The war in the Middle East has brought volatility back into markets over the last couple of months. Oil prices have been swinging around sharply, sometimes by 5% to 10% in a single day. The share market initially fell by around 10%, before rebounding toward all time highs as the conflict eased.
Headlines around ceasefires, blockades and peace talks are changing almost by the hour.
All of this news flow creates a sense that portfolios need to be constantly adjusted just to keep up.
Why headlines create pressure to act
A recent Australian Financial Review article, Here’s how your super fund is trading Trump 2.0, highlights how large super funds are looking to “harvest” opportunities from geopolitical events like the Trump administration’s trade policies and the Iran conflict.
Some funds have increased their exposure to shares, while others are making tactical adjustments or holding extra cash so they can deploy capital quickly when markets fall.
Funds aren’t saying they are timing the market, but when portfolios are adjusted based on short term geopolitical developments, that’s exactly what’s happening behind the scenes.
The challenge is that markets move fast. Reactions that once took months now happen in hours. By the time super fund portfolios are repositioned, the opportunity has often passed.
This is the reality of competing in highly efficient markets where millions of participants are processing the same information at the same time. Getting these calls right consistently is extremely difficult, and even small errors in timing can have a meaningful impact on member returns.
Most large super funds collectively employ, either directly or through external managers, hundreds of analysts, portfolio managers, and strategists whose job is to generate insights and ‘beat’ the market. The entire system is built on the premise that active decisions can add value, and funds regularly promote this capability to members as a key differentiator.
Yet when those same funds are asked publicly how they are navigating periods like this, the answers are rarely clear.
The problem with vague language
We hear phrases like “raising liquidity to exploit opportunities” and “harvesting volatility”. They sound sophisticated but they don’t actually say much at all.
In reality, they’re vague catch-alls that give little insight into what’s being done with members’ money. There’s no clear view being expressed. Nothing that can be tested and no way for investors to judge whether those decisions were right or wrong.
At the same time, the only consistent prediction funds seem willing to make is that markets will be “volatile”.
That’s not a forecast, it’s a default setting!
Volatility isn’t a forecast
Markets are always volatile to some degree. Calling for volatility is like predicting some traffic on the way to work – it’s unlikely to ever be proven wrong. It also conveniently reinforces the idea that active management becomes more valuable in uncertain environments, even though there is little evidence to support that claim.
So on one hand, funds promote their ability to actively manage portfolios and navigate complexity. On the other, they avoid taking clear public positions and fall back on generalisations that are difficult to challenge.
When you do hear a more candid reflection, it often highlights just how difficult this is in practice.
Even the experts get it wrong
The outgoing CIO of AustralianSuper recently admitted that one of his biggest regrets was not going overweight the AI and digital thematic earlier, acknowledging that a simple tilt towards those sectors in 2022 would have delivered stronger returns.
But even that framing misses an important point. Simply being market weight would have captured most of that upside, given how dominant those companies became in global indices. The fact that performance lagged suggests that an active decision was made to be underweight those parts of the market. That is itself a bet, a view that the market is wrong and that an underweight positioning will deliver a better outcome.
Even with enormous resources, access, and experience, these decisions come down to judgement calls. In hindsight, the right answer often looks obvious. In real time, it rarely is.
The hidden cost of constant buying and selling
There is also a cost to this constant activity.
When funds talk about taking advantage of volatility, it usually involves more trading or selling assets to raise cash, which brings transaction costs, market impact, and timing risk into play. These costs aren’t always visible to members, particularly within pooled structures, but they compound over time and can quietly drag on performance.
Interestingly, even some of the funds quoted in the AFR article acknowledge that doing nothing is often the best course of action during periods of heightened volatility .
When doing nothing is the right move
That aligns closely with the advice we’ve been giving clients during the Iran conflict. A more effective approach, in our view, is to accept that short term market movements are unpredictable and focus on building a portfolio that is resilient across a wide range of possible market outcomes.
Diversification across asset classes and regions, combined with low costs and a disciplined rebalancing process, provides a framework that doesn’t rely on making the right call at the right time. It removes the need to react to every headline and instead keeps the focus on the long term.
The biggest risk for investors in periods like this isn’t volatility itself. It’s the urge to react to it – that’s where a lot of value gets destroyed.
The best thing a super fund can do isn’t to try and predict what happens next. It’s to accept that no one knows. From there, it’s about building a strategy that can hold up in different environments. One that supports members over the long term, not just when markets are calm.
