GLS Reports -7% March Return Amid Historic Oil Shock and Market Volatility

Iran War Triggers Historic Oil Shock and Market Volatility

The geopolitical upheaval sparked by the Iran War has unleashed the most severe oil supply shock in recent history, with an estimated 8-9 million barrels per day lost; nearly double the impact of the 1978-79 Iran Revolution. This disruption at the Strait of Hormuz, a critical artery for 20% of global oil flows, sent Brent crude prices soaring by around 50% within weeks, rattling inflation expectations and forcing central banks worldwide to recalibrate their interest rate outlooks.

Long-term bond yields surged 35 to 70 basis points in the aftermath, marking one of the fastest repricings in recent cycles and dashing hopes for imminent rate cuts. The Federal Reserve, Bank of England, and European Central Bank all shifted their forward guidance, underscoring the pervasive uncertainty gripping markets.

GLS Weathered March Sell-Off with Tactical Portfolio Moves

Against this turbulent backdrop, the L1 Global Long Short Fund Limited (ASX:GLS) recorded a -7.0% return in the March quarter, exceeding the MSCI World Index’s -3.6% by 3.5 percentage points despite the risk-off environment. The fund’s strong start in January and February was offset by a drawdown in March as volatility spiked. Since inception in January 2025, GLS has delivered a robust 53.9% annualised return, comfortably outperforming the MSCI World’s 13.2%.

The fund’s ability to capitalise on periods of elevated volatility is well established, with prior performance highlights including the 2018 policy correction, 2020 COVID-19 crash, and 2022 inflation shock. This resilience stems from active management and a high-conviction, benchmark-agnostic approach focused on quality and consistent outcomes.

Following the recent turmoil, GLS undertook a significant portfolio rotation. The fund reduced exposure to unprofitable tech and AI-related companies, closing several short positions after material de-ratings. Conversely, it increased allocations to sectors benefiting from the energy shock and broader supply-demand imbalances, including copper, gold, and banking.

Notably, the fund maintains no meaningful exposure to the software sector or the Mag-7 mega-cap tech stocks, instead focusing on downstream beneficiaries of AI capital expenditure such as uranium and copper resources.

Thematic Focus on Copper, Gold, and Infrastructure

GLS’s thematic strategy centers on five key areas: copper, gold, infrastructure, building products, and banking; each underpinned by strong fundamentals despite recent market sell-offs.

Copper remains compelling with a forecasted supply deficit exacerbated by accelerating AI demand. Although copper equities have de-rated by approximately 25% in 2026, valuations are attractive at less than 5x EBITDA. The fund has aggressively added to positions post-sell-off, including holdings in the Arizona Sonoran copper district, which recently attracted a 30% takeover premium from Hudbay, and the ramping Cobre Panama project.

Gold equities experienced an unusual 12% pullback in March driven by technical selling and sovereign gold sales amid the war, despite long-term drivers like central bank buying and geopolitical risks remaining intact. Gold miners in the portfolio trade at historically low multiples, with some key positions at under 6x P/E, offering a margin of safety against cost inflation and future price upside.

Infrastructure assets, including regulated airports and cell tower operators like Fraport and Cellnex, provide predictable cash flows and strong dividend growth potential. The fund also holds high-quality building products companies positioned to benefit from residential recovery in the US and Europe, alongside dominant banks with conservative lending books and excess capital.

GLS’s Evolution Following Strategic Reset and Equity Raises

The fund’s current positioning follows a major strategic reset under L1 Capital’s management starting late 2025, after a successful $477 million equity raise that bolstered its capital base. This transition, detailed in the fund’s 609% profit surge after strategic reset, has enabled GLS to expand its global long-short strategy and deliver strong absolute and relative returns.

With a median portfolio price-to-earnings ratio of 8.1x and expected earnings growth of 15.2% for FY27, GLS’s holdings display compelling valuations combined with robust free cash flow yields. The fund’s diversified exposure across sectors, geographies, and company sizes helps reduce correlation with broader indices and peer groups, enhancing its risk-adjusted profile.

Navigating Uncertainty Amid Elevated Geopolitical Risks

While the fund has positioned itself to benefit from recent market volatility and structural themes, the ongoing Iran War and its ripple effects on energy markets and inflation remain significant sources of uncertainty. The rapid repricing of interest rates and the broad-based market sell-off in March underscore the challenges ahead.

GLS’s cautious stance on speculative AI-related stocks and focus on quality, cash-generative companies may provide some insulation, but investors should monitor how evolving geopolitical and macroeconomic dynamics impact commodity markets and global growth.