Performance in Q1 followed two contrasting trajectories. The quarter began with equities extending their year-end rally through February, but this optimism was upended in March. The launch of attacks on Iran by U.S. and Israeli forces led to the effective shutdown of the Strait of Hormuz, a vital artery for global oil. This development triggered a spike in market volatility as investors re-priced assets against a backdrop of rising energy costs and heightened geopolitical risk.
Equities
Global equities experienced their worst monthly return since 2022, falling 6.8%, with markets most acutely exposed to energy prices, such as Japan and the broader Asian region, seeing the steepest declines.
Europe equities sharply sold off as whilst less dependent on the Strait of Hormuz than Asian economies it does remain vulnerable to price shocks and supply disruptions with close to 60% of energy needing to be imported.
Performance across the UK equity landscape was bifurcated. Large-cap companies benefited from their international reach and the presence of major oil and gas producers, allowing them to outperform the broader market. In contrast, domestically focused small-cap equities underperformed, as their heightened sensitivity to the UK’s economic outlook weighed on investor sentiment.
Past performance is not necessarily a guide to future performance and is not guaranteed. Performance comparisons are included for illustration purposes only, there are no specific benchmarks.
Figure 1: Equity market returns (April 2026, Source: Pacific Asset Management)
Fixed Income
Continuing a post-pandemic trend, government bonds failed to provide the traditional ‘safe-haven’ shelter investors had anticipated during the equity market downturn. This disappointment stemmed from a sharp reappraisal of interest rate trajectories. While developed market yields had been trending lower early in the year, the prospect of conflict-driven inflation in the Middle East abruptly shifted expectations, triggering a broad sell-off across US, UK, and European government bonds in March.
Prior to the escalation, UK Gilts had led sovereign market performance as cooling price pressures fuelled hopes for imminent Bank of England rate cuts. However, the resulting energy shock left the UK – with its high dependence on natural gas – uniquely vulnerable to upside inflation risks. Consequently, the 10-year Gilt yield surged above 5%, marking its worst monthly performance since the ‘mini-budget’ volatility of 2022.
Past performance is not necessarily a guide to future performance and is not guaranteed. Performance comparisons are included for illustration purposes only, there are no specific benchmarks.
Figure 2: Fixed Income returns (April 2026, Source: Pacific Asset Management)
Commodities
Commodity markets experienced a historic monthly divergence in March, with the energy sector at the epicentre of the shock. Driven by the escalating Middle East conflict and the closure of the Strait of Hormuz, energy prices rallied sharply; Brent crude surpassed the $100-per-barrel threshold, marking its steepest monthly gain in four decades.
In stark contrast, the metals sector faced intense downward pressure. Following a sustained year-long rally, gold plummeted by more than 10%, marking its worst monthly performance since the 2008 financial crisis. This reversal occurred as investors pivoted toward a more hawkish central bank outlook, stripping gold of its safe-haven momentum. The correction likely reflected a wave of profit-taking and deleveraging, with gold and silver serving as primary sources of liquidity during a period of forced portfolio repositioning.
Summary
Although the current geopolitical shock has triggered significant volatility, historical precedents indicate that such episodes are typically short-lived in their market impact. We are closely evaluating the evolving consequences for global growth, inflation, and corporate earnings; however, we also recognize that periods of indiscriminate selling frequently create attractive entry points for disciplined investors. At this juncture, we continue to advocate for a strategy of prudent risk management while remaining positioned to capitalize on market dislocations as they arise.
