Iran Conflict Spurs Market Volatility as Savana’s US Small Caps ETF Sees Modest Portfolio Decline

March Performance and Currency Impact

The Savana US Small Caps Active ETF (ASX:SVNP) advanced by 1.28% in March 2026, outperforming the S&P 600 benchmark by 1.46%. This positive result was largely driven by a 3.15% appreciation in the USD/AUD exchange rate, which helped offset a modest 1.81% decline at the portfolio level. Notable contributors to the outperformance included Sarepta Therapeutics and HighPeak Energy, which rose by 30% and 32% respectively during the month.

Geopolitical Volatility and Market Reaction

The outbreak of conflict in Iran on 28 February 2026 led to significant market volatility, particularly in energy and bond markets. Brent crude oil prices surged 63% over March, climbing from $72.48 to $118.35 per barrel. Concurrently, Australian and US 10-year government bond yields rose by 35 and 38 basis points respectively, reaching levels not seen since 2011.

Despite these sharp repricings, equity markets demonstrated relative composure. The S&P 500 and S&P Small Cap 600 indices declined by 4.98% and 4.07% respectively over the month, while the ASX 200 fell 7.15%. These moves, while meaningful, were considered modest relative to the scale of bond market adjustments.

US Equities and Currency Dynamics

Savana’s commentary highlights the resilience of US equities amid the geopolitical tensions, underpinned by the US dollar’s status as a safe-haven currency and the structural strength of the US economy. The US dollar’s appreciation during periods of market stress can provide a natural hedge for Australian investors holding US assets, as evidenced by a negative correlation (-0.48) between the USD/AUD and the S&P 600 in March.

The US economy’s relative energy independence and low import-to-GDP ratio (13.7%) compared with other OECD countries are cited as factors insulating it from the worst effects of the Iran conflict. The US is also the world’s largest producer of crude oil and natural gas, with less than 10% of its oil supply sourced from the Persian Gulf, which contrasts with the higher import reliance of regions such as Japan and Europe.

Active Management Challenges and SPIVA Results

The report references the 2025 SPIVA scorecard from S&P, which shows that a majority of active fund managers underperformed their benchmarks. Specifically, 74% of Australian Equity General funds underperformed in 2025, with 87% underperforming over 15 years. Globally, 96% of funds underperformed over the same period. These findings reinforce Savana’s position that traditional active management struggles to deliver consistent outperformance in efficient markets.

Savana positions its US Small Caps Active ETF as a research-driven alternative to human-managed funds, aiming to leverage systematic processes rather than discretionary decisions. This approach is presented as a response to the challenges highlighted by the SPIVA data.

Market Outlook and Investment Considerations

The ongoing conflict in Iran and associated energy price volatility present significant uncertainties for markets. While some market participants appear to anticipate a near-term resolution, the situation remains fluid. Savana emphasises the importance of maintaining diversified and balanced portfolios to navigate such volatility, noting the risks of both remaining fully invested and sitting on the sidelines.

For Australian investors, the combination of US equity exposure and unhedged USD currency risk is viewed as a potentially beneficial dynamic, providing some cushioning against equity drawdowns during periods of stress. However, the commentary stops short of making explicit forward-looking investment recommendations.