Ever since conflict erupted in the Middle East a few months ago, the topic of geopolitical uncertainty has remained fresh in the minds of advisors and investors alike. For this edition of Bull vs. Bear, writers Nicholas Peters-Golden and Nick Wodeshick discuss whether geopolitical risk factors should be the top concern when managing one’s portfolio in 2026.Dire StraitsNick Peters-Golden: As of writing, the Strait of Hormuz situation is unclear. President Trump and the Iranian government frequently share considerably divergent reports about the situation. However, right now, it appears that ships remain broadly prevented from leaving due to the U.S. blockade.
It has now been months since the initial U.S.-Israeli attack on Iran, despite the stated expectation by the U.S. government that a military engagement would be quick. Now, there appear to be few options for the U.S. to disengage, and with every day that passes, the economic toll grows even more.
The situation does not look easy to solve. For one, neither party wants to appear to back down easily. The Israeli side with the U.S. sees this conflict as its best chance to assert full control over the region. Meanwhile, the diversified powers in Iran following the death of the Ayatollah empowered the Iranian Revolutionary Guards Corp (IRGC) even more.
With no end in sight, the already-serious economic costs now loom even larger. So far, corporations have had to change tack. In particular, Spirit Airlines, which had long been in financial trouble, could not handle rising fuel costs. Food costs appear poised for a serious spike, as fertilizer exports from the Middle East have been slowed precipitously. Broad inflation appears to be the name of the game.
What’s more, even if the Strait were to open right now, the impact would continue. Already, global oil stocks are approaching an eight-year low, per Goldman Sachs. The conflict has severely damaged energy infrastructure throughout the Middle East. As of April 15, according to consulting firm Rystad Energy, the Iran war had already caused more than $58 billion in energy infrastructure damage.
All of this points to a question — why, then, has the stock market not responded? Some rightfully cite the increasing disconnect between the stock market and the economy as the average person experiences it. The huge tech firms continue to post strong numbers despite prices’ upwards march. Those firms make up a huge part of the stock market.
However, I believe investors do need to pivot and prepare their portfolios. Yes, those major firms are doing well, despite inflation rising again. That’s causing serious concentration risk. Prior to this outbreak of geopolitical chaos, investors had more areas in which to diversify. Sectors like-small caps, which were able to diversify, now face high prices, which can be tougher to navigate than for large-caps.
Yes, the stock market is up — but the situation is more precarious as the energy vise tightens. That’s why the time to adjust portfolios in response to geopolitics is now.Fundamentals Over Panic Selling Every TimeNick Wodeshick: Broadly speaking, when bouts of macroeconomic instability hit the headlines, the market tends to overcorrect. Traders assume the worst and sell out of their riskier assets.
I totally understand concern about geopolitical uncertainty affecting portfolios. After all, we’re constantly seeing new headlines and developments that are hard to predict, making it difficult to be optimistic in the near-term.
That’s why it’s important to focus on portfolio fundamentals here. Many companies are still doing well — especially those who are best able to capitalize on AI innovation and adoption.
Just take a look at Apple. Sure, macroeconomic conditions are making its supply chain challenging, but the company is still posting compelling earnings reports. Its recent Q2 2026 earnings report featured a 17% growth in quarterly revenue over the prior year’s numbers.
See More: Apple’s Standout Q2 Earnings Open Up ETF Opportunities
Companies like Apple show why it’s important not to panic right now. Even though geopolitics is affecting some investment strategies, investors can tap into high-quality companies with the right ETF approach.
One fund that could offer a compelling use case is the low-cost Vanguard Information Technology ETF (VGT A). With a net expense ratio of nine basis points (bps), this fund provides focused exposure to top players in the tech sector. As of March 31, 2026, Apple is the second-largest stock in the fund’s portfolio, comprising 15.85% of net assets.
While many large-cap funds have struggled in the near-term, VGT has remained distinctly in the green this year. As of April 30, 2026, the fund’s NAV has risen 9.65% year to date.
Results like VGT’s showcase how near-term conditions are not nearly as doom-and-gloom as one may assume. Instead of focusing on geopolitical conditions out of their control, investors should look to the enduring power of high-quality companies with strong fundamentals. Don’t Forget China!Peters-Golden: All of this, of course, ignores the potential for further geopolitical risk. The above omits that the year started with the U.S. attacking Venezuela. Just because the Trump administration has made Iran its focus does not mean that it — or other countries — cannot engage in further conflict.
China is a case in point. The country has a stated policy of seeking reunification with Taiwan. Much has been written about whether the People’s Republic would take advantage of massively depleted U.S. attention and military capacity to potentially retake the island militarily.
Such a scenario raises risk around a different, but only slightly less significant strait: the Strait of Malacca. Conflict over that strait would invite further global economic destabilization. That, of course, would only pale in comparison to the impact of a fissure between the U.S. and China economies. The latter has a massive amount of Treasurys in its portfolio, while the former relies heavily on China imports.
A China invasion of Taiwan would be less disruptive than the U.S.-Israel-Iran war, but it would remain a serious risk for global markets to digest. What’s more, it would signal that the U.S. attack on global stability has inaugurated a new era of conflict hostile to markets.
