What if might doesn’t make right?

"Wars usually begin when two nations disagree about their relative strength, and wars usually cease when the fighting nations agree on their relative strength." Geoffrey Blainey from the 1973 book The Causes of War

Last quarter, we wrote about the return of the empire, about how the rules that govern the world are not fixed, but negotiated, enforced, and, at times, revised.

This quarter, I find myself reflecting on something slightly different. What happens when the rules don’t just get revised, but are fundamentally changed?

Recently, I was watching Shaka iLembe on DSTV. In my view, one of the finest South African TV series ever produced. Perhaps I’m biased, but I’m comfortable with that bias. Being born Zulu, this is not just history to me. It feels close. Personal. There’s a certain pride that comes with knowing the story of a people who, at one point, were the definition of formidable.

What struck me most while watching it was not just the story but the innovation.

Shaka did not inherit the most powerful army. He built one. He rethought how war was fought: formation, discipline, speed and weaponry. In modern language, he didn’t just compete within the system; he changed the system. And for a time, that made the Zulu army dominant. Decisively so. Feared, effective, and, if I’m honest, the kind of dominance that makes me sit a little taller on the couch.

It made me think of the David versus Goliath story we all know. A young shepherd with no armour defeats Goliath, a giant, heavily armed warrior, using nothing more than a sling and a stone. The phrase, David versus Goliath, has since become shorthand for situations where a smaller, seemingly weaker opponent challenges and sometimes overcomes a far more powerful one. Not through scale, but through skill, innovation, or a different way of fighting.

At the Battle of Isandlwana in 1879, the Zulu army defeated a mighty British force equipped with modern rifles, one of the clearest historical examples of this dynamic.

And that was not an isolated moment. A few decades later, during the Second Boer War, the British Empire encountered a different kind of challenge. Not from scale, but from adaptation.

On the jagged crest of Spion Kop, the Goliath of the British Empire ran into something it had not fully accounted for. The Boers, smaller in number and resources, brought a different kind of edge mobility, marksmanship, and, importantly, technology. Armed with Mauser rifles and smokeless powder, they fought a war that was harder to see, harder to predict, and harder to control.

The British, by contrast, were still operating within an older framework of mass formations, visible fire, and a style of warfare that assumed the enemy would present itself clearly. Instead, they found themselves exposed, while their opponent remained largely unseen.

It was not that the British lacked power. It was that the rules had shifted. And that is the point.

At its peak in the early 1920s, following the First World War, the British Empire was the largest the world had ever seen. It spanned approximately 35 million square kilometres and close to a quarter of the Earth’s land surface and governed roughly 450 million people, around a fifth of the global population. It was, by any definition, the dominant power of its time.

And yet, with the benefit of hindsight, we know that dominance was not permanent.

The First World War marked the high point of the Empire, but it also planted the seeds of its decline. The economic and human costs weakened Britain’s relative position, and over the following decades, accelerated by the Second World War, the global order shifted. Power transitioned toward the United States (US), whose economic strength, industrial capacity, control of global trade routes, and ultimately the central role of the US dollar came to define the post-war system.

This shift was not only military or political, but it was also financial. The British pound had been the world’s reserve currency throughout the 19^th century and into the early 20^th century, underpinning global trade and finance. But as Britain’s relative power declined, so too did the pound’s dominance. It was gradually replaced by the US dollar, particularly after the Bretton Woods system formalised the dollar at the centre of global financial architecture.

In the decades that followed, that system evolved further. Following the breakdown of Bretton Woods in the early 1970s, the dollar became embedded in the global energy system, with oil priced predominantly in US dollars, creating a structural and persistent demand for the currency.

What is notable today is that, while the dollar remains dominant, we are beginning to see signs of that system being tested at the margins. There has been an increase in bilateral energy trade being settled in alternative currencies, most notably transactions between China and Russia in renminbi, as well as discussions within parts of the Middle East and BRICS economies around pricing or settling oil outside the dollar system.

