In today’s highly volatile political and economic climate, having a well-diversified investment portfolio is key to ensuring you’re not overly exposed to one sector or market. Here we discuss three diversification checks every investor should consider to help manage risk and build long-term resilience, no matter what geopolitical challenges arise.
Last year’s global tariff impositions and repositionings have been pushed out of the limelight by the US’s ongoing conflict with Iran, and the knock-on effects of the Straits of Hormuz blockade on fuel availability and supply chains worldwide.
The upshot for investors is that they continue to have to factor in the potential for months of possibly severe geopolitical and economic disruption, direct or indirect, across much of the world. That in turn is likely to affect inflation forecasts, central bank interest rate decisions and the outlook for economic growth.
In effect, uncertainty has become a byword for the current investment climate – and it seems likely to persist while the current US administration remains in office.
What can be done to mitigate it? When markets globally are as volatile as they are at present, it makes sense to tune out of the short-term macroeconomic noise and focus on managing overall portfolio risk and increasing the chance of decent returns through broad diversification.
That way not only are you much less dependent on any single equity market, but you can also take advantage of the ongoing long-term rotation as US market dominance declines and other regions with more reasonable valuations attract investors’ attention.
Importantly, the most effective portfolio diversification is about more than just a check of the geographical mix of stocks. It also involves sectoral spread within your equity allocation – in particular into defensive sectors and industries that may benefit from the conflict –plus a mix of asset classes to help reduce volatility further.
Below we discuss these three diversification checks in more detail.
Geographical diversity
Geographical portfolio diversification once again came into its own last year, after a couple of years where global returns were dominated by a handful of very expensive US tech stocks.
Last year, some investors took the opportunity to reduce their pricey US holdings and increase exposure to relatively cheap regions, with the consequence that Japan, the UK, emerging markets, Europe and Asia all outperformed the S&P 500 in 2025.1
That trend towards outperformance by cheaper regional markets continued through the first quarter of 2026.1 There are also indications that countries are looking to strengthen non-US trade ties2 as a result of both trade tariffs and the Middle East conflict, potentially reinforcing the market rotation through lower demand for US exports.
It’s undoubtedly the case that when extreme uncertainty is the prevailing sentiment worldwide, it makes sense to spread your eggs across multiple baskets.
Geographical diversification avoids the need to try to second-guess the differing impacts of the war and potential fuel shortages on different regions. More generally, exposure to a range of countries with diverse macroeconomic scenarios and contrasting economic focuses makes for a more robust overall portfolio though cannot guarantee better outcomes.
Sectoral diversity
Unsurprisingly, considering the way oil and gas prices have rocketed since the start of the conflict, energy is by far the strongest performer globally in sectoral terms this year, per MSCI World, April 2026, followed by materials and utilities.3
That’s a far cry from the AI-driven boom of 2023 and 2024. Nonetheless, after a rough start to 2026, US tech stocks have shown resilience in recent months, outperforming the broader US market and indeed some of their regional counterparts.3
In addition, in difficult times there is a natural inclination to retrench to more defensive sectors where demand will not dry up in the face of rising prices or interest rates. These include healthcare, utilities and staples, which have the capacity to produce relatively stable returns when times are difficult.
The bottom line is that it becomes all the more important to maintain broad-based exposure to high-quality businesses well-placed to ride out economic turbulence.
By choosing a high-quality, broad-based investment trust or fund, investors may want to assess that the management team will adjust their exposure to the different sectors within their remit as the relative risks and opportunities shift.
Asset classes
It’s generally accepted that if you compare mainstream asset classes over the long term, global equities provide the best chances of sustainable total returns. However, when crisis hits, economic decline bites and equity markets are falling, a multi-asset portfolio has historically tended to help reduce drawdowns for some investors.
In such circumstances, the prices of less risky assets, including government and corporate bonds and gold, tend to rise as investors seek safer havens for their money.
Meanwhile, alternative assets such as infrastructure tend to have low correlation with equity fortunes, so they are typically relatively little affected by stock market movements altogether. Better still, returns may often be at least partially inflation-linked, potentially improving real-return resilience..
In the current crisis, commodities have been the stand-out performers over the first quarter of 2026, driven by spiking oil prices as regional supplies have come under threat4.
Our Market Insights team therefore suggests a “greater allocation to a new set of diversifiers, such as commodities, core infrastructure, timber, transportation assets and macro hedge funds”.
Such a diversified range of assets may underperform stock markets in a bull market, but they can help limit downside when equities are on the ropes.
Cash won’t cut the mustard
Importantly, while a retreat from investment risk altogether may feel like the safest option at such times, cash accounts are not always a viable long-term solution because savings interest is unlikely to keep pace with inflation.
To illustrate the hidden risks of sticking with cash, Barclays Investors5 compared two decades of returns from a simple portfolio of gilt and UK stocks with those from cash earning interest in a savings account, factoring in the effect of inflation over that period.
Between 2004 and 2024, cash lost 40.5% of its value in real terms – even with interest added along the way. So £1,000 held in cash from 2004 would have the spending power of less than £600 by 2024.
In contrast, over the same period (which, incidentally, included the Great Financial Crisis, Brexit and the Covid pandemic) the gilt/equity portfolio increased by over 21% in real terms, turning £1,000 into £1,216.
As the Barclays research puts it: “The difference between losing 40.5% and gaining 21.6% amounts to a missed opportunity of 62.1%. This gap was the real cost of not investing.” Of course, this is just one historical snapshot – other periods and market conditions can look very different.
Diversification still has risks
It's important, of course, to recognise that diversification comes with no guarantees, so you’ll still see ups and downs in the value of your portfolio.
Nor is it a ‘set and forget’ strategy; portfolios need to be regularly monitored and rebalanced to ensure they don’t become skewed towards the most successful regions (and therefore more vulnerable to corrections) over time.
Remember also that it is possible to ‘over-extend’ unintentionally. Hold too many funds and the chances are that you’ll be duplicating holdings without realising, while the law of diminishing returns means you’re gaining little additional diversification benefit.
The use of a small number of contrasting investment trusts - say five to 10 – invested in professionally selected and monitored portfolios can be a simple and hassle-free way for many investors to achieve their diversification goals.
The key message for investors at what remains a challenging time for markets generally is to ensure they are well diversified in all three respects – for example, through the use of a multi-asset holding held alongside a broad-based portfolio of equity investments.
JPMorgan’s investment trust range includes a number of actively managed, established trusts offering global or regional equity exposure, backed by a wealth of managerial expertise and resources.