Gas, guns, and gold – and volatility

Conflict in the Middle East has once again unsettled global markets. Renewed hostilities have rippled through UK and international stocks, while commodity markets have reacted sharply. With attention focused on diplomatic fallout and energy supply risks, investors are facing difficult decisions on how best to position portfolios amid rising energy prices, heightened volatility, and inflationary pressures.

In times like these, diversification becomes paramount. Investors benefit from leaning on genuinely uncorrelated sources of return – assets that can hold their ground, or even appreciate, when broader markets are under pressure. When global flashpoints emerge, it is prudent to revisit traditional defensive buckets: defence-related exposure, energy, gold, and absolute return strategies that can operate flexibly in both rising and falling markets.

Within the resources space, we currently favour the WS Amati Strategic Metals Fund. The fund offers exposure to a diversified portfolio of metals and mining equities, including gold and a range of base metals that are essential to both defence supply chains and the energy transition. These metals are not only strategically important but can also act as a partial hedge when geopolitical tensions drive market uncertainty.

In the energy sector, we have taken a more tactical approach via the iShares World Energy ETF (WENS). This structure allows us to capture potential upside from supply-side shocks and rising crude prices. Energy markets react quickly to shifts in Middle Eastern stability, and a liquid ETF provides the flexibility to adjust positioning as conditions evolve. While such exposure can be volatile, it offers a hedge against both the economic and inflationary impacts of higher oil prices.

Beyond commodities and defence, we continue to maintain broad exposure to safe-haven style assets through bonds and absolute return strategies. In fixed income, the Artemis Short Duration Strategic Bond Fund provides a flexible, short-duration approach aimed at managing interest-rate sensitivity while preserving capital. Absolute return strategies complement this by offering the ability to profit from both rising and falling markets.

For example, the Man GLG Absolute Value Fund focuses on valuation anomalies, pairing long positions in undervalued companies with shorts in those deemed overextended. Similarly, the Premier Miton Tellworth UK Select Fund combines high-conviction UK equity ideas with short positions to dampen overall market risk. These strategies are particularly valuable when volatility rises and the dispersion between winners and losers widens, allowing portfolios to benefit from market dislocations rather than suffer from them.

We also see merit in allocating to alternative strategies such as the Trium Alternative Growth Fund, which aims to deliver returns structurally uncorrelated to traditional equity markets. When correlations spike and conventional asset classes move in lock-step, differentiated alternatives provide an additional layer of resilience. Such strategies are designed to perform independently of broader market trends, offering a stabilising influence during periods of stress.

The key takeaway for investors is that periods of heightened geopolitical risk often require a shift in focus from conventional beta-driven exposures to assets capable of standing apart from market swings. Defence-related equities, energy, precious metals, and flexible absolute return strategies all play a role in creating a more resilient portfolio.

Markets will inevitably react to news and events as they unfold. Having the flexibility to reposition, while retaining a core of uncorrelated exposures, is crucial. It is not about predicting the path of crude oil or forecasting stock indices with certainty, but rather about constructing a portfolio that can navigate volatility, capture opportunity, and protect capital when traditional correlations break down.

In the current environment, balancing tactical positioning with structural resilience is essential. Guns, gas, and gold, together with disciplined absolute return strategies, remain at the centre of portfolios seeking to withstand geopolitical shocks, market volatility, and inflationary pressures. In short, diversification, independence, and flexibility remain the investor’s best tools in turbulent times.

By Darius McDermott, Investment Manager, VT Chelsea Managed Funds