Source: Radio New Zealand
Smoke rises from the site of an Israeli airstrike on the southern suburbs of Beirut on March 3, 2026. AFP
KiwiSaver funds with exposure to oil and defence stocks might benefit from conflict in the Middle East in the short term, but providers are divided on whether to invest in them.
Oil prices have increased and stocks in companies that make weapons have also lifted.
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Over the past year, the share price of Lockheed Martin has lifted almost 50 percent.
It could mean investors and funds with exposure to those sectors record better returns in the short term than those who have taken an ethical stance against fossil fuels, or against investments in weapons.
“Defence stocks will outperform,” Koura founder Rupert Carlyon said.
“Not just because of this, we’ve got to think about the significant increase in defence spending across the globe over the last 12 or 24 months and what’s expected to continue. Particularly with Europe slowly increasing their defence spending towards 5 percent of GDP.”
He said he was not opposed to invest in companies that made weapons.
“The question we need to ask ourselves is why is it wrong to invest in defence stocks? The world is a pretty ugly place…. there are a lot of bad actors out there, right?
“Whether you’re concerned about Russia, China, North Korea, Iran… at the end of the day we need weapons. There’s no hiding the fact a world without weapons made in the West is a world controlled by people that we do not want controlling the world.
“We need to think really hard around our weapons exemptions – I understand we might not like cluster bombs, and other things that are deemed illegal. But the truth is we need defence contractors. We need weapons.”
But Berry said it was a decision that needed to be made by investors according to their own ethical viewpoint.
“It’s a very personal question. And for me personally, I don’t want my KiwiSaver – to the extent absolutely possible – I don’t want my KiwiSaver invested in profiting from war.”
He said investors in weapons companies could not discern whether they were supporting weapons used offensively or defensively.
“The question is, do you want a connection with conflict in your KiwiSaver?”
Companies like Lockheed Martin, General Dynamic, Northrop Grumman and RTX had generated strong returns in the last one, three and five years.
But investors should remember they were only 2 percent or 3 percent of the S&P500 index. Carlyon said the average KiwiSaver probably only had about 0.1 percent added to their return in the last year from defence stocks.
US sailors at work as they taxi aircraft to a staging point on the flight deck of the aircraft carrier USS Abraham Lincoln in support of Operation Epic Fury, at an undisclosed location on February 28, 2026. AFP/Handout
Oil versus lower carbon economy
Oil also posed questions investors had to grapple with.
“The question with oil is from an ethical perspective, it is problematic because we’re in a world that needs to transition to a lower carbon economy,” Berry said.
“If you look at oil companies, they have had strong performance for the last year. And while, although oil itself, West Texas Intermediate was up 5 percent overnight, but it’s actually slightly lower than it was three years ago.
“But oil companies have done well. Again …oil is about 3.5 percent of the S&P index. And so you compare that to technology at 33 percent, financials and banks at 13 percent, and healthcare at 10 percent.”
He said KiwiSaver was designed to be a long-term investment and in the past 10 years, oil and defence stocks had returned slightly less than the US market average. Technology stocks have been much stronger – recording such an increase that there have been fears of an AI bubble forming.
Marika Khabazi
The founder of Mindful Money, Barry Coates said investors might react by thinking they should invest more in fossil fuels to make higher returns from supply disruptions.
“This temptation to go for short-term returns may override their ethical position to use their investment to support the energy transition. Others may choose to maintain their ethical principles, and recognise that oil price instability is more likely to result in a more rapid transition to renewable energy.”
He said it could be argued that the oil supply disruption and likely increase in the price of oil had already been taken into account in the forward prices of oil and share prices of some oil companies had already risen.
“Financial analysts in the US have been far closer to the politics of launching bombing on Iran than NZ commentators or members of the public.
“Oil price rises are often temporary. For example, the price increases after Russia’s invasion of Ukraine had a short blip on oil prices and oil and gas company share prices. Both measures soon resumed their pattern over the past decade, which has been to significantly under-perform the S&P500.
“The impacts may vary between individual companies in unpredictable ways. For example, with supply disruptions in the Strait of Hormuz. These disruptions might affect different companies in different ways.”
Gold has also been pushed up by the uncertainty, which Berry said was a rational move to safe assets.
Overall, equity markets have largely taken the turmoil in their stride so far.
The Vix index, which measures volatility, was on Tuesday morning at about half the level it was when President Donald Trump announced tariffs in April last year.
Berry said what happened from here would depend on how long the war continued and whether there was a regime change in Iran.
“What happens in terms of disruption globally? How is oil and shipping distribution impacted globally and for how long? And you really need to answer those questions to know what the long-term impact is.”
He said KiwiSaver members should remember they were diversified across asset classes and countries and that would reduce risk.
“Get your risk profile right, focus on the long term, and think about values you want to take into account in your investing, particularly around weapons and whether you want to be profiting from war.”
Carlyon agreed the market response had so far been much more muted than had been feared.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