These are not yet system-defining shifts. The majority of the global oil trade remains dollar-denominated. They are signals that, at the margin, the assumptions underpinning the current system are being questioned.

These transitions do not happen overnight; they unfold gradually over decades, then suddenly and only become obvious in hindsight. Which brings us to today.

The US remains the pre-eminent global power. It anchors the financial system through its currency, underwrites global trade routes, and maintains unmatched military reach. But the question is not whether that dominance has ended. It is whether it is being tested. And importantly, how it is being tested.

What we are witnessing today is that the US is being tested, not through a single, decisive confrontation but a series of smaller, asymmetric challenges. Conflicts where the objective is not to defeat the dominant power outright, but to impose cost, extend duration, and expose the limits of scale. If history is any guide, this is how systems begin to shift, not with a clear break, but with a gradual erosion of assumptions.

History is not as simple as “the strong always win.” In fact, our study of over 200 years on asymmetric conflicts, what you might call David versus Goliath, suggests that the dominant power fails to achieve its stated objectives in roughly 64% of cases. Not because it lacks capability, but because it is often slower to adapt. For the larger power, the war is often optional, while for the smaller power, it is existential. And over time, that asymmetry of commitment, and increasingly of adaptation, tends to outweigh the asymmetry of resources. Which leads to a more important observation. The outcome is rarely determined by the initial shock but by duration.

There is an important distinction to make: the smaller power does not always win. In today’s conflict, which is important given its impact on global energy markets, if the larger power reasserts dominance, then the world and the system we invest in remain broadly intact. However, if the smaller power forces the larger power to adapt, to reconsider, or to endure a prolonged contest, then there will be far more changes than are immediately apparent. 

Plato suggested that “might makes right.” History, if anything, suggests something more conditional: Might matters until it meets a system it does not fully understand.

We have seen echoes of this in more recent history. When the Russia-Ukraine war began, like many, we assumed it would be short. A weekend, perhaps a few weeks. Yet years later, the outcome has been very different. Russia, the larger and more powerful force, controls less territory today than it did in the early stages of the war. 

The assumption that scale determines outcomes has not held. Instead, what has emerged is a different kind of warfare, one that is decentralised, adaptive, and iterative. One where innovation happens in real time, and where smaller actors can extend conflict in ways that were previously difficult to imagine. The objective is no longer simply to win quickly, but to ensure that the other side cannot win at all.

This idea of duration is important. We are now seeing similar dynamics unfold in the Middle East. The US, long considered the anchor of global military power, finds itself constrained by a far smaller, asymmetric opponent in Iran. This is not a statement about outcomes, but rather about complexity and the nature of modern conflict.

For decades, markets and arguably the global system have operated on an implicit assumption: that overwhelming power ensures control. But what if that assumption is no longer as robust as we believed? What if smaller, decentralised systems can extend conflict, disrupt outcomes, and influence global systems far beyond their size?

If that is the case, then the question for investors shifts. It is no longer only about the initial shock. It is about how long that shock persists.

And duration is something markets have historically struggled to price. Nowhere is this more relevant than in energy markets.

The Strait of Hormuz remains one of the most critical arteries in the global economy, with a meaningful portion of the world’s oil flowing through it. Historically, such chokepoints have been secured by the assumption of overwhelming military presence. But in a world where disruption is increasingly decentralised and relatively inexpensive, the nature of risk changes.

One does not need to close the Strait entirely. One only needs to make it uncertain, contested, or expensive to operate within. Once uncertainty enters the system, the implications extend well beyond energy prices. Supply chains begin to shift from efficiency toward resilience. Redundancy replaces optimisation. Costs rise, and inflationary pressures become more structural than cyclical.

