Investors are gravitating towards tried-and-true ETF strategies: energy, defense

[Businessman use smartphone to analyze and manage ETF account online, Represents investment growth and shows icons of ETF Exchange traded fund stock market trading investment financial concept.]
Thawatchai Chawong

Market volatility sparked by geopolitical tensions has shifted investor focus away from exotic ETF products back to tried-and-true sector-based strategies, according to Todd Rosenbluth, head of research at VettaFi.

While the turbulence hasn’t dampened overall demand for ETFs, it has created renewed interest in fundamental industry allocations, particularly in energy (XLE [https://seekingalpha.com/symbol/XLE]), (AMLP [https://seekingalpha.com/symbol/AMLP]), (VDE [https://seekingalpha.com/symbol/VDE]) and defense (ITA [https://seekingalpha.com/symbol/ITA]), (PPA [https://seekingalpha.com/symbol/PPA]), (XAR [https://seekingalpha.com/symbol/XAR]).

“The volatility that we’ve seen in the marketplace, geopolitically tied to the war in Iran, has caused investor interest in energy ETFs,” Rosenbluth said in an interview with CNBC.

He noted that the Energy Select Sector SPDR ETF (XLE [https://seekingalpha.com/symbol/XLE]) has been particularly popular, as investors look to add exposure to a sector that represents only 3-4% of the S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]).

Beyond traditional energy plays, investors are also turning to the Alerian MLP ETF (AMLP [https://seekingalpha.com/symbol/AMLP]) as an alternative.

Rosenbluth explained that the energy infrastructure space offers “a more stable cash flow generating space within energy,” adding that Master Limited Partnerships won’t be found within the S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]), making AMLP an attractive option for those seeking diversification.

Aerospace and defense has emerged as another area of intense investor focus for understandable reasons given the current global climate. However, investors aren’t just gravitating toward standard defense funds—they’re seeking more specialized exposure through products like the Global X Defense Technology ETF (SHLD [https://seekingalpha.com/symbol/SHLD]).

The Rex Drones ETF (DRNZ [https://seekingalpha.com/symbol/DRNZ]), a relatively new index-based fund, is also gaining traction among investors looking for technologically advanced exposure to the aerospace and defense industry.

“That’s also performing quite well,” Rosenbluth noted, highlighting how investors are finding opportunity in the more specialized parts of the defense trade.

The shift reflects a broader investor sentiment that favors fundamental sectors during periods of uncertainty.

While market volatility creates risk, it is simultaneously driving a focused return to basic sector allocations in oil, gas, and defense—areas directly tied to current geopolitical developments.

Energy ETFs: (XLE [https://seekingalpha.com/symbol/XLE]), (AMLP [https://seekingalpha.com/symbol/AMLP]), (VDE [https://seekingalpha.com/symbol/VDE]), (XOP [https://seekingalpha.com/symbol/XOP]), (OIH [https://seekingalpha.com/symbol/OIH]), and (IXC [https://seekingalpha.com/symbol/IXC]).

Aerospace & Defense: (ITA [https://seekingalpha.com/symbol/ITA]), (PPA [https://seekingalpha.com/symbol/PPA]), (XAR [https://seekingalpha.com/symbol/XAR]), (SHLD [https://seekingalpha.com/symbol/SHLD]), (FITE [https://seekingalpha.com/symbol/FITE]), and (DFEN [https://seekingalpha.com/symbol/DFEN]).

Green Energy: (ICLN [https://seekingalpha.com/symbol/ICLN]), (TAN [https://seekingalpha.com/symbol/TAN]), (FAN [https://seekingalpha.com/symbol/FAN]), (GRID [https://seekingalpha.com/symbol/GRID]), (QCLN [https://seekingalpha.com/symbol/QCLN]), and (ERTH [https://seekingalpha.com/symbol/ERTH]).

Oil ETFs: (USO [https://seekingalpha.com/symbol/USO]), (UCO [https://seekingalpha.com/symbol/UCO]), (DBO [https://seekingalpha.com/symbol/DBO]), (OILK [https://seekingalpha.com/symbol/OILK]), and (USL [https://seekingalpha.com/symbol/USL]).

Natural Gas ETFs: (UNG [https://seekingalpha.com/symbol/UNG]), (BOIL [https://seekingalpha.com/symbol/BOIL]), and (UNL [https://seekingalpha.com/symbol/UNL]).

MORE ON ENERGY AND DEFENSE

* 3 Reasons Why There Will Be No Ceasefire In Iran [https://seekingalpha.com/article/4888652-3-reasons-why-there-will-be-no-ceasefire-in-iran]
* Finding The Opportunities After The Selloff And End Of The War [https://seekingalpha.com/article/4887934-finding-opportunities-after-selloff-and-end-of-war]
* Macro Insights: The Hormuz Crisis Says No, But The Market Says Yes [https://seekingalpha.com/article/4888160-macro-insights-the-hormuz-crisis-says-no-but-the-market-says-yes]
* Only three energy large cap stocks have A-grade EPS revisions [https://seekingalpha.com/news/4572723-only-three-energy-large-cap-stocks-have-a-grade-eps-revisions]
* Energy mid-cap stocks with A-grade EPS revisions [https://seekingalpha.com/news/4572713-energy-mid-cap-stocks-with-a-grade-eps-revisions]