Although it was signposted by the build-up of US naval forces around the Middle East, the attacks by Israel and the USA against Iran are still shocking. A war is now unfolding in the Middle East, and at the time of writing, this war is escalating. We can think about the war in terms of people, or geo-politics, or in economic terms. From an investment perspective, we need to consider the economic, political and market implications of recent events and likely future events. We also need to consider the behaviour of other investors. None of this is easy.
Perhaps the first thing to recognize is that a lot is unknown. Amidst shifting explanations from US politicians on even the reasons behind the attacks on Iran, it is difficult to predict the path of this war, or its knock-on effects. In recent years, geo-political shocks have tended to have a limited impacts on asset prices, and many investors have ‘learned’ to buy risky assets on market dips caused by political change or conflict. But there is no guarantee that this pattern holds in the long-term.
So, should investors react to recent events? The answer depends on your situation, but for most individual investors, it’s important to recall why you’re investing. It is probably to meet long-term goals, and that means being invested in a diversified portfolio of assets for the long-term. Market timing is hard enough, and trying to time market moves during a period of heightened uncertainty is exceptionally difficult. If you already hold a diversified portfolio of assets and have a risk conscious investment manager, you’re probably in a good place. Looking at the Blackwood portfolios, it’s clear that they are well diversified: they hold a broad spread of shares around the world, plus bonds and a series of alternative investments including gold, commercial property and managed futures. This diversification is valuable. And the portfolio manager is risk-conscious. You can see this clearly through the bond portfolio, which is focused on the safest of bond assets: short-dated government bills and bonds. As investors worry about the risk of inflation and credit shocks through war, the Blackwood bond portfolios are well positioned. You can also see the manager’s risk awareness in the equity portfolio. Some investors are currently focused on a small number of very large US technology shares. Blackwood portfolios, by contrast, hold plenty of broad index exposure, and in the US also hold a set of equal-weighed index trackers, where each of the 500 largest US firms get the same exposure in the fund. This reduces concentration risk.
So, in summary, the Middle Eastern war has shocked investors. We can’t predict what will happen next and, as a result, reacting to newsflow is fraught with difficulty. If you have long-term investment goals, then owning a well-diversified portfolio that is managed by a risk-conscious manager should be a sensible position to hold. And as events unfold and markets shift, we aim to keep you well informed.