A potential diplomatic breakthrough between the US and Iran could unlock a significant shift in sector leadership, according to analysts and fund managers. Select sector and geographic themed ETFs could rally if President Donald Trump’s strikes an Iran peace deal.
Wolfe Research analyst Chris Senyek this week highlighted that while the US administration’s messaging on the conflict has been inconsistent, Trump’s decision to walk back on comments regarding striking Iranian energy infrastructure have sent global stocks higher so far this week as oil prices fell sharply and bond yields eased.
Senyek says Wolfe Research is ‘looking for further progress to be made on Iran to dial up risk exposures’, arguing that a sustained resolution ‘would clear a path higher for equities.’
Microchips and tech infrastructure
In such a scenario, Wolfe Research recommends buying semiconductors, industrials and equal-weighted discretionary stocks. Fund managers have also flagged Japan as an area worth backing for a quick recovery to recent drops following the outbreak of the Iran war.
According to data from Trustnet, investor selling has been indiscriminate since the conflict ignited in late February. Around 95% of funds have generated losses since the war began, a Trustnet study states.
‘Over the past two weeks, Japanese equities have come under pressure amid a broader global risk-off move’, said AVI Global Trust’s (AGT) Joe Bauernfreund.
However, the magnitude of the sell-off appears disproportionate to underlying fundamentals and has left parts of the market looking oversold, he believes.
Attractive Japan entry?
‘This may present an attractive entry point for investors, particularly given that Japan’s macro backdrop is more supportive than at any point in decades, with sustained wage growth, improving domestic demand and a structural shift away from deflation.
Wolfe Research’s Senyek favours microchips and tech infrastructure as hotspots. If the US administration can strike a deal, investors are likely to ‘once again buy companies most leveraged to the AI trade’, he wrote in a note.
Senyek expects mega-cap technology stocks to attract strong inflows, citing a combination of robust growth and ‘increasingly attractive valuations.’
Wolfe Research also highlights likely shifts in global capital flows. While a resolution would support global growth, the firm says international markets may struggle given their greater sensitivity to oil prices.
Senyek believes that foreign investors would most likely ‘rotate back into the US and more specifically, Nasdaq/large caps’, as easing geopolitical risks refocus attention on high-growth US technology names.
Word of warning
However, some fund managers are urging caution. Mixed messaging from Trump has led to significant confusion, with most investors unsure if peace negotiations are even taking place, never mind being close to finding common ground. Iran has so far denied direct talks with US officials.
This means that investors will be taking higher levels of risk to back an early peace deal. Those willing to embrace elevated risks might consider sector and geography-specific ETFs to do so, and Sharesify provides a few ideas from data provider JustETF’s ‘Best ranked‘ lists:
Best ranked Japan
| ETF | Acc / Dist | Fund size | Charges | 1-year perf | 5-year perf |
| UBS Core MSCI Japan | Both | £4,168m | 0.12% | 34.77% | 62.72% |
| Amundi Core MSCI Japan | Acc | £3,946m | 0.12% | 34.75% | 62.66% |
| State Street SPDR MSCI Japan | Acc | £688m | 0.12% | 34.69% | 62.52% |
Source: JustETF
Best ranked Semiconductors
| ETF | Acc / Dist | Fund size | Charges | 1-year perf | 3-year perf |
| HSBC Nasdaq Global Semiconductor | Acc | £78m | 0.35% | 81.82% | – |
| First Trust Bloomberg Global Semiconductor Supply Chain | Acc | £18m | 0.35% | 79.08% | – |
| iShares MSCI Global Semiconductors | Acc | £1,853m | 0.35% | 79.36% | 147.45% |
Source: JustETF
Best ranked AI
| ETF | Acc / Dist | Fund size | Charges | 1-year perf | 5-year perf |
| iShares AI Infrastructure | Acc | £475m | 0.35% | 47.76% | – |
| WisdomTree Artificial Intelligence | Acc | £747m | 0.40% | 31.49% | 62.66% |
| iShares AI Innovation Active | Acc | £100m | 0.73% | 40.84% | – |
Source: JustETF
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