Insights From ETFs: ETFs In Times Of Turmoil

The geo-political backdrop 

The Iran-Israel modern conflict is a geopolitical story that has lasted for decades. The conflict was largely due to ideological opposition between the two countries and competition for regional dominance. While Israel has sent missiles into Iran in the past, Iran has also retaliated. Both countries claim it is strictly for defence. Israel pursues a free-market economy and has the United States as its long-term ally. 

The recent development has worsened with the involvement of the U.S, as on 22 June 2025, President Trump executed a direct military strike on Iran’s nuclear sites using bombs and missiles, which had a devastating impact on Iran’s infrastructure and nuclear capability. Tensions remain high, and the outcome is still unpredictable as to whether Iran could further retaliate, as well as the scenario of potential involvement of other superpowers like China and Russia, is still on the table. 

Sectors that are expected to benefit 

War would not be a favourable outcome for civilization, nor a result that investors should try to anticipate or speculate on. On the other hand, investors should be aware of this geopolitical risk and open to various scenarios, as we live in a world where anything could happen.  

Understanding this, investors can protect and build a resilient portfolio that could do well or even benefit from it if the worst-case scenario happens. Though various sectors could be the direct beneficiaries of the political instability, we only discuss the top three industries that we think could benefit most if tensions continue to escalate and the likelihood of a war increases. 

Energy: The Middle East possesses abundant oil resources, and any oil supply shock could significantly push up oil prices in the near term. For example, crude oil experienced significant volatility in the few days after the U.S. attack on Iran’s sites. High prices would tend to benefit North American oil drillers.  

Defence stocks: The geopolitical tension and a potential for war could lead to an increase in the defence budget globally. Therefore, the U.S. aerospace and defence sector could be a direct beneficiary of this, given its dominant position in the global defence industry, which possesses some of the largest players like Lockheed Martin (LMT), General Dynamics (GD), etc. 

Gold: Gold is a safe-haven place for investors in case of macro uncertainties such as war, inflation and other unexpected shocks. This is especially true if a war ever happened, governments would likely need to raise money by issuing bonds to fund weapons and aircraft, which could increase inflation significantly and dilute the value of dollars. This trend would be highly favourable for oil producers globally. 

Here are a few Exchange-Traded Funds (ETFs) that give investors exposure to each sector mentioned above: 

1. Gold: BMO Equal Weight Global Gold ETF (EAFG)  

BMO Equal Weight Global Gold ETF (ZGD) has been a solid outperformer, with strong double-digit returns across various timeframes, including one-, three-, five- and ten-years. On the year-to-date basis, ZGD provided investors an annualized return of 46%, which was due to the tailwind of strong gold prices driven by geopolitical uncertainty since President Trump took office. 

ZGD was launched in 2012, with around $126 million in Assets Under Management (AUM) that is invested in 37 gold mining companies, each having a weighting of between 2% and 3%. The fund strategy is to own global securities in the gold industry on an equal-weight basis. 

Geographically, ZGD’s allocation in terms of territories is: Canada (69.8%), U.S. (10.6%), Australia (6.3%), South Africa (4.9%), the U.K. (3.0%). The fund carries a Management Expense Ratio (MER) of 0.6%, and currently pays an annual distribution of 0.39%.