Active management in volatile times

The first quarter of 2026 has borne witness to savage movements in financial markets, macroeconomic challenges, rapid changes in expectations and geopolitical crises, the most severe of which is the conflict in Iran.  

Before articulating how we are approaching current events from an investment perspective, it is important to acknowledge the human cost of the conflict. Our thoughts are with all those affected. 

For active fund managers such as ourselves, the situation in the Middle East raises a number of questions. The severity of the conflict’s impact on the global economy, trade and financial markets will probably depend on its duration – but at the time of writing, that remained uncertain, with mixed messages coming out of the White House. While some commentators expect a resolution within weeks, the range of possible outcomes is wide.  

Energy prices have moved higher, with oil & gas markets reacting to the risk of sustained supply disruption, particularly around the Strait of Hormuz. 

That feeds directly into inflation concerns. We have already seen bond markets reprice interest rate expectations, with cuts now largely priced out for this year. How central banks respond will depend on whether price pressures prove persistent or transitory, which in turn depends on how the conflict evolves. This is something none of us can predict with confidence. 

There are additional risks on the horizon. Artificial intelligence (AI) continues to throw up huge questions, which were already riling markets before the strikes on Iran. Will the hyperscalers be rewarded for their immense capital expenditure commitments? Are mega-cap tech stocks too expensive? Which companies will see their business models disrupted beyond repair by AI and who will the ultimate winners be?   

It is also worth stepping back and recognising that markets had been strong coming into this episode. Economic data has been supportive, credit markets have been well behaved and equity valuations in many areas have re-rated significantly. That strength provides context but also demands discipline – especially if we see a prolonged correction unfold. 

Needless to say, stock markets have moved from the near-Goldilocks conditions that characterised much of last year – once the post-Liberation Day recovery had taken hold – into an atmosphere of fear. The CBOE Volatility Index (VIX), which is often referred to as the ‘fear gauge’, has been elevated all month¹.  

How active managers can weather the storm 

So what are we, as active managers, doing to navigate the current crisis and deliver optimal results for our clients?  

First and foremost, our fund managers are sticking to their tried-and-trusted investment processes, with a resolute focus on company fundamentals. This approach has served us well when faced with a wide range of challenges in the past and we believe it remains well equipped to do so going forward.  

The long track records and deep experience of our fund managers are helpful here. Many of them have been running their funds at Artemis for over a decade – two decades for some – so they have invested during periods of crisis and fear many times before.  

The second thing we are doing may sound counterintuitive but it is, in fact, linked to the first. Our active managers are staying alert for tactical opportunities that periods of dislocation can present – whether that is adding selectively to credit or recycling capital into more attractively valued areas of the equity market. 

They are able to do this precisely because of their focus on company fundamentals and their medium to long term views. Financial markets tend to overshoot at times of extreme pessimism and, on the other side, euphoria. Drawing upon their experience gleaned through a variety of market conditions, our fund managers can spot where stocks or bonds have become mispriced, oversold or unjustly tarnished, and move quickly to take advantage. 

Although stock markets occasionally fall sharply, they tend to deliver solid returns over the long term. While it may be logical to add to investments during downturns, at cheaper prices, human instinct typically does the opposite – pulling back after falls and piling in after rallies. Although academics have long advised against this behaviour, it is hard to override human nature. This is where the expertise of active managers, following tried-and-tested investment processes, is so vital. In times such as these, we believe having an experienced hand on the tiller is reassuring for our clients.  

Finding a margin of safety 

There is no top-down house view or centralised investment process at Artemis and our fund managers have the freedom to implement their strategies with conviction. At the same time, there are common threads running through our various approaches. One of these is the belief that the price you pay for an asset matters, and has a significant impact on the returns you eventually make. 

A margin of safety is particularly important during risk-off periods. The tech sell-off in recent months has demonstrated that when stocks are priced for perfection, it does not take a lot to knock them off their perch. Conversely, cheaper stocks have far lower expectations to hurdle and in some cases, a lot of bad news is already priced in.  

Don’t put all your eggs in one basket 

During good times and bad, our fund managers and risk teams ensure that our portfolios are not excessively exposed to any one theme or sector – even if their benchmarks might be. This diversification provides some protection if there is a sell-off in one part of the market, whilst also positioning us to benefit from rallies in unexpected areas.  

We take diversification one step further. Across the board, we aim to offer portfolios that look substantially different to both peer funds and the most popular benchmarks. We expect that our clients have passive exposures – and other funds – elsewhere in their portfolios and it behoves us as active managers to offer something differentiated. We achieve this by investing with conviction and by skating towards where we think the puck is going, rather than falling back on yesterday’s winners.