5 Defensive ETF Strategies to Follow Amid Israel-Iran Tensions

Tensions between Israel and Iran have been escalating each day. President Donald Trump warned residents of Tehran to evacuate the city as Israel continues its bombardment of Iran in an effort to cripple Tehran’s nuclear initiatives.

Trump’s warning has fueled speculation that the United States may be preparing to offer more direct support for Israeli Prime Minister Benjamin Netanyahu’s military campaign. Wall Street turned red in after-hours trading on June 16, 2025, while the safe-haven gold bullion ETF, SPDR Gold Shares GLD, gained during that trading session.

In such a scenario, investors may try to bet on defensive investments. A defensive investment minimizes risk and protects the portfolio during market downturns. It typically involves investing in stable, low-volatility stocks that have a history of consistent performance, even during economic downturns. 

As such, we have highlighted five such strategies:

Invest in Defensive Sectors

Certain sectors, such as consumer staples, utilities and healthcare, tend to be less sensitive to economic cycles and more resistant to market downturns. These generally act as a safe haven during political and economic turmoil. Stocks in these sectors generally provide higher returns in troubled times. 

Investors seeking exposure to these sectors could find Consumer Staples Select Sector SPDR ETF XLP, Utilities Select Sector SPDR ETF XLU and Vanguard Health Care ETF VHT intriguing. XLP and XLU ETFs lost in lower margins in after hours on June 16 while VHT gained.

Emphasis on Dividends

Dividend-paying stocks offer a steady income stream and help mitigate potential losses during periods of market weakness. These stocks offer the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices.

The companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

SPDR S&P Dividend ETF SDY and Vanguard High Dividend Yield Index Fund ETF Shares VYM, fit well in this category.

Invest in Quality

Quality investing seems to be a solid bet. Quality stocks possess a sustainable competitive advantage and demonstrate consistent growth, profitability and operational excellence over time. These stocks are rich in value characteristics, boasting a healthy balance sheet, high return on capital, low volatility, elevated margins and a track record of stable or rising sales and earnings growth. 

Quality products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. Further, academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term. Among the most popular areInvesco S&P 500 Quality ETF SPHQ and JPMorgan U.S. Quality Factor ETF JQUA.

Add Value

Value investing is an investment strategy that focuses on purchasing stocks that are undervalued relative to their intrinsic value. Value stocks seek to capitalize on market inefficiencies and have the potential to deliver higher returns with lower volatility compared with their growth and blend counterparts. They are less susceptible to trending markets, and their dividend payouts offer safety in times of market turbulence. 

Given this, Vanguard Value ETF VTV, iShares Russell 1000 Value ETF IWD and SPDR Portfolio S&P 500 Value ETF SPYV could be good picks.

Focus on Cash-Like ETFs

Allocating more to cash-like ETFs or short-term bond ETFs can offer stability and liquidity, especially as uncertainty clouds the outlook for equities. These funds invest in ultra-short-term bonds and help investors keep aside money for a couple of weeks to a few months with almost no risk. In times of market downturns, these can act as a hedge, protecting the portfolio from significant losses. 

iShares 0-3 Month Treasury Bond ETF SGOV, SPDR Bloomberg 1-3 Month T-Bill ETF BIL and JPMorgan Ultra-Short Income ETF JPST are some of the most popular options. SGOV, BIL and JPST yield 4.62%, 4.59% and 4.84%, respectively.

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This article originally published on Zacks Investment Research (zacks.com).

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