Up. Down. Curiously calm, then volatile.

The US-led attacks on Iran have sent sector ETFs climbing or falling after dragging down the major market indexes on Tuesday. Broad markets showed little change on Monday, though the ETFs initially performing best after the large-scale bombings included those focused on defense, oil, gold and crypto assets. Meanwhile, airline ETFs plummeted, along with emerging markets. The Vanguard S&P 500 ETF (VOO) was down less than 1% as of market close on Tuesday.

Investors tend to get spooked immediately after invasions, though markets may bounce back weeks later. “It seems like more fear is creeping into the market,” Amplify ETFs CEO Christian Magoon said. “Over the last 24 hours, as things have played out, the market has become more concerned.”

Gold, Guns and Oil

As the roughly 20% of global petroleum shipments that come via the Strait of Hormuz all but stopped, oil prices spiked. The $39 billion State Street Energy Select Sector SPDR ETF (XLE) was up 2% over five days as of market close on Tuesday. Amplify’s Breakwave Tanker Shipping ETF (BWET) rose 5% over five days after falling 13% yesterday. Before the attacks on Iran over the weekend, energy and basic materials were strong performers in the wider market, and investors may have felt more confident about those areas than technology amid volatility related to AI, Magoon said.

A category typically viewed as a safe haven, gold, initially rose before falling Tuesday. “Gold and silver have been good performers this year,” Magoon said. “There is some profit-taking in some of those areas right now, to potentially raise cash to be defensive or deploy at lower levels.” Other causes of the price drops are a flight to the US dollar and changes in expectations for rate cuts by the Federal Reserve, said Aakash Doshi, head of gold strategy at State Street Investment Management.

A look at how the crisis has affected ETFs by categories:

• With commercial air traffic halted at major hubs in the Middle East, airline stocks fell Monday, and the US Global Jets ETF (JETS) dropped 5% over five days, including a 1% decline on Tuesday. The iShares Core MSCI Emerging Markets ETF (IEMG) fell Tuesday by over 5%, bringing its five-day drop to over 6%.
• The SPDR Gold Trust (GLD) ETF fell 4.5% Tuesday, bringing its five-day decline to over 1.5%.
• The iShares US Aerospace & Defense ETF (ITA) rose 2% Monday but fell just as much on Tuesday.

Sell or Hold? The outcome of a potential war lasting more than a few weeks is uncertain. But a review of geopolitical events since 1990 shows a pattern: “Markets experience an initial shock, followed by recovery over the subsequent three to six months,” Westwood CIO of multi-asset strategies Adrian Helfert said in a statement. “The investors who fare worst in these episodes are those who sell into the initial panic.” Still, every episode is different. “This truly seems to be the first war that is livestreamed on social media,” Magoon said, of videos bystanders have posted of Iranian missiles landing in the UAE. “This is an emotional market, as we know.”

The sky’s the limit … at least, according to ERShares.

Investors piled into the Private-Public Crossover ETF (XOVR) before a major funding round in December that boosted SpaceX’s valuation, betting that the fund’s SpaceX stake would jump in value. Once the aerospace company was valued at $1 trillion in February, however, a small number of those investors quickly pulled their money back out, shrinking the fund back down to its original size. This left the fund with 44% of its assets in SpaceX at the time, nearly triple what the Securities and Exchange Commission allows. Some experts have argued that the company is disregarding liquidity rules, which they say could pose dangers to average investors.

“ERShares views our SpaceX position as gold,” said ERShares CEO Joel Shulman. “In fact, I like it better than gold.” When the ETF had large inflows starting in December, he said, its SpaceX position was diluted to less than 2%, so the firm bought more in order to meet shareholders’ expectations. “We didn’t know at the time that this money might depart.”

In-N-Out Fund

There have been other instances of investors buying up shares of products ahead of lucrative IPOs. Last year, for example, investors leapt into the ARK Innovation ETF (ARKK) after an SEC report highlighted Cathie Wood’s plan to buy millions of dollars’ worth of shares in the initial public offering of Bullish, a crypto exchange. The fund quickly lost just as much, however, dropping more than $5 billion in assets in less than a week. Such boundary-pushing could have consequences, since so much of XOVR’s holdings now consist of a single entity.

While Shulman doesn’t think investors will have trouble redeeming their shares, other industry experts disagreed. “Apparently ‘counting on lack of enforcement’ is now a business strategy,” Dave Nadig, president and director of research at ETF.com, wrote on LinkedIn. “If having almost half your ETF in a security that is not listed and does not trade is ‘playing by the rules’ … and the SEC is just telling them, ‘We understand,’ then we truly live in an absolutely lawless market.”

According to a Financial Times report:

• After investors pulled more than $600 million out of XOVR, its assets decreased to $482 million.
• The fund was launched in 2017 and now has roughly $1.5 billion in AUM.

You Say Less Liquid, I Say Illiquid. In the past, regulators have taken a strict view on SpaceX’s categorization as an illiquid asset, rather than “less liquid,” since the latter type of asset doesn’t have a percentage limit, as opposed to a 15% cap on illiquid assets. But the current SEC’s regulatory stance has been seen as more relaxed. “It was obvious that we were going to have deregulation, and that’s what we got,” said Bill Singer, a veteran Wall Street regulatory lawyer. “I don’t know why that surprises anybody.”

This article has been updated to accurately reflect the fund’s actual assets under management as $1.5 billion, and to confirm that a small number of investors made redemptions.

Well, that was fast.

After launching to much fanfare, the SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) amassed about $45 million in assets by mid-December, about nine months into its existence. Then, in just a single day in February, the first private market fund of its kind ballooned to $396 million in assets, roughly five times its previous size. The fund now has nearly 20 times the assets it had in mid-December, which are primarily being driven by the fund’s high performance in its first year of operation, as well as investors’ increasing appetite for private credit ETFs, experts said.

“Tools that were available at very high net worth [levels], things like private credit … there’s been this kind of democratization of those,” Mike Downing, the co-president of Athene, Apollo’s retirement business, told ETF Upside in January. “So not just the ultra high net worth, but mass affluent investors, as well.”

Boom Docks

PRIV, a partnership between State Street and private markets giant Apollo Global Management, is an actively managed fund providing retail investors with access to private credit in the form of investment-grade debt securities. The fund gathered $745 million in inflows since the start of the year, according to VettaFi, and now sits at nearly $850 million in assets. It has outperformed 88% of its peers in its Morningstar category.

Similar funds haven’t seen as much success:

• The BondBloxx Private Credit CLO ETF (PCMM), which launched in late 2024, is down 0.56% year to date.
• The VanEck Alternative Asset Manager ETF (GPZ), which began trading in June, is down 19%.

A Little Off the Top: PRIV also lowered its expense ratio to 0.55% last month, down from 0.70%. The move makes the strategy less expensive than other major players in the private credit space, like PCMM and the Simplify VettaFi Private Credit Strategy ETF (PCR), which have ratios of 0.68% and 0.76%, respectively.