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.