Geopolitical Tensions, Again: Is Your Portfolio Ready?

Iran's recent attack on Israel serves as a reminder that geopolitical events can jolt markets without warning. Despite minimal threats to oil supplies, markets have already shown some risk-off moves. While these reactions could reverse, the risk of escalation remains. The main concern is if Israel targets Iran's oil assets, as that could send shockwaves through global markets. Although sanctions limit Iran's oil exports, there is reason to believe that some markets may still be buying from Iran, meaning any disruption in supply could trigger a sharp price surge.

Back in April, when Iran last launched missiles at Israel, 99% were intercepted, averting a major escalation. Israel's measured retaliation also avoided broader conflict, and both sides downplayed the event, with Iran even calling the attack a failure. We can only hope this time is the same.

Regardless of how the situation unfolds now, your portfolio should be prepared for these geopolitical risks. It's not just about reacting to headlines, but positioning yourself for both immediate market volatility and long-term impacts. In this increasingly fragmented world, staying strategically prepared is essential.

Core Sectors for Geopolitical Resilience

• AI & Semiconductors: The race for technological dominance is accelerating, and AI will be at the heart of global power struggles. Invest in the future by considering:
  • Stocks like NVIDIA (NVDA), Advanced Micro Devices (AMD) and others
  • ETFs like VanEck Semiconductor ETF (SMH), iShares MSCI Global Semiconductor ETF (SEMI) and others

• Defense: As tensions rise, defense budgets are expanding, and the need for cutting-edge military technology is critical. Saxo’s Defence Equity Theme provides some inspiration, and investors can solidify exposure with:
  • ETFs like VanEck Defense ETF (DFNS) and others

• Cybersecurity: In a world where cyber warfare is just as threatening as physical conflict, cybersecurity will be the cornerstone of national defense and corporate safety. Consider:
  • Stocks like Palo Alto Networks (PANW), CrowdStrike (CRWD) and others
  • ETFs like Global X Cybersecurity ETF (BUG) and others

• Renewable Energy: As nations aim to reduce their dependence on vulnerable fuel sources, renewable energy emerges not only as an environmental solution but as a matter of national security. Strengthen your portfolio with:
  • Stocks like NextEra Energy (NEE), Enphase Energy (ENPH) and others
  • ETFs like iShares Global Clean Energy ETF (INRG), Invesco Solar ETF (SOLR) and others

Strategic Equity Sectors for Long-Term Growth

While geopolitics drives short-term volatility, one needs to be prepared for the long-term impacts that geopolitical risks can have on markets. In an increasingly interconnected world, geopolitical risks are constant—and your portfolio should be ready for them.

The below sectors are poised to deliver strong, sustained returns over the long run. Consider a strategic allocation to:

• Health Care: iShares Healthcare Innovation ETF (HEAL)
  
  
• Technology: Invesco Technology S&P US Select Sector (XLKS), SPDR MSCI World Technology (WTEC)
  
  
• Financials: Invesco Financials S&P Select Sector (XLFS), SPDR MSCI World Financials (WFIN)
  
  
• Energy: Invesco Energy S&P US Select Sector (XLES)

Essential Portfolio Safeguards

During periods of geopolitical unrest or heightened volatility, incorporating safe havens into your portfolio can provide resilience and serve as a buffer against both conflict and inflation. A safe-haven asset is a financial instrument that is expected to retain, or even gain value during periods of economic downturn. These assets are uncorrelated or negatively correlated with the economy as a whole, which means that they could appreciate in the event of a market crash.

Key safe havens to consider include:

• Gold
  
  
• Short-term and inflation-protected bonds: Amundi US TIPS Bond ETF (TIPU)
  
  
• Defensive stocks and ETFs: Stocks like Coca-Cola (KO) or Procter & Gamble (PG) or ETFs like Invesco Utilities S&P US Select Sector (XLUS)
  
  
• Currencies: US dollar, Japanese yen or Swiss franc
  
  
• Cash or cash equivalents: Money market funds

Why It’s Crucial

In an era where geopolitical shocks are a constant threat, positioning your portfolio for resilience isn’t just smart—it’s essential. By strategically allocating to these sectors, stocks, and ETFs, you’re not only safeguarding against risk but also positioning yourself to capitalize on the opportunities that arise in a volatile world. Don’t wait for the next crisis—be prepared for it.