How Markets Have Reacted To The Iran Conflict

• See which IA sectors were hit hardest over the past month and which areas showed greater resilience during the recent market decline.
• Understand how different regions and asset types responded to volatility, and why some markets fell significantly more than others.
• Discover why recent short-term declines look very different when viewed over 1, 3 and 5 years, and what that means for long-term investors.
• Explore detailed sector-level data across 4,215 funds and what it reveals about how markets behave during periods of uncertainty.
• Download the full fund performance report and see how each fund and sector has performed over 1, 3 & 6 months and 1, 3 & 5 years.

Over the past month, the conflict involving Iran has unsettled markets, pushed energy prices higher and increased short-term uncertainty. Investors are weighing outcomes ranging from ceasefire to renewed escalation, while the Bank of England has said the disruption to oil and gas supply is expected to push inflation higher in the short term.

This has been reflected in fund performance. Based on analysis of 4,215 Investment Association (IA) sector-classified funds with at least one year of history, the average fund fell by 6.29% over the past month, with only 107 funds delivering a positive return. This points to widespread weakness across the fund universe rather than declines being limited to a small number of sectors.

However, the more useful message for investors is not simply that markets have fallen, but that they have moved in very different ways. Some sectors have been hit far harder than others, some have held up relatively well, and the longer-term numbers still present a much calmer picture than the last month’s headlines.

Where The Declines Were Sharpest

Performance across IA sectors has diverged sharply over the past month. The two money market sectors were the only areas to deliver positive average returns, while UK Smaller Companies, India/Indian Subcontinent and European Smaller Companies recorded average falls of more than 10%.

Looking across equity markets, the pattern is clear. UK equities, Europe and Japan have been among the weakest areas, with sectors such as UK All Companies, Europe ex UK and Japan all posting significant declines. Emerging markets have also struggled, particularly those more sensitive to changes in global growth expectations.

By contrast, North America and global equity sectors have held up better, although still negative overall. Their average declines have been less severe, suggesting that larger, more established markets have been more resilient during this period.

The difference between smaller companies and larger markets stands out. Smaller company sectors in the UK and Europe have been among the hardest hit, showing how quickly investors move away from higher-risk areas when sentiment weakens.

For investors, this helps explain why outcomes have varied so widely. The recent decline has not affected all markets equally. Portfolios with greater exposure to smaller companies or specific regions would have experienced sharper falls, while those with a broader mix of assets would have seen a more measured impact.

Below is the average one-month return for each IA sector in this review.

The table above shows that average one-month sector returns ranged from +0.19% to -11.87%.

Where Declines Were More Contained

The sectors that held up best were not limited to cash and bonds. While those areas did provide the most stability, some equity sectors also proved more resilient than others.

The two money market sectors were the only areas to deliver positive returns over the past month. Beyond that, the least affected areas were mainly bond sectors, including USD Mixed Bond, USD High Yield Bond, Global High Yield Bond and Sterling Strategic Bond, along with UK Direct Property. While these sectors still fell, the declines were much smaller than those seen across most equity markets.

Within equities, North America and global sectors held up better than most. Although still negative, their average declines were less severe than those seen across UK, European and emerging market sectors. This suggests that larger, more established markets have been more resilient during this period.

The difference between larger markets and smaller companies is particularly clear. Smaller company sectors in the UK and Europe were among the hardest hit, while broader large-cap markets saw more contained declines.

For investors, this highlights how different parts of a portfolio respond to changing conditions. Portfolios with broader exposure to larger, more established markets or income-producing assets have tended to fall less, while those concentrated in smaller companies or specific regions have been more exposed.

That is why diversification needs to be considered at a portfolio level. It is not just about how many funds are held, but how those funds behave when conditions change.

The Longer-Term Numbers Still Tell A Much Calmer Story

Despite the weakness over the past month, the longer-term average returns across IA sectors remain strongly positive. Of the 55 sectors analysed, 54 still show a positive average return over one year, 51 remain positive over three years, 47 are still positive over five years, and 45 are positive across all three periods.

The broader fund data supports this. Across all 4,215 funds in this review, the average return remains 10.30% over one year, 27.56% over three years and 28.41% over five years.

What also stands out is that several of the sectors hit hardest over the past month have still delivered strong medium to long-term returns. European Smaller Companies, Japan, Global Emerging Markets and UK All Companies have all been under pressure recently, yet all still show strong average gains over three years, and most remain firmly positive over five years as well.

That matters because short-term volatility and long-term outcomes are not the same thing. Investors who focus only on the last month are looking at the most reactive part of the picture. The longer-term data shows a much steadier trend and reinforces the importance of fund selection, sector balance and overall portfolio construction.

Average sector returns over 1, 3 and 5 years

Only 93 Funds Stayed In The Top Quartile Across All 6 Periods

One of the most useful parts of this review is not just what it says about sectors, but what it says about consistency.

Out of the 4,215 funds analysed, only 93 funds have ranked in the top 25% of their own sector across all six measured periods: 1 month, 3 months, 6 months, 1 year, 3 years and 5 years. That is just 2.2% of the entire universe.

That figure is important because it highlights how rare true consistency is. Plenty of funds can have one strong year. Far fewer can stay in the top quartile through very different market environments.

These 93 funds have done exactly that. On average, they fell by 4.69% over the past month, which is still negative, but noticeably better than the -6.29% average across the full fund universe. Over longer periods, the gap becomes far wider. The 93 funds averaged 24.70% over one year, 55.68% over three years and 74.99% over five years.

What This Means For Investors Now

The past several weeks have been uncomfortable, but it has also been useful. It has revealed which sectors were more fragile, which areas offered better protection, and how wide the gap can be between average funds and consistently strong ones.

That makes this a good time for investors to ask a simple question: Is my portfolio strong enough?

If your portfolio has fallen far more than the sector averages above, or if it is heavily concentrated in the areas that have been hit hardest, that may point to a structural issue rather than simple bad luck. The same is true if it contains funds that have spent years sitting in the bottom half of their sectors, or if it holds several funds that overlap heavily with each other.

That is where a proper portfolio analysis becomes valuable. Yodelar’s portfolio analysis compares each fund against its sector peers, identifies overlap, highlights underperforming holdings and shows how the portfolio has grown against a similar-risk comparator.

Summary

The past month has been a difficult one for many investors. Across 4,215 IA sector-classified funds, the average return was negative, and most sectors came under pressure.

However, short-term movements should not lead to fear-driven decisions. A well-structured portfolio, built with genuine diversification and aligned to the right level of risk, should matter far more than the latest bout of market noise.

The data highlights a clear point. Outcomes are driven by where and how a portfolio is invested, not by reacting to short-term conditions. Investors who remain focused on the structure of their portfolio are better positioned than those responding to recent performance in isolation.

This is where a more structured approach to portfolio management becomes relevant. MKC Invest portfolios are managed with discretionary permissions, allowing changes to be made within an agreed mandate, without delay. This means portfolios can be rebalanced, exposures adjusted and underperforming holdings replaced as conditions change, rather than relying on reactive or delayed decisions.

Find out more about MKC Invest portfolios. Book a no obligation call with one of our advisers

Combined with a whole-of-market approach to fund selection, portfolios can be built across a broad range of sectors, regions and asset types, while being actively maintained to remain aligned with their intended level of risk. In practice, this creates a more responsive and consistent approach, where portfolios are not left to drift but are continually refined as market conditions evolve.

The key takeaway is simple: short-term volatility may influence sentiment, but it does not change the importance of having a portfolio that is structured to deliver over the long term.