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5 Sector ETFs to Play if Russia-Ukraine Geopolitics Rule
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With the global market wavering on geopolitical uncertainties related to Russia’s incursion into Ukraine, investors must closely be eyeing the sectors to invest in. Russia began sending troops into the two breakaway regions of eastern Ukraine – Donetsk and Luhansk – this week.
In response, the United States and its allies levied sanctions against Russia targeting financial institutions, sovereign debt and oligarchs in the country. Germany too halted the approval of the gas pipeline Nord Stream 2 after Russia’s actions (read: 5 Long/Short ETFs to Defend Your Portfolio Against Volatility).
Against this backdrop, below we highlight a few sectors and the related ETFs which may be played if geopolitical tensions continue to remain in the limelight.
Defense
Any kind of warfare or military strikes mean increased purchases and usages of weapons. This benefits the defense and aerospace industry. Defense sector ETFs have hauled in $126 million in the week to Feb 21, almost doubling their inflows so far this year, per a Financial Times article.
The Verkhovna Rada of Ukraine on Wednesday passed a law to boostthe revenue and expenditure parts of the 2022 state budget by UAH 26.5 billion. Of these, UAH 16 billion was allocated to the Ministry of Defense to increase the state's defense capabilities and national security.
It says that, the operating environment is pretty hot for aerospace and defense ETFs likeiShares US Aerospace & Defense (ITA - Free Report) and SPDR S&P Aerospace & Defense ETF (XAR - Free Report) .
Energy
Russia is energy-rich. And Europe is highly dependent on Russia for energy, importing about 40% of its energy requirement. If Russia tensions increase, gas prices in Europe — which soared to new highs last year — will go up further, per Capital Economics, quoted on a CNBC article. Russia is the provider of about 35% of Europe’s gas.
In any case, oil prices have been rising since the beginning of 2022. The upside in the crude oil prices was triggered by a variety of factors like easing Omicron variant concerns, protests in Kazakhstan and outages in Libya causing supply shortages and less OPEC+ output. WTI crude ETF United States Oil (USO - Free Report) added about 3.2% in the last five days (as of Feb 23, 2022).
With the Russian incursion into Ukraine and the resultant Western sanctions against Russia hitting headlines, chances of heavy cybercrime on the global level have come to the fore. Several Ukrainian government websites were offline on Feb 23, 2022 as a result of a mass distributed denial of service (DDoS) attack, a Ukrainian official said, as quoted on a CNBC article.
This should keep the demand for cyber security charged-up. Although ETFMG Prime Cyber Security ETF (HACK - Free Report) and First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report) , have been down 4.4% and 4% respectively in the past five days, the losses have been lower than the tech-heavy Nasdaq (down over 5%).
Consumer Staples
The consumer staples sector has been an area to watch lately as markets are volatile leading investors to bet big on defensive sectors like consumer staples. The losses in Consumer Staples Select Sector SPDR Fund (XLP - Free Report) (down 1.4% in the past five days) have been narrower than that of the S&P 500 (down 3.4%).
The sector enjoys a few benefits at this moment. Greater spending power in the wake of improving wage growth is helping the consumer segment. Moreover, the sector offers a decent dividend yield which is needed in the present low-yield environment. As long as geopolitical tensions rule the market, consumer staples is likely to outperform, thanks to its non-cyclical nature.
So, investors can have a look at First Trust NASDAQ Food & Beverage ETFFTXG) and First Trust Consumer Staples AlphaDEX Fund (FXG - Free Report) for a defensive equity exposure.
Utilities
The utility sector is considered one of the safe sectors and comes across as one of the best equity picks when the market is tumultuous. Plus, