ETFs to Consider as Middle-East Conflicts Escalate

On Tuesday, Iran launched an attack on Israel, firing a barrage of missiles in the latest escalation to the ongoing conflict in the Middle East, marking the largest military offensive against Israel to date. This sent the stocks declining, with investors rushing to take cover under safe-haven assets.

According to a statement from Israel on Wednesday, the country indicated that its missile assault would come to an end unless provoked further. This was followed by vows of retaliation from both Israel and the United States, escalating fears of a broader conflict.

Escalating tensions in the Middle East have weakened investor confidence and sparked worries about how riskier assets could react if the conflict widens.

ETFs to Consider

As tensions escalate in the Middle East, investors can enhance their exposure to the following sectors, especially in the short term, to potentially boost portfolio gains and better prepare for the uncertain market environment.

Gold ETFs

Gold, a safe-haven investment during a challenging period, has been trending upward, encouraging calls for a surge in the commodity’s price to reach its price peak. The price of the yellow commodity has been ascending amid rising geopolitical tensions in the Middle East.

According to Yahoo Finance, the price of the precious metal surged about 1% on Tuesday, as tensions escalated following Iran’s firing of ballistic missiles. Frequently seen as a safe-haven investment, investing in the yellow metal during volatile periods can prove to be beneficial.

As returns on bonds, stocks and property decrease, interest in gold rises, boosting its value, as it usually does well when other asset classes struggle.

Investors can consider funds like SPDR Gold Shares GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM, abrdn Physical Gold Shares ETF SGOL and Goldman Sachs Physical Gold ETF AAAU.

Defense ETFs

Defense stocks, which rely heavily on rising military expenditures, tend to see a boost in their prospects during times of escalating conflict, as increased tensions drive higher defense spending by economies. As the risk of the conflict widening surges, increasing exposure to defense-focused investment funds becomes a more attractive strategy for investors.

Rising geopolitical tensions could result in increased defense spending by the United States and its European allies. Meanwhile, China’s defense budget for 2024 surged by 7.2%, marking the ninth consecutive year of growth. India is also planning to increase defense spending, with billions earmarked for the procurement of new weapons (Read: Aerospace & Defense ETFs at 52-Week High: Here's Why).

Funds like iShares U.S. Aerospace & Defense ETF ITA, Invesco Aerospace & Defense ETF PPA, SPDR S&P Aerospace & Defense ETF XAR, Global X Defense Tech ETF SHLD and SPDR S&P Kensho Future Security ETF FITE can be considered.

Energy ETFs

The Middle East accounts for nearly one-third of the global oil production, making oil supply increasingly vulnerable to any conflicts in the area. After Iran’s missile attack on Israel, oil prices have surged.

Oil prices could climb even higher as uncertainty around supply persists, largely depending on Israel’s response and the potential for the conflict to escalate further. According to Yahoo Finance, the global benchmark Brent surged about 5% on Tuesday, following the Iranian assault, which came after a warning from the United States.

Investors can look into Energy Select Sector SPDR Fund XLE, Vanguard Energy ETF VDE, SPDR S&P Oil & Gas Exploration & Production ETF XOP, iShares Global Energy ETF IXC and Fidelity MSCI Energy Index ETF FENY.

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