John Gilchrist is the Chief Investment Officer at PSG Asset Management

March was a roller-coaster month for investors. The US attack on Iran set in motion a sharp swing in sentiment, causing volatility that impacted most asset classes and regions. Understandably, this resulted in much anxiety for investors, who saw wild swings in their portfolio valuations. Whenever we find ourselves in the midst of such a crisis, questions inevitably emerge about how we are positioned and responding to the changing environment.

Before answering these questions in the context of the current conflict, it is worth focusing on two of the enduring truths that underpin our process.

Responsible custodians of capital

For us, this means consistently applying our philosophy and proven 3M investment process to build portfolios that deliver on both client return and risk needs. Achieving investment excellence does not happen in a single moment. Rather, it is the outcome of innovative thinking and extensive research, combined with well-designed portfolio scenario analysis and stress testing that takes a variety of possible macro outcomes into account.

Ensuring a portfolio is robust does not happen when a crisis arrives. Rather, it is built over time as we independently research securities using our 3M investment process to identify mispriced quality assets with asymmetric payoffs. It is honed as we debate developments  and is augmented every time we consider the risks inherent in our portfolios, and ask ourselves how likely we are to meet client needs under various scenarios – both good and bad.

A lot of consideration goes into laying the foundations of our portfolios, and we are no less deliberate when a crisis emerges.

Delivering appropriate risk-adjusted outcomes

While volatility is unsettling, we believe it is most important to ensure clients are adequately rewarded for the risks they are exposed to. For equities, some volatility should always be expected as part of the investment journey, since this is an inherent characteristic of the asset class. We believe that by paying careful attention to the price we pay for assets, we can invest at a margin of safety that helps to manage risks in our portfolios. Buying assets at an appropriate price, and combining these assets into robust stress-tested portfolios, should lead to attractive risk-adjusted outcomes for our clients. Conversely, an excessive focus on reducing portfolio volatility can actually increase investors’ risks. For example, in the case of credit instruments or alternative assets that are not frequently marked to market, a lack of volatility may simply be reflective of an illiquid asset, rather than a fair reflection of the risk of the underlying instrument. For multi-asset portfolios, running lower risk asset allocations to reduce volatility can ultimately cost clients significantly through weaker performance in the longer term.

In addition, getting distracted by short-term noise and making poor, emotional investment decisions to minimise short-term pain can come at a high price. Both fund managers and clients are tempted to sell at the height of a crisis, and this often proves to be the worst possible decision, materially impacting clients’ ability to achieve their investment goals. For long-term investors, outperforming inflation and generating appropriate real returns remain the ultimate challenge.

A closer look at positioning entering into the current conflict

Our asset allocation decisions are informed by our bottom-up research and analysis. When shares rally towards our intrinsic values, in the absence of a material change in outlook, we reduce exposure or sell out completely, and redeploy the cash into better opportunities. Following the extremely strong market we saw leading up to 28 February 2026, it should be no surprise that we had reduced our equity exposure across our fund range, and were running relatively high levels of cash. In addition, we reduced our exposure to precious metals (we became constructive on gold and platinum counters in 2024), as excessively strong price action indicated speculative trading was dominating the price formation process.

Similarly, a strong rally in South African nominal bonds prompted us to formally downgrade our conviction in February 2026 – we reduced our exposure to nominal bonds into strength and re-allocated a portion to inflation-linked bonds (which had lagged) across our lower risk funds. We also diversified some South African fixed income exposure to attractive global fixed income markets, including Brazil which offered 10% real yields on 10-year bonds.

Given the strong markets and overall investor complacency, we also held attractively priced derivative hedges across our multi-asset funds.

The graphs below show how the asset allocation in the PSG Balanced Fund has evolved as our views on the relative attractiveness of sectors shifted in the run-up to the conflict.

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Sources: PSG Asset Management​

We have held the view for a number of years that the investment landscape is undergoing a profound recalibration. Our bottom-up research, combined with our macro analysis, has supported the view that we are likely to see a higher inflationary environment going forward than that which we experienced from 2009 to 2021.

Concerns about the energy supply side (underpinned by an under-appreciation of depletion rates and insufficient capital expenditure), combined with the view that the consensus expectation for declines in medium-term demand could be incorrect, supported a constructive thesis on this sector and ensured decent exposure across our funds. In addition, as mentioned in previous articles, we were cognisant of the valuable portfolio role energy exposure could play in the event of a geopolitical shock, particularly one centred on the Middle East.

Taken together, our portfolios entered the current period of instability well positioned to navigate the challenging environment, as was evidenced by the performance across our fund range in March 2026.

Looking ahead

As with any conflict, it is impossible to predict in advance how long it is likely to last, and what the unintended consequences may ultimately be. Few foresaw that the Ukraine/Russia conflict would last as long as it has. The current situation is further complicated by the mercurial decision-making of US President Donald Trump. Threats, escalations and ceasefires follow in short succession, and markets respond violently to the news flow.

We are careful to weigh the impact of each development on our portfolios, and always remain vigilant to signs of market stress that could present risks or opportunities. However, equipping our funds to meet their long-term objectives always remains paramount to us. While we actively seek out opportunities to acquire quality assets at attractive valuations, we also keep an eye on the overall risk levels in our portfolios. We believe caution is currently warranted, given the currently high levels of uncertainty.

Although we prefer to focus on performance over appropriate timeframes, it is pleasing that our funds have so far navigated the volatility admirably. We aim to remain humble, and remind ourselves that the full picture will only emerge with the benefit of hindsight. Our clients can rest assured that we always remain focused on being the best possible custodians of our clients’ capital, and will continue patiently applying our proven 3M investment process to find opportunities in a disciplined and repeatable way.