestic managers are also contending with performance headwinds as funds tighten tracking error in response to the Your Future Your Super (YFYS) performance test which was introduced in July 2021. Since its introduction, YFYS has required super funds to undergo an annual performance test, with critics arguing it has channelled more money toward larger players and contributed to return concentration.
Looking ahead, Cousley said most managers “continue to believe that the opportunity set is best outside of the top 20 names”, a view that also aligns with recent comments from Golowenko.
Meanwhile, he added that another notable theme has been the sell-off in software stocks amid fears AI disruption could challenge existing business models, with growth managers remaining selective but also noting some of the moves now look overdone.
Asked whether managers are broadly aligned with global peers at present, he said global managers are instead looking more towards the Australian model.
“If anything, global managers have come to the Australian style of market – looking at more resources etc. The other key theme that is consistent is the search for companies that have durable profit margins and competitive moats with the advancing adoption of AI.”
