Given events over the weekend, we expect advisers to have queries regarding our portfolio positioning. Below is our initial assessment of the Iranian situation, and how it relates to fund positioning and our core MPS approach. We will continue to address specific questions as they arise throughout the week.
Market update
Saturday’s US–Israeli strikes on Iran, and the scale of Iranian retaliation – including reported attacks on Gulf state energy infrastructure and the announced closure of the Strait of Hormuz – represent a step change in the risk environment.
From an investment perspective, the key issue is not the immediate market reaction, but what a potentially prolonged conflict could mean for oil prices, inflation expectations and appropriate positioning across asset classes.
How we are positioned
In January, we made tactical asset allocations to US Healthcare, Energy and Utilities. These decisions were driven by valuation. All three sectors trade at meaningful discounts to the broader US equity market on forward earnings and have been largely overlooked during the growth‑ and AI‑led re‑rating of recent years.
Our analysis shows these sectors complement diversification and long‑term return potential.
That valuation and diversification case has not changed. What has shifted is the macro backdrop, which increasingly supports tilts towards these areas. Energy provides direct exposure to a commodity where supply risk has risen materially. Healthcare and Utilities offer earnings streams that are largely uncorrelated with oil prices and with the demand uncertainty that a sustained energy shock could create across more cyclical parts of the market.
These allocations were not made on the basis of a geopolitical forecast. However, recent events reinforce the rationale for holding sectors with tangible earnings, pricing power and valuations that leave room for upside.
Duration: short and staying short
Bond allocations across portfolios remain broadly short duration. This reflects a long‑held view that inflation uncertainty has been underpriced by bond markets.
If oil prices settle materially higher for any sustained period, long‑dated bond yields would need to reflect a higher inflation risk premium. That is not an environment in which we believe longer‑dated bonds are well‑positioned.
Outlook
The stated objectives of the US operation – regime change and the destruction of Iran’s military capability – imply a campaign measured in weeks rather than days. If this scenario unfolds, second‑round effects on inflation expectations and interest‑rate paths could be significant, requiring further adjustment in bond markets.
If the conflict is contained quickly and oil prices retreat, our sector allocations remain supported by valuation arguments that are independent of energy prices. Our short‑duration stance is also grounded in longer‑term inflation uncertainty that existed well before any geopolitical risk premium emerged.
The tactical allocations made in January were designed for a more rotational market environment, within diversified portfolios. That environment has already manifested in 2026, and may be further reinforced by recent events.
Guiding your client conversations
- Reassure clients that portfolios are positioned for uncertainty rather than built around geopolitical forecasts.
- Frame the discussion around inflation, diversification and resilience – not short‑term market moves.
- Focus on outcomes: sector tilts and short duration are intended to manage risk in a higher‑inflation, more volatile world.
- Stay disciplined: no changes are being made in response to headlines alone.
Our AJ Bell Investments Team is constantly monitoring the macro-environment. This enables us to manage our funds and portfolios effectively, and also means we can help you understand what's going on. We hope you found this analysis of the recent events in Iran useful.
