25 March 2026 (pre-recorded 25 March 2026)
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[INTRODUCTION]
Staci West (SW): Welcome back to the Investing on the go podcast brought to you by FundCalibre. Today we are doing something a little bit unusual for us. We are recording and publishing this episode in the same day because markets are extremely volatile and there’s just a lot happening. So this is going to be a little bit different than maybe our previous market insights.
Today is the morning of the 25th of March and I am joined by Juliet and Darius once again to reflect on what an intense and crazy first quarter it has been of this year. So good morning and thank you both for joining.
Darius McDermott (DM): Morning.
Juliet Schooling Latter (JSL): Morning Staci
[INTERVIEW]
SW: We are a quarter of the way through the year and it has been interesting. Geopolitics have returned to the forefront of markets again and many conversations. The continued conflict in the Middle East has had a big impact on energy markets. And I think it’s probably something we need to delve into a little bit more. So first, can you just set the scene for us? Why is this region so critical for global energy supply?
DM: Yeah, I mean we almost recorded this podcast two days ago, but because things were changing so rapidly, it felt inappropriate to record something that we weren’t sending out for two or three days. The one thing we can tell you is we don’t know what is going to come next because I don’t think anybody really does know.
But the region, the Middle East, the Gulf has all this oil and gas and all the countries that surround it, Iran included, are rich in assets. And one way or the other, all of that oil and gas from the region comes out this area, which I think nobody told of three weeks ago, but now everybody knows as Strait of Hormuz and Iran is currently saying you can’t go through A) unless you pay a tax, or B) if you are ally of the US and Israel, you can’t go through. So the big chunk of the world’s oil and gas is produced in that region and it can’t get out is the simple way of setting the scene.
JSL: Yes. It’s about 20% of the old world’s oil supply goes through the Strait of Hormuz, and you know, consequently, obviously that’s impacted the oil price, which was standing at about $70 a barrel. It moved up to almost $120. And I’m sort of hesitate to mention that it’s back to about $95 today on the news that Trump says he’s negotiating with Iran because of course it could have changed completely by the time we’ve finished talking.
DM: Yeah. And Trump says one thing and the Iranians say another and they’re not overlapping currently. We are in a position where, broadly, oil is around that $100. It’s as Jules says, between $95 and $120 has been the range for the last three weeks. Stock markets have reacted a bit.
Asia, Japan are down around roughly 12% UK and sorry, and Europe, UK around 8% and the US around 3%. That was as close of yesterday. I haven’t checked on stock markets today because you know, they go up, they go down, they do what they do. But oil is the obvious issue that affects and oil leads to concern about inflation and inflation leads to concern about interest rates. And the narrative has changed since the conflict begun because most of those things actually weren’t the leading narrative until the conflict started.
SW: Funny enough, I did check this morning and not only have we seen this kind of broad weakness across equity markets since the conflict began, but now every sector is in negative territory as of this morning. Equities, fixed income doesn’t matter. And as you said, US is down around 3%. That’s from the start of the year and they’re firmly at the kind of end of the table. Two questions with that.
I mean, the first is US, you know, is this just a geopolitical story? Is it just a Trump is going to do what he wants to do? There’s a lot of uncertainty around what he’s going to do when he is going to do it. And so it’s just a natural kind of part of investing in the US at the minute. Or should we just be kind of generally more concerned that the conflict is going to kind of impact the economy at a greater level?
DM: Well, this I think is the golden question. The longer the conflict goes on, the more damage it does. I know that sounds bleeding obvious, but actually it is sort of quite linear. The longer it goes on, the more the oil price or the oil disruption from the region continues, the more it bakes into future oil prices as opposed to just a today’s oil price.
And you know, I think we had an inflation print today in the UK at 3%, which is what it was before that inflation that we’re talking about has not hit the system yet. So it’s what comes next.
I spoke to a fund manager late last week. His parents have been in the US and it was barely making the news that the US had caused or were involved in this major global conflict. It was in the financial news because of course there are financial implications, but it wasn’t the number one story on the US news. And maybe that’s why the US market is the least affected so far.