A deeper question is emerging. The global financial system, particularly the role of the US dollar, has rested not only on institutional strength but on something less explicit: the assumption of uncontested dominance. Not dominance that needed to be exercised, but dominance that did not need to be questioned. That assumption is beginning to be tested. Not broken. Not replaced. But tested. And history suggests that when foundational assumptions are tested, the consequences are rarely linear.

We do not yet know how this evolves. But we do know that we are moving into a regime where the range of outcomes is wider, and the confidence we can place in any single forecast is lower. In environments like this, precision matters less than preparedness.

As investment managers, our role is not to predict a single outcome, but to think in probabilities. As Annie Duke frames it, every decision is a bet made under uncertainty. The question is not “what will happen,” but “what could happen and how likely is each outcome?” That naturally changes how we build portfolios.

A robust portfolio is not constructed for one view of the world. It is constructed to survive a range of outcomes, some expected, others less so. It recognises that we will not get every call right, and that the future will almost certainly surprise us. This means avoiding fragility. It means being wary of positions that only work if a specific outcome materialises and instead favour exposures that can endure across different environments. It means balancing opportunity with resilience, ensuring that the portfolio can participate if our central view plays out, but also remains intact if it does not.

In practice, this requires thinking not just about returns, but about the types of outcomes. Where are we exposed to narrow, binary payoffs? Where are we vulnerable to outcomes that are unlikely, but consequential? And where do we have asymmetry in our favour situations where the upside meaningfully outweighs the downside across a range of scenarios?

Ultimately, the objective is not to eliminate risk, which is neither possible nor desirable. It is to ensure that the risks we take are understood, intentional, and appropriately compensated. This is because in environments like this, the portfolios that endure are rarely those built on the most precise forecasts. They are the ones built to withstand being wrong.

I was reminded of the work of Michael Mauboussin, particularly his writing on fat tails and nonlinearity in 2007, just before the global financial crisis. His point was simple, but profound: in stable environments, outcomes cluster. In unstable ones, they spread. The tails get fatter. Low probability events begin to matter more, not because they become likely, but because their impact becomes decisive. And importantly, the risks that ultimately shape outcomes are often the ones that are hardest to see in advance, yet easiest to explain in hindsight. Taken together, this suggests we may be entering a period where the distribution of outcomes is widening.

There are forces at play today across geopolitics, energy, and global trade that are not fully understood, and therefore not fully priced. Over time, they may come to look obvious. But in the present, they feel uncertain, nonlinear, and increasingly consequential.

This does not necessarily call for prediction with precision, but rather for an awareness that the range of possible outcomes may be broader than it appears. It is perhaps more useful, in moments like these, to ask a different set of questions.

• What if conflicts are no longer short, but structurally prolonged?
• What does that mean for energy markets not in weeks, but in years?
• Are markets pricing temporary disruption, or a more permanent shift in how disruption occurs?
• What happens if the cost of disruption continues to fall across systems, not only in warfare, but in trade and finance?
• And perhaps most importantly: if the rules have changed, are we still investing as if they haven’t?

Portfolio positioning

Turning to portfolio positioning, in recent months, we have spoken about the role of commodities, particularly gold and PGMs, in a world where hard assets are reasserting their relevance. This quarter, it is worth extending that discussion to energy.

History is clear on one point: wars are often, at their core, about resources. And recent events have served as a reminder, not a revelation, that fossil fuel energy remains central to the functioning of the global economy.

Our overweight position in energy through holdings such as Sasol, Glencore, and Exxaro Resources, alongside exposure via a global energy ETF. What is notable about this exposure is its concentration in the largest and most systemically important energy companies globally. The top holdings include companies such as ExxonMobil, Chevron, and Shell. Geographically, the exposure is predominantly to the US (over 60%), with additional allocations to Canada, the UK, and Europe, effectively giving us exposure to the core of global energy supply.

In other words, this is not just exposure to energy prices; it is exposure to the companies that sit at the centre of the global energy system. It is not simply a response to current geopolitical tensions. It reflects a broader observation: that energy, as a system, has been underinvested in and, as a result, mispriced.

