According to Dorian Carrell, Head of Multi-Asset Income at Schroders, ongoing geopolitical conflicts and monetary policy shifts are causing repeated market volatility and widening performance disparities among assets. In this environment, the advantages of adopting a global total return strategy are becoming increasingly evident. In equities, rather than broad market exposure, selective investment by region and sector is growing in importance. Carrell recommends reducing emphasis on the US market while increasing focus on Europe and Japan.
Sector allocation plays a critical role, with growing interest in software, financials, energy, industrials, and raw materials. A more cautious stance is advised toward market segments where strong growth expectations are already fully priced in. Managing overall equity exposure while considering broader portfolio risks helps balance cyclical opportunities and risks amid macroeconomic and geopolitical uncertainty.
Carrell noted that recent escalations in Iran-related conflicts are accelerating the formation of a more fragmented, inflation-sensitive global landscape. In this new paradigm, supply chain disruptions, divergent fiscal paths, and reduced central bank coordination are gradually replacing the synchronized, low-inflation pre-pandemic macroeconomic environment and increasingly driving market trends.
Energy markets remain a key factor in these trends. The Strait of Hormuz, a critical international passage handling about 20% of global oil supplies, remains highly sensitive to regional disruptions. Nonetheless, given the economic and political costs involved, the base-case scenario anticipates a gradual de-escalation of tensions involving Iran. While the U.S. may declare its primary military objectives achieved and retain leverage to encourage restraint, the risk of renewed conflict cannot be ruled out.
A second scenario involves a prolonged stalemate, which could materialize in the short term. Even if bombing ceases, a lack of diplomatic solutions, Iran’s use of drone attrition tactics, and potential reluctance among ship crews to return to the strait may prolong energy supply disruptions for weeks or months. In this case, commodities, energy, short-duration bonds, and the U.S. dollar would be favored.
A third scenario entails further escalation, potentially involving Iran’s proxies, direct Gulf state involvement, and oil prices sustaining above $100 per barrel for an extended period. Such intensified inflationary shocks could eventually trigger a global economic slowdown, initially lowering overall interest rates and benefiting government bonds, the U.S. dollar, and defensive equities.
Schroders believes that while regional tensions—particularly between Israel and Lebanon—may persist, the overall trajectory suggests the situation could remain contained rather than continuously escalating.
From a regional perspective, the U.S. appears relatively insulated in energy terms, as it produces its own natural gas and is the world's largest oil producer. However, rising oil prices have already begun pushing up U.S. gasoline prices, potentially triggering broad-based negative consumer sentiment ahead of the November midterm elections. Polls suggest the House of Representatives, and possibly the Senate, may shift to Democratic control. Such an outcome could lead to policy gridlock in the U.S. and prompt markets to reassess its growth outlook relative to other regions.
In fixed income, Schroders continues to emphasize selectivity in pursuit of stable returns, favoring regions and sectors with stronger credit quality and shorter durations in the current inflationary and yield-spread environment. European high-yield bonds are generally viewed as more resilient than their U.S. counterparts. In emerging markets, local currency bonds are preferred due to attractive real yields and lower reliance on external financing.
Securitized assets and high-quality Australian credit remain supported by valuations, policy credibility, and structural factors, presenting investment opportunities while maintaining liquidity for gradual deployment as opportunities arise.
Convertible bonds are often regarded as an ultimate multi-asset class, offering flexibility to participate in growth themes while managing downside risk—particularly useful during heightened equity volatility. Outside the U.S., Asian convertible bonds stand out due to attractive valuations, allowing investors to access structural growth areas like semiconductors and artificial intelligence with a more balanced risk profile. Issuance trends, including a revival in Japanese market activity, are expanding the range of investable options. In strategies prioritizing risk control and optionality, convertible bonds are often favored over equities.