Iran War Drives Commodities ETF Rally as Stocks Retreat

While the stock market has retreated since the start of the US-Israel war with Iran, another broad category, commodities, has delivered double-digit returns so far this year.

That’s in no small part due to oil prices that are going through the roof, as Iran has effectively blocked the Strait of Hormuz, one of the most important crude-shipping corridors in the world. But, ETFs with exposure to precious metals and rare earth elements have also seen returns over 15%, and agricultural commodities funds have climbed significantly as well. Something that definitely hasn’t hurt one commodities ETF is diversification. Harbor Capital Advisors’ Commodity All-Weather Strategy ETF (HGER) has returned nearly 26% so far this year. That fund shifts its exposure between commodities based on insurance dynamics, with the portfolio going between scarcity and debasement scenarios, Harbor portfolio manager Jake Schurmeier said.

“In the current environment, we still have a pretty significant overweight to gold and the more debasement side of the portfolio,” he said. “That has evolved and shifted a bit more to the consumables side.”

Addicted to Oil

There’s no getting around the world’s dependence on petroleum. Iran, which has claimed responsibility for several recent attacks on tanker ships in the Strait of Hormuz and has reportedly been laying mines in the waterway, has vowed to block ships as part of its resistance to attacks from the US and Israel. Oil prices, while fluctuating, have shot above $100 per barrel in the past week from prior fair values of $60 to $65, Schurmeier said. But it’s not just oil that is affected by the strait’s closure, as fertilizer chemicals supplied by the Middle East are also moved through it.

A few ETFs show how the war has affected commodities, as of market close on Friday:

• The United States Oil Fund (USO) is up 74%, and the State Street Energy Select Sector SPDR ETF (XLE) has risen 26%. Separately, a fund focused on shipping, the Breakwave Tanker Shipping ETF (BWET), has surged 218%. 
• The SPDR Gold Trust (GLD) has added 16%, VanEck Rare Earth and Strategic Metals ETF (REMX) has gained 17%.
• The Teucrium Corn Fund (CORN) has climbed 6%, and that firm’s Soybean Fund (SOYB) is up 13%.

Ex-Pat Investments? Trump administration policies like global tariffs have fueled the sell-America trend that has weighed on the stock market. And while defense stocks have seen a boost from the war (iShares US Aerospace and Defense ETF (ITA) is up 3%), the S&P 500 is down 3%. An environment in which the US leadership continues to double down on trade-related threats will show the world that “the US is just an unreliable partner,” Schurmeier said. “You’ll continue to accelerate that diversification outside of US assets.”