Staying active essential amid ‘fog of war’: Schroders

Yasmine Raso

Senior Journalist

30 March 2026

Schroders has made several moves to adjust its position across asset classes more defensively, as the conflict in the Middle East continues to fuel energy shocks that are impacting global economies and investment markets alike.

Sebastian Mullins, Head of Multi-Asset & Fixed Income at Schroders Australia, confirmed the investment manager had downgraded its overall position on equities to negative; it remains neutral on the US as the “least dirty shirt in this scenario”, while Europe and Japan were downgraded to negative and emerging markets (EM) downgraded to neutral as the most susceptible regions to higher oil prices and supply constraints.

“It is hard to have strong conviction in the fog of war. While most will tell you to look through geopolitical events, the spike in the oil price and the energy supply constraints will have an impact on the economy and thus asset prices,” Mullins said.

“While the outcome of the war remains uncertain, the longer the Strait of Hormuz remain shut, and as long as the conflict includes targeting energy infrastructure, the more the impact will be felt across the world. Closing the Strait removes 20mb/d of supply, which is around 20 per cent of global demand.

“The US is perhaps most insulated from these events, given its domestic energy supply and limited reliance on the Strait, but regions like Asia and Europe will feel the drop in supply more acutely. However, if the worst outcome of a second wave of inflation is realised, a 2 per cent increase in inflation is enough to wipe out real spending.

“But the longer the war drags on, the higher the oil prices rises and the longer supply of oil is restricted, the more of an economic disaster this could become.”

Mullins said current market conditions against a backdrop of geopolitical tensions warrant an active approach, as active managers have the ability to “adjust exposures as the facts on the ground evolve and as markets reprice the path for inflation, rates and risk assets”.

“Credit spreads have started to widen. The current conflict has pushed spreads wider still but could have much further to widen if this escalates.

“Given the impact on the conflict on Europe and Asia, we have downgraded EU credit (both IG and HY) from neutral to negative. We have therefore downgraded EM local currency bonds to neutral, as they still have attractive real yields, but the ability to cut will be delayed.

“We have also downgraded EM corporates from neutral to negative. We remain neutral on securitised given the link to consumers, house prices and the likelihood of higher rates if inflation reaccelerates. We continue to prefer Australian corporates, given their higher quality and lower average duration.

“We remain negative on duration. Now that inflation may be reaccelerating due to higher oil prices, this puts central banks in a bind. We continue to prefer Australia duration given it already has the most hikes priced and has already been hiking.

“Inflation linked bonds have done the best and will continue to do well in this environment, until the conflict is over. As yields continue to move higher, there will be a time to buy duration.”

Mullins also noted the firm’s position in embracing more “quality and effective hedges” to mitigate portfolio vulnerabilities.

“We have upgraded the US dollar (USD) to positive from neutral, as one of the few hedges in this environment. We have therefore downgraded the Euro (EUR) to negative given the impact oil will have on its economy,” he said.

“We remain neutral on the Japanese yen (JPY) and the Australian dollar (AUD). We continue to hold no gold in the portfolio and instead prefer broad commodities, which gives us access to energy but also agricultural commodities.”