Once those geopolitical issues start to bump into one another, things can really go off the rails for markets. China has major weight in the semiconductor landscape. A conflict involving Taiwan, where many key semiconductor operations are located, would deliver a much more direct blow to U.S. tech stocks.A Historical PerspectiveWodeshick: As we know, history has a habit of repeating itself. And historical precedent has shown that geopolitical conflicts don’t tend to cause the sort of long-term lasting damage to markets that folks might be expecting.
Back in March, Invesco released compelling insights on historical stock trends following geopolitical conflicts. In the post, Brian Levitt, chief global market strategist and head of strategy & insights at Invesco, examined how the S&P 500 performed 12 months following a significant peak in the Geopolitical risk index
The results Levitt found were fascinating: While there were some exceptions, the S&P 500 ended up being in the positive 10 times out of 13. During each of those 10 times the S&P 500 was in the green, the large-cap index was also over the 10% mark — often even well over that mark.
“While unnerving, geopolitical conflicts shouldn’t change investors’ long-term investment plans, in my view,” concluded Levitt. “History has shown that other factors — economic growth, business innovation, and monetary policy — drive the path of the markets.”
Contextualizing this for today, investors should look to continue playing the long game. Don’t focus on near-term volatility — if history is any indicator, the strength of individual businesses and central banks can continue to move markets in the right direction in the long term. How ETFs Can Help Investors AdaptPeters-Golden: With energy issues looming over the broader investing landscape, what kind of ETFs can help portfolios ride out a volatile year for geopolitics? The ETF wrapper has allowed asset managers to innovate on all kinds of strategies. Certain segments of the broader equities landscape could do well, even as energy costs continue to rise. However, it’s within those income and volatility fund categories one can find intriguing options for risk.
For example, emerging markets have been a strong category YTD. Multiple emerging markets ETFs have been strong performers, according to ETF Database data.
For example, the Matthews Korea Active ETF (MKOR ), has returned 66.9% YTD. MKOR charges a 79-bps fee. It targets South Korean equities, including important firms in the global tech supply chain. MKOR specifically invests in firms based on fundamental characteristics like employee size, product lines, financial health, book value, and more.
Strategies like MKOR and others that emphasize emerging markets and semiconductors offer diversification away from U.S. concentration risk and a domestic economy stressed by energy prices.
International equities, too, have proven a popular category already this year. A recent WisdomTree webcast found international equities were the most popular option among respondents asked where they would allocate this year. International equities can lower or even fully remove exposure to U.S. equities while also leaning into the best opportunities abroad.
Active management, in particular, can be a standout way to get international equities exposure. It can help strategies with a bottom-up portfolio construction process that finds standouts in lower-information foreign markets. At the same time, active managers can adapt by moving into other international markets if global conditions shift, while still maintaining that diversification from U.S. stocks.
The T. Rowe Price International Equity Research ETF (TIER ) provides a strong option to invest therein. It charges a 38-bps fee to actively invest in non-U.S. stocks of any capitalization. The active fund has returned 9.3% YTD.
Outside of those strategies, the various dividend, income, and defensive, equal-weight type ETFs can help add durability to portfolios. For example, the T. Rowe Price Capital Appreciation Premium Income ETF (TCAL ) combines active equity exposure with an income-generating call option strategy. By actively selling calls on equities, it aims to provide equity upside with steady income to boost portfolios.
When ETFs like those are available, it’s hard to imagine not adapting portfolios at least somewhat. The situation is already putting so much pressure on markets, but the key is that it could get much worse and last for who knows how much longer. Don’t underrate that risk or the other risk types mentioned already.Diversification Is KeyWodeshick: One reason folks shouldn’t overcalculate geopolitical risk is that there’s an easy answer: diversification. A well-diversified portfolio can offer a menagerie of defensive and offensive benefits in this kind of environment.
To start, diversification can certainly help when individual asset classes start seeing volatility. With what has gone on with the Strait of Hormuz on many investors’ minds, one of the ways to handle that is to invest in a diversified set of assets that offer minimal correlation to oil and energy. By doing so, an investor can limit the overall damage their portfolio could receive in the near-term from volatility in the energy sector.
Meanwhile, building access to different areas of the market can help amplify a portfolio’s total return. Investing in assets that have been overlooked in recent years, such as international equities or infrastructure, can certainly pay off in the long run.
The ETF wrapper’s flexibility can make building that diversified portfolio much easier than one may expect. For instance, take a look at the ALPS Emerging Sector Dividend Dogs ETF (EDOG A-).
See more: 2026 in Focus: Why Emerging Markets Matter
EDOG provides diversification on both a sector and geographic basis. The fund uses the ’Dogs of the Dow’ theory, applying the S-Network Emerging Markets Liquid 500 Index to gain exposure to ten market sectors. EDOG chooses companies to invest in based upon their dividend payouts.
Furthermore, the fund generates international diversification through its exposure to emerging markets. This includes allocations to India, Brazil, Thailand, and Malaysia, among many others.
Diversified exposure—be it through EDOG or through another ETF—can help investors and advisors alike mitigate the impact of short-term volatility while remaining well-positioned for long-term opportunities. When the going gets tough, don’t panic. Diversify!
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VettaFi LLC (“VettaFi”) is the index provider for EDOG, for which it receives an index licensing fee. However, EDOG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of EDOG.
