ETF Trends Shift Sharply Amid Iran War Impact
The start of the Iran war on February 28, 2026, abruptly reversed performance trends for some ETF categories (such as gold, emerging markets, and long maturity U.S. bonds), while accelerating pre-war trends for others (such as the U.S. energy sector and the “Magnificent 7”). The SPDR Gold ETF (GLD) was up 22.1% in 2026 prior to the start of the war, following a 64.4% gain in 2025, which then sharply reversed after the war started. Emerging market equity and long-duration bond ETFs have shown a similar abrupt performance reversal. Meanwhile, the Roundhill Magnificent 7 ETF (MAGS) was already exhibiting weakness at the start of this year, while the State Street Energy Select Sector SPDR ETF (XLE) had started to turn around. Both trends accelerated after the start of the Iran conflict.
ETF Categories Negatively Impacted by the Iran Conflict
ETFs tracking metals have corrected significantly since the Iran war started due to a stronger dollar and the twin risks of inflation and weaker economic growth. The U.S. dollar strengthened after the start of the conflict, which makes gold, usually priced in dollars, more expensive for emerging markets buyers. As a non-yielding asset, it is also negatively impacted by the possibility of higher interest rates due to inflationary pressures. Further, according to data from the World Gold Council, 43% of gold demand in 2025 was investment demand, much higher than the 20%-25% range in prior years. The decline in this speculative demand likely offset demand for the metal as a safe-haven asset, resulting in a sharp 14.3% correction in GLD from February 28 to March 27, 2026 (see Figure 1). Copper mining ETFs have also seen a reversal in performance, likely due to fears of demand destruction in home construction and data center buildout, as well as the rising costs of energy-intensive metal extraction. The iShares Copper and Metals Mining ETF (ICOP) declined by 21.6% in the trailing month ending March 27, 2026, after appreciating 77.9% in 2025 and another 29.0% in 2026 prior to the Iran war.
Since the start of the Iran war, the U.S. consumer discretionary sector, particularly homebuilding, has been significantly impacted. The State Street Consumer Discretionary Select Sector SPDR ETF (XLY) was down 9.5% in the trailing month through March 27, 2026. In that same period, ETFs in industries within consumer discretionary sector that are reliant on energy inputs have also corrected. The SPDR S&P Homebuilders ETF (XHB) and the Invesco Leisure and Entertainment ETF (PEJ), which includes jet fuel-sensitive travel stocks, were down 7.3% and 9.1%, respectively, in the month ending March 27, 2026.
ETFs linked to heavily energy-import-dependent Asian markets like South Korea, Japan and Taiwan have also experienced sharp performance reversals. According to the Korea International Trade Association, prior to the war, South Korea relied on the Middle East for 70% of its crude oil imports. The largest holdings in EWY are energy-intensive semiconductor manufacturing firms like Samsung Electronics and SK Hynix. Japan and Taiwan are similarly dependent on Middle East oil imports and have energy-intensive manufacturing bases. The weakening in the currencies of these countries relative to the U.S. dollar has resulted in currency-hedged ETFs like the WisdomTree Japan Hedged Equity Fund (DXJ) outperforming its unhedged counterpart, the iShares MSCI Japan ETF (EWJ), in the trailing one month through March 27, 2026.
ETF Categories With Accelerating Inflows After Start of Iran War
U.S. listed ETFs linked to energy stocks have taken in $12.3 billion in inflows year to date, a reversal from the $8.3 billion in outflows in 2025 (see Table 2). Flows generally tend to lag performance, and investors appear to be reacting to strong returns for the sector as well as anticipating supply disruptions and elevated crude oil prices. Transport disruption through the Strait of Hormuz has also impacted fertilizers, and investors have rotated into agricultural futures in anticipation of higher agricultural commodity prices.
These energy and food supply chain disruptions will likely reignite inflation and delay interest rate cuts, and consequently, investors are rotating heavily into the shorter end of the fixed income curve. Investors in U.S.-listed ETFs have moved $33.3 billion of new money into short and ultrashort-duration bond ETFs, a significantly higher pace than in 2025. Investors have also added over $500 million of net new money in bullish dollar ETFs like the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU), which appreciated by 3.2% in the month ending March 27, 2026, a reversal of its 3.2% decline in 2025.
Looking Ahead
Investors will be closely monitoring the movement of ships in the Strait of Hormuz and the resultant impact on prices of crude oil as well as plastics and other products derived from petrochemicals. The longer this conflict persists, the more recent post-war ETF trends will persist. Elevated energy prices will continue to accelerate rotation into ETFs linked to energy stocks, short-duration bonds and agricultural futures, while putting pressure on emerging markets, long-duration bonds, consumer discretionary stocks, and mining ETFs.