The capital cycle tells part of the story. A decade ago, global upstream oil and gas investment was running at approximately $700-750 billion per year. Following the oil price collapse and the pandemic, that figure fell closer to $350-400 billion, and while it has recovered somewhat, it remains below prior peaks in real terms. Over the same period, demand has not stood still. Global oil consumption has risen from roughly 93 million barrels per day to over 100 million today.

That gap matters because energy is not a static system. Existing supply declines each year, typically by 4-6%, which means that even maintaining current production requires continuous reinvestment. When that reinvestment is not forthcoming, the system tightens.

But what is increasingly apparent is that the constraint is no longer just about supply. It is about the ability of the system to deliver energy reliably.

Electricity demand is now growing at a pace above historical norms, expected to increase by over 3% per annum in the coming years, driven not only by traditional economic growth, but by structural forces such as electrification and the rapid expansion of data centres. To put that into perspective, data centres alone are expected to consume in the region of 700 terawatt hours of electricity this year.

And yet, the infrastructure required to support this demand is not keeping pace. While global investment in power generation is now approaching $1 trillion annually, investment in electricity grids remains closer to $400 billion. The result is a system where energy may exist but cannot always be delivered where and when it is needed.

The global energy system, in many respects, has been built for efficiency rather than resilience. And in such systems, small disruptions can have disproportionately large consequences.

Our positioning reflects that asymmetry. It is not a view that oil must rise in the short term. Rather, it is recognition that in a world characterised by underinvestment, rising demand, infrastructure constraints, and increasing geopolitical complexity, the range of possible outcomes has widened.

And in environments like this, owning assets that benefit from that asymmetry is not simply a source of return. It is a form of resilience.

Q1 2026 performance

Market context

Quarter one of 2026 had two parts. January and February saw strong precious metals momentum continue from Q4 2025, before March delivered a sharp market correction triggered by the onset of the Iran war and Brent oil surging approximately 63% to $118/bl by quarter end.

Globally, the quarter was challenging across major markets in US dollar terms. The MSCI World Index returned -3.5% for Q1, with the US equity market under pressure as growth and technology names de-rated. The MSCI SA Index was flat at 0% in USD, holding up better than developed markets but masking significant intra-quarter volatility. The index fell 18.5% in March alone in USD terms after strong January (+8.3%) and February (+9.6%) returns. MSCI Emerging Markets Index outperformed at -0.1% in USD for Q1, supported by commodity-linked markets. The MSCI Frontier Markets Index returned -0.9%. The FTSE World Government Bond Index returned +2.2% in USD for the quarter as the flight to safety bid in global bonds intensified through March. South African bonds, however, sold off; the All Bond Index returned -6.4% in USD for Q1, with 12+ year duration paper falling -7.2% as the rand weakened sharply in March.

In rand terms, the All Share Index (ALSI) returned -0.6% for Q1, with resources being the only major index segment in positive territory at +8.0%, driven by chemicals (+86.3%, led by Sasol's +112%) and oil, gas and coal (+35.2%). Industrials bore the brunt of the sell-off at -8.4%, while financials edged down -0.9%.

The March rout did not discriminate.  Financials and industrials fell 20.4% in the month alone, banks (-10.1%), life insurance (-12.0%), retailers (-13.1%), and construction (-17.8%). Cash (+1.7% YTD) outperformed all other South African asset classes, with bonds (-3.4%) and listed property (-4.9%) both negative for the quarter.

At the stock level, the quarter was dominated by energy and commodity beneficiaries: Sasol (+112.2%), Glencore (+40.4%), South32 (+30.9%), and Exxaro (+25.5%) led the large and mid-cap winners. In USD terms, Sasol returned +109.0%, one of the best-performing large caps globally. The bottom of the table was populated by growth, consumer discretionary, and technology names: Prosus (-24.9%, or -28.1% in USD), Harmony (-24.1%), Naspers (-22.0%), Richemont (-18.4%) and TFG (-15.9%).

