How Investors Might Respond to Geopolitical Uncertainty Triggered by the Iran Crisis—Insights from Specialists

Main Insights

• Adrian Helfert, Chief Investment Officer at Westwood, highlights promising prospects in energy sector equities, noting that these stocks have not climbed as much as anticipated despite the recent surge in oil prices.

• Jamie Battmer from Creative Planning encourages investors to focus on factors within their control and suggests that current events may be a timely reminder to reassess overall portfolio allocations.

Investor Strategies Amid Geopolitical Uncertainty

With geopolitical tensions on the rise, many investors are questioning how best to respond. On Monday, as markets reacted to news of military actions in Iran—which pushed oil prices higher and temporarily pressured U.S. equities—experts weighed in with practical guidance for those seeking to adjust their investment approach in the short term.

Adrian Helfert of Westwood recommends considering energy sector investments during this period, especially as President Trump has indicated that further strikes may be forthcoming. Jamie Battmer of Creative Planning sees the current volatility as an opportunity for investors to realign their portfolios strategically, without taking on excessive risk.

Why This Is Relevant for Investors

While long-term investment wisdom often advises patience following geopolitical shocks, experts suggest there are tactical moves investors can make to either capitalize on or protect against increased instability in the Middle East.

Helfert warns that the Iran situation could deteriorate further, potentially escalating tensions across the region. However, he notes that this does not necessarily mean direct military exchanges; instead, other nations might use the situation to shift the balance of power, as has happened in previous conflicts.

He also points out that exploration and production companies have not seen the gains one might expect given the jump in oil and gas prices. "There are still attractive opportunities in the energy sector, particularly because the stocks haven't fully reflected the price increases," Helfert observes. On Monday, the S&P 500 Energy Sector Index rose about 2%, while U.S. crude oil futures surged over 7%.

Expert Recommendations for Navigating the Energy Market

Although the oil market currently has excess supply, Helfert believes the risks of supply disruptions are underestimated. Morgan Stanley also advises investors to maintain exposure to the energy sector, even after its recent gains, and to focus on high-quality companies. Devin McDermott, an equity analyst at Morgan Stanley, suggests that upstream exploration and production firms, integrated producers, and refiners could benefit from any further increases in oil prices. Since roughly 20% of the world's oil and liquefied natural gas passes through the Strait of Hormuz—an area under significant Iranian control—any disruption could push prices higher.

If U.S. policy aims to keep oil prices low, as the Trump administration has stated, Helfert suggests that natural gas and oilfield service companies might outperform exploration and production firms. Nevertheless, he still sees E&P companies as highly attractive due to their strong free cash flow yields, which are nearly double those of the next leading sector, telecommunications. On Monday, APA Corp (APA) and ConocoPhillips (COP) were the top performers among E&P stocks in the S&P 500, each gaining around 4%.

Portfolio Adjustments and Tax Strategies

Battmer from Creative Planning advises investors to focus on what they can control, such as implementing tax-loss harvesting strategies. He clarifies that effective tax-loss harvesting involves reinvesting proceeds from sales into similar assets, rather than simply holding cash. For example, if the market experiences a significant decline, an investor might sell S&P 500 shares and purchase the Russell 1000, as these indices typically move in tandem.

Given the relatively muted market reaction to recent events, Battmer suggests that investors look for individual stocks in their portfolios that have experienced outsized losses, consider selling those positions, and reallocating to similar companies. For instance, if Coca-Cola (KO) declines, one might sell it and buy Pepsi (PEP) instead. In light of the Iran developments, switching from one cruise line stock to another could also be a strategic move.

He emphasizes that these actions are not speculative market calls but rather objective ways to add value by realizing tax losses, which can help offset future capital gains.

Battmer also recommends that investors use this period as an opportunity to review their overall portfolio exposure, especially if their losses have been significantly larger than the brief declines seen in the S&P 500. "If your portfolio is underperforming the broader market, it's a sign to reevaluate your strategy and address any vulnerabilities," he advises.