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What does the Iran conflict mean for investors in LV’s Smoothed Managed Funds?
04/03/2026
Adam Ruddle, Chief Investment Officer at LV=,
Facts in this article were correct at the time of writing but may change quickly.
Update in brief:
- Geopolitical tensions spike volatility: Strikes on Iran and retaliatory attacks raise energy supply concerns.
- Markets react unevenly: Energy prices are up, Europe and Emerging Market equities weaker, US equities more resilient.
- Smoothed funds provide stability: LV= Smoothed Managed Funds are designed to help clients ride out short-term market shocks.
What do we know so far?
Geopolitical risk moved sharply back into focus this week following coordinated US and Israeli strikes on Iranian leadership targets, significantly degrading Iran’s military capability. Iran has since launched retaliatory attacks across Israel and parts of the Gulf region, and the situation remains fluid, with markets closely monitoring the potential for further escalation.
For investors, the central concern is not only the immediate military exchange but the risk to global energy supply chains. The Strait of Hormuz, through which roughly 20% of global oil and around a quarter of Liquefied Natural Gas (LNG) flows, remains technically open, but signs of disruption are emerging in shipping routes, insurance pricing and LNG production.
How has the market reacted to the initial conflict?
The initial reaction has been swift, with energy markets leading the move and cross-asset performance reflecting regional exposure to supply risk.
- Energy: Oil prices rose approximately 15% in the immediate aftermath, reflecting concerns over potential supply disruption. Natural gas has been significantly more volatile, at one stage spiking by close to 50% before retracing, as traders reassessed the probability of sustained LNG disruption.
- Equities: Performance has diverged regionally:
- Europe has underperformed, given its relative energy vulnerability - particularly to LNG supply dynamics.
- Emerging markets have also weakened, reflecting both energy sensitivity and broader risk aversion.
- The US market has been comparatively resilient, supported by domestic energy production and more insulated growth dynamics. However, US markets are not immune to the potential inflationary shocks arising from higher oil prices.
- Rates: Rising energy prices have pushed US and European government bond yields higher, particularly at the short-end, as markets adjust to increased inflation risk.
- FX & Safe Havens: The US Dollar has modestly strengthened; whilst gold initially rallied before falling back.
Our portfolio positioning: staying disciplined through volatility
Market volatility has risen, particularly within the energy complex. At this stage, we view the recent moves as a volatility shock rather than a structural supply shock. There are no immediate strategic allocation changes planned.
That being said, recently implemented updates to our Strategic Asset Allocation, together with tactical portfolio adjustments by BlackRock over the last week have proved supportive in this environment. These changes include an increased allocation to gold, a higher weighting to US equities, a reduction in EM equities and a reduction in gilts exposure, which have helped portfolios navigate the initial market reaction. More generally, our underweight in European equities is working effectively as Europe is more sensitive to LNG disruptions.
Contained disruption, not structural shock
Our base case is that this remains a contained geopolitical event, resolved in weeks rather than months. Markets are adjusting to higher energy prices and increased risk, but we do not currently see signs of a sustained supply disruption that would justify broader portfolio changes. The situation is moving incredibly quickly and we consider a broad range of options based on various scenarios.
A more prolonged escalation, particularly one that meaningfully disrupts flows through the Strait of Hormuz, would materially increase inflationary pressures and heighten volatility across asset classes. While this remains a key risk scenario rather than our core expectation, we are actively monitoring developments and assessing potential outcomes.
Supporting client composure in uncertain markets
The VIX, or CBOE Volatility Index1, is widely used as a gauge of market uncertainty, with higher values indicating increased investor concern and risk perception. Periods of elevated volatility, with the VIX on the rise, can still test both portfolio resilience and client confidence
The chart below helps demonstrate that we are indeed living in truly uncertain times, and right in the middle of a prolonged period of heightened fear of market stress. For financial advisers, this creates an opportunity to demonstrate the value of strategies designed to manage risk and deliver smoother outcomes, even during prolonged periods of market stress.
Source: Historical Data for Cboe VIX® Index from www.cboe.com. 02/12/2015 to 02/12/2025 (closing values each day). Pre-Covid market peak of 19/02/2020 used as before/after marker.
The LV= Smoothed Managed Funds provide a practical solution for advisers looking to navigate market turbulence. These funds are built specifically to help manage short-term market shocks, allowing clients to stay invested with greater confidence.
Since launch, the smoothed fund prices have never fallen by more than 0.20% in a single day*. Using a backward-looking mechanism that averages the past six months of underlying fund performance, short-term volatility is absorbed so clients experience more stable returns even in turbulent conditions.
Download our client facing guide to discuss real-world examples of how Smoothed Managed Funds have helped investors through past crises, including the Covid-19 pandemic, the Ukraine conflict, and the US trade tariff periods. This practical resource can support conversations about resilience and long-term confidence in volatile markets.
To read more about our funds, visit our Smoothing explained page.
You can also visit our Adviser Investment Centre to keep up to date with more of our Smoothed Managed Funds updates and timely market insights.
*Correct as at 3 March 2026
Important Information
Investments can go down as well as up. Past performance is not a reliable guide to the future. Smoothing doesn’t prevent losses in long-term falling markets.
Although it’s unlikely, we may, at our discretion, need to suspend the smoothing mechanism to protect our members and our business. This could be required if the underlying daily fund price was less than 80% of the value of the smoothed price, or in other exceptional circumstances. In the rare event we do need to take this step, the fund would typically be valued on the underlying price or, at our discretion, on a daily gradual averaged price (except ISA which would be valued on the underlying price) until smoothing is reintroduced.
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