From an index composition perspective, resources weight in the ALSI rose to 35.1% by quarter end, while industrials fell to 32.6%, its lowest since mid-2008. Large caps now represent 74.5% of the ALSI, reflecting further concentration toward resource heavyweights. Technology (Naspers/Prosus) fell from a 2024 peak weight and now stands at 10.1% of the ALSI, while precious metals and mining command 26.4%.

Reflecting on the quarter, a few performance highlights stand out:

• Fundamental multi asset performance: The Old Mutual Balanced Fund, Stable Growth Fund, and Flexible Fund all delivered first-quartile returns for the quarter, continuing the strong performance momentum from Q4 2025. 
• Passive multi asset performance: The Old Mutual Core Balanced, Core Moderate, and Core Conservative funds, despite second and third quartile performance in the quarter, maintained their first quartile rankings across longer term periods. A testament to the consistency of the multi asset indexation process through a volatile period.
• SA equity performance: Old Mutual Equity Fund was the standout active SA equity fund for the quarter, delivering a strong first-quartile return alongside Old Mutual Investors'. The RAFI 40 Index Fund also ranked in the first quartile, benefiting from the value factor tailwind as energy and resource names dominated. Old Mutual Managed Alpha Equity slipped to third quartile and ESG Equity to fourth quartile, reflecting the headwind faced by strategies structurally underweight fossil fuel beneficiaries in a quarter where Sasol returned +112% and Exxaro +25.5%.
• Global equity performance: Old Mutual Global Managed Alpha, Global Islamic Equity, and all came in at third quartile, reflecting the challenging environment for global growth equities, while Global ESG Equity was in the first quartile. The longer-term returns of these systematic global strategies are still very compelling.  The Old Mutual FTSE RAFI All World Index Fund delivered a first quartile return, consistent with the global rotation from growth into value. 
• Specialist strength in mid and small caps: The Raging Bull award-winning Old Mutual Mid & Small Cap Fund achieved a first quartile ranking despite the Small Cap Index returning -2.3% for the quarter. The Old Mutual Gold Fund delivered positive absolute returns but ranked in the fourth quartile as the peer group captured more of the precious metals rally before the sharp March reversal.
• African frontiers resilience: The African Frontiers Equity Strategy and the African Frontiers Flexible Income Strategy delivered first quartile returns for the quarter, demonstrating continued strong relative performance. We are very proud of the returns we have delivered in our African strategies on behalf of clients over the long term. 

Conclusion

If there is a single thread running through this letter, it is that the environments which reward precision are rarely the ones we find ourselves in, and Q1 2026 was a reminder of that. The rules are being tested, the range of outcomes is widening, and the assumptions that have anchored markets for decades are no longer as immovable as they once appeared. We should expect volatility to be a feature, not a bug, of the period ahead. When foundational assumptions are questioned about energy, about power, about the architecture of the global system, markets do not adjust in straight lines. They lurch, they overshoot, they reprice suddenly and then reprice again. March gave us a glimpse of that, and we would be unwise to assume it was the last of it. Our job, as stewards of our clients' capital, is not to pretend we can forecast with certainty what comes next, but to build portfolios that can endure whatever does and that can use volatility as an opportunity rather than be undone by it. The performance this quarter, first quartile outcomes across our fundamental multi-asset, SA equity, specialist, and African frontier strategies, is not, in my view, the result of getting any single call exactly right. It is the result of positioning for asymmetry, respecting duration, and favouring resilience over optimisation. That is the discipline we intend to carry forward. Because if history teaches us anything, it is that might does not always make right, and the portfolios that endure are those built with humility and intention to withstand being wrong. As always, thank you for the trust you place in us. We do not take it lightly.