The first quarter of 2026 saw energy investors reap huge gains as oil prices spiked above $100 per barrel following U.S. military action in Iran. Fossil-fuel stocks soared while broader markets lagged, with Morningstar's equity energy fund category jumping 33.1% on average. The $42 billion State Street Energy Select Sector SPDR ETF surged 37.8%, contrasting sharply with the $1.5 trillion Vanguard S&P 500 ETF, which fell 4.3%.

Market volatility was driven by ongoing geopolitical uncertainty. President Trump’s peacemaking efforts, including discussions over the Strait of Hormuz, created a seesaw effect on markets, rallying on positive statements and falling as tensions persisted. Insider trading speculation grew as futures for oil and stocks spiked ahead of market-moving announcements.

Hedge funds and macro trading strategies benefited, with Morningstar’s macro trading category up 7.3% for the quarter. Systematic trend and multistrategy funds also performed well, with AQR Style Premia Alternative and LoCorr Market Trend posting gains of 9.9% and 13.1%, respectively. Commodities futures funds were a clear winner, led by the United States Oil ETF, up 82.9% in the quarter.

The oil surge strengthened the U.S. dollar, causing foreign stocks and gold to underperform. iShares MSCI EAFE ETFs fell 8.2%, while currency-hedged alternatives performed better. Meanwhile, U.S. large growth funds struggled, down 9% for the quarter, while value funds, bolstered by energy stocks, gained 1.6%.

One standout performer was the $52 million Breakwave Tanker Shipping ETF, which soared over 500%, capitalizing on the strategic importance of the Strait of Hormuz to global oil transport. Despite market upheaval, indexing remained strong, with passive funds receiving $232.9 billion in inflows compared with $97.6 billion for active funds.

In summary, energy-related assets thrived amid geopolitical tensions, while growth stocks and international equities faced headwinds. Hedge funds, commodities, and specialized ETFs offered investors alternative ways to profit from market volatility.