JSL: Yeah, well, I mean also also the US is kind of a bit more energy independent as Darius says. You know, it really is just totally depends on how long this conflict carries on such a difficult call at the moment. So lots of regions are dependent on Middle Eastern and oil, you know, some more than others.
So for instance, when you look at Japan, you know, most of its, its oil comes from the Middle East, so that’s really serious. On the other hand, it’s got 240 days worth in reserve and actually only 3% of its electricity comes from oil. So it really is just how, how long will will this last, you know, as Darius says, you know, higher oil is obviously bad for inflation. And that leads to lower global growth. And there’s even been talk of a global recess recession today, but that’s a much higher oil prices and the Strait of Hormuz being shut for an extended period.
DM: Yeah, I mean there are things like the price of fertiliser is actually affected by the oil price. So it’s not just filling one’s car up and or the heating of one’s house. Thankfully we’re going from winter to summer. I think if we were in October, this would have a much greater impact on developed nations. The household requirement for oil will be lower in the nicer weather. But the things like the price of fertiliser and that feeds into the price of food. So we’re going to see that second derivative inflation, which has yet to hit the system, even if the conflict finished by the time we’ve done this podcast, that inflation won’t be too bad, but it will have some impact.
But of course there is no expectation, regardless of what Donald Trump might say, that actually that the end is inside. Now we hope it is because of course the whole humanitarian thing, but we are trying to work out the financial implications and position portfolios accordingly.
JSL: I mean, we’ve obviously spoken to a number of managers since the conflict started. And the general feeling is that companies are being cautious, which is understandable. You know, in recent years they’ve dealt with COVID, the Ukraine war, tariffs. And so they’re a bit battle weary and they are sort of shelving investment plans, you know, because they’ve got input costs rising and they don’t know by how much or for how long. So naturally they’re pulling back and they’re not going to do any investment. Well, obviously that’s another impact on global growth.
SW: And I read the other day – sticking with this theme – the Bank of England potentially having four rate increases this year.
DM: Which is a swing from the two expected cuts that we were expecting this year. Big swing.
SW: Yes. So is this just a response, even if it is a rumours response to what we’ve just talked about with what’s happening, what potentially happening, what it could mean, like it’s long term because like you said, no one knows. We don’t know how long it’s gonna to last, but it is a big swing.
DM: Central banks don’t know any more than you or I do Staci. [SW: They wish they did.] Well, the one thing we know is that the Bank of England held rates firm last week and that was unanimous. So there’d been again, a split on the nine strong committee. Some wanted to raise, some wanted to hold, some to cut that at least was unanimous, which is let’s do nothing.
With respect to rates because it would be foolish to cut rates when inflation is staring us in the face and inflation normally leads to rates going up to try and control that inflation to get inflation down. That’s the standard playbook. But as you don’t know the duration of the conflict and nobody does, then it’s impossible to make any actual sensible decision on rates at the moment. So do nothing probably was for the right thing to do.
JSL: And you know, rates are not back as low as they were. You know, when we had that massive inflationary sort of shock post COVID, when inflation got to over 11% you know, rates in the UK they’ve held them at sort of 3.75%. In Europe, they also chose to hold them, but they’re at 2%. So, you know, they’re already well off that zero mark. You know, the government of the Bank of England was saying that inflation could climb to 3.5%. It’s just, it’s really impossible to say at the moment.
SW: Geopolitics, inflation, volatility, it seems like a natural thing to want to talk about some defensive assets for a portfolio. However, we have seen that our normally, traditionally defensive areas like gold for example, have struggled. They haven’t really responded maybe in the way that we would’ve anticipated. So Darius, gold is your baby on this podcast. We talked about it quite a lot in the last two markets updates. So what’s happened? And can it still be defensive?
DM: So firstly, I think the reaction of the gold price has surprised us. We continue to have to learn things I think are important to at least mention. I mean the oil, the gold price had trebled in three years roughly from, you know, $1,600 to over $5,500 The last time I checked was sort of $4,500. So it was already elevated. And the one thing we learned is things that go up a lot can come down. So the valuation or the starting price of gold going into this conflict was elevated. Other things that have happened since the conflict started are that dollar has broadly strengthened and the gold price has reacted badly to that dollar strengthening, whereas in the previous six months, maybe even 12 months, the dollar was weakening and that was at a time when the dollar that the gold price went up. So that has reversed and the starting price was high.
So the question is, is this 20 plus percent fall in the price of gold permanent or or short lived? And again, we don’t know the answer to that, but it had gone up a long way and our exposure to gold had done very well. It has been a drag on the assets or the portfolios which we actually run in the last three weeks and it hasn’t behaved as we might have expected.
JSL: Yeah, I mean, gold is quite liquid as Darius says, it gone up a lot. So you know, investors, you know, when you get an event like this conflict, you know, investors just are looking to perhaps take profit profits from something and something liquid. So that would’ve had an impact. You know, at the margin gold doesn’t yield and if investors are thinking that rates might go up because because inflation goes up, then other assets might look more attractive than gold.
DM: Exactly.
SW: From a defensive point of view, then what other options do investors have for this kind of bucket of a portfolio?
DM: There are things called absolute return funds, which are built to broadly give you returns regardless of market movement. In fact, that’s never quite a strict relationship. Markets are down roughly 10%. Some of the absolute return funds are down three or four in some instances slightly more. But actually we were talking about the Janus Henderson [Absolute Return] fund, which was actually up a little bit. Those are generally defensive plays.
Clearly investing in oil itself, which is as we know gone up but has been extremely volatile. [JSL: Yeah.] Between like $116 three days ago and now sort of just put a $100, that is an obvious play. But in times of crisis, what we generally find is most things correlate and go down. It’s only a matter of what magnitude. The one thing that doesn’t go down, of course is cash. And we have high cash ratings in the funds, which we which we manage and we debate the cash ratings on that multiple times per day. And I think, you know, cash is a defensive asset. Short duration bonds can give some protection.
JSL: Yeah, I was about to say that the short duration bond. I had a look at the sectors since the conflict began, short duration bonds were top of the pops there and they were the only ones that were in actual positive territory.
DM: Yeah because they have that less sensitivity to interest rate and future interest rate expectations. Bonds don’t wait for rates to go up or down. They react on their expectation of rates going up or down the shorter duration. And that means the length of time the bond matures, they have less sensitivity to rates and they have been one of, well, the best performing sector so far since conflict begun.
SW: We are as quickly as possible, seemingly getting to the end of this tax year in the UK, it’s as we said, things are moving very quickly, not just day to day, but during the course of a single day as well. And so perhaps the option is, as you said Darius, to hold some cash use your ISA allowance to top up with cash. You don’t have to make a decision today, but again, you know, if you, if you did want to, to look at your portfolio as we sit today, what are the kind of things that you would be thinking from a positioning point of view? Is it a good opportunity to top up some, some things that may have fallen but you think it’s a temporary fall?
DM: Well the one thing that isn’t affected by the conflict is the end of the tax year, which is the 5th of April. That is not a movable beast. Most all platforms have some form of cash offering, so you can still utilise your ISA allowance and just sit in cash.
The next bucket of risk is what you would call a money market fund, where they basically are investing in cash and cash like vehicles really short dated high quality bonds. They are broadly linked to the interest rate. So you might expect somewhere above 3% type of returns, but then they’re very low risk, then you’re into your short dated bond funds, which over time, you know, they still are collecting their dividends and you know, because they’re short dated, they will mature much sooner. So there are very low risk options whilst trying to eek out some form of return whilst waiting for some level of visibility on what’s happening with the conflict and what that might mean for markets.
JSL: And I mean, I think maybe it helps to just take a look at the long term and think, you know, actually where do I want my money over the next 5, 10, 15 years? When the markets are looking so short term, and don’t forget as well that you can, you can invest monthly. I mean obviously we’re coming to the end of the tax year, but you could put in that lump sum of cash and then just invest on a monthly basis and drip feed it in if you are nervous about where things are heading.
SW: And then just again, my final question to round it out, is there any case argument I guess, for using this to find opportunities?
DM: We sort of mentioned a few numbers, you know, Asia and emerging markets were certainly had we recorded this three weeks ago would’ve been I think at the top of both of our lists for areas to consider. We’ve had a decade of US stock market dominating. We’re not saying that won’t continue, but the dollar weakening is generally good for Asia and emerging markets and they are now 10 or 12% cheaper. So as Juliet says, if you’re taking a very long term view, you are buying you can take exposure. But let’s be crystal clear, these are higher risk, higher volatility markets, which is why they’ve down more than the US areas that I know we still like are the whole technology thing.
It is widely discussed that the Mag7 are on really expensive valuations. Well, on a case by case basis that’s not true. Nvidia is on a forward P/E of just over 20 times and the Nvidia CEO came out last week or the week before and said they’re gonna do a trillion dollars of revenues in the next two years. So there are things if you are prepared to take a long-term view and the one thing that, you know, if you bought anything today, you’ve gotta be able to sleep at night. That further market volatility is likely given the conflict and things may get cheaper. But if you are putting something into your right of the day on the 10/20 year view, I don’t suppose that short term volatility is massively relevant, but do expect it to happen.
JSL: Yeah, I mean I like India. I think for the long term I really like India. It didn’t, it was one of the few things it didn’t actually do so well last year and hasn’t done so well because it does in, you know, in import lot of oil. So that might over the long term look like a good entry point. And I also quite like Japan and with their sort of continuing corporate reform story going on there and you know, again they’ve seen a pullback with the conflict and their oil dependence.
And the other thing is, you know, you can’t beat a good global fund and let the manager worry about where to invest. You know, and if you’ve got invest in a fund such as sort of Montanaro Global Select that invest in quality growth, that’s definitely been unfashionable in recent times. And so, you know, over the longer term we would hopefully be due for a comeback.
SW: Do you think that we’ll see a divergence or rotation or anything between growth and value now following this?
DM: I funnily enough happened to talk to a quality growth fund manager yesterday and quality growth funds and stocks normally trade at a fair premium to the market. They said that quality growth and their fund in particular was at the lowest premium it had been in 10 years to the stock market and in fact touching 15 year lows.
So if the stock market, let’s keep the maths nice and easy. If the stock market trades on 15 times quality growth, say trades on 20, I’m making the numbers up just to be illustrative, they’re now trading at say 16 times. So that premium to the market is as low as it has been for 10 to 15 years. And quality companies do tend to outperform in market wobbles because they tend to be things like healthcare.
Healthcare is not discretionary, it’s a have to have. Food, things, you know, staples that are part of our everyday life that you don’t just decide, you might decide not to go on holiday, you might decide not to have an experience or go to a sporting event or a concert, but you still feed your children and if they need medicine, you still buy it. So those quality types of businesses.
The other narrative which we haven’t really touched on, and I understand why is of course, is the narrative which has been in markets this year, is what we call AI losers and things or sectors or stocks, and it’s been software focused. If AI can replace things, the share prices have been absolutely smashed in the last year. So we would’ve, I think, focused much more on that type of narrative if it wasn’t for the global conflict, which, if it’s not on the US news, it’s certainly in the UK and European news as the front and centre. So maybe when we do our next quarterly podcast, hopefully things might be a little clearer and we can actually get rounds to looking at the other narratives in markets. But some of those quality growth sectors have been affected by what looks like AI losers and they are as cheap relative to the broader market as they’re being.
I’m not sure that answers your question, but in a decade where interest rates were basically zero, all you wanted was quality growth, interest rates, then rose, and all you wanted was value. So I think I would certainly not pick one or other than if you own a quality growth fund, I would not be selling today. In fact, you could make a compelling argument that that’s what you should be buying because value tends to be a bit more cyclical. And if inflation starts to go high, you know, the more risky parts of the market, the cyclical parts of the market tend to underperform. But I think being balanced is probably where you would want to be today.
SW: Fingers crossed that we are not still talking about this conflict in our summer episode. And we’ll have more time to talk about AI and AI losers. So on that note, thank you both for joining me.
DM: Thank you Staci.
JSL: Thanks Staci.
SW: And for more insights and information on the funds and topics that we’ve talked about, including regions, the conflict AI, and much more, please do visit fundcalibre.com. And whilst you’re there, don’t forget to subscribe to the Investing on the go podcast.
