Key Takeaways:
- Markets have moved in bursts as the Strait of Hormuz has opened and closed, keeping energy prices and volatility sensitive to each shift in supply risk
- Active managers have moved from initial reaction to more measured positioning, adjusting incrementally rather than repositioning portfolios broadly
- Energy underweights are being reduced as supply risks remain unresolved despite periods of reopening
- Positioning changes are concentrated within sectors, particularly where companies are most exposed to energy costs and supply chain disruption
- Earnings and margin trends will guide the next phase of positioning as the impact of higher energy prices becomes clearer
The Iran conflict has turned energy markets into a moving target, with oil prices adjusting as expectations around Strait of Hormuz supply risk shift. The initial market shock drove a sharp repricing in oil and a pickup in volatility, but the focus has since shifted to how long disruption risks persist and what that means for inflation, interest rates, and global growth.
What we’ve seen from active equity managers in the initial weeks is a more measured response than the market reaction might suggest. While oil prices and volatility have moved quickly, portfolios have not been broadly repositioned. Instead, managers have focused on where the impact is most visible — across energy exposure, input costs, and supply chains — while keeping overall market positioning relatively stable.
What stands out is where activity is happening. Managers are not changing the top of the portfolio, but they are adjusting exposures underneath it, particularly in areas tied to energy, input costs, and supply chains. That shift matters because it is these channels that will drive earnings and differentiate outcomes.
Energy markets and portfolio positioning
Energy has been the most immediate transmission channel, and it is where positioning has evolved most clearly. Many managers entered the year underweight based on expectations of surplus supply. As risks around the Strait of Hormuz have persisted, those underweights are being reduced.
The adjustment remains measured. Managers are not broadly moving overweight, but they are closing gaps in exposure to avoid being structurally under-positioned if higher prices hold. In some cases, this includes selective additions to more resilient areas such as U.S. producers and midstream infrastructure.
Energy is now being treated less as a tactical call and more as a portfolio input that influences inflation, rates, and margins, which is changing how managers think about overall portfolio balance.
Sector positioning and second-order effects
As the conflict has progressed, the focus has shifted toward second-order effects. Managers are making changes within sectors based on exposure to energy costs rather than rotating broadly across sectors.
Companies with higher input sensitivity, including chemicals and industrials, are being reassessed based on their ability to manage rising costs. Managers are maintaining or adding to companies with pricing power, while trimming exposure where margins appear more exposed.
At the same time, exposure to areas such as airlines is being reduced in some portfolios, while themes tied to energy security, defence, and infrastructure are gaining weight. This is where differentiation is increasing, as outcomes depend more on company-level characteristics than sector direction.
Supply chains and earnings season
Supply chain risk remains a key focus, particularly given the Strait of Hormuz’s role in global trade. The recent back-and-forth around whether the strait remains open has reinforced how quickly disruption risk can change, even if material bottlenecks have yet to emerge.
That uncertainty is shifting attention to earnings as the next real test. Managers are looking to see where supply chain resilience holds up and where it doesn’t — how higher energy costs are flowing through margins, which companies can absorb or pass on those costs, and where pressures begin to show.
For now, we are seeing managers keeping optionality and adjusting incrementally as more information becomes available.
Investor Implications
Several weeks into the conflict, portfolios are not being repositioned at a headline level, but they are changing underneath. Energy exposure is moving closer to neutral, and positioning within sectors is becoming more selective, particularly where cost pressures are building. This suggests outcomes will be driven less by market direction and more by how portfolios are exposed to pricing power, cost structures, and supply chain risk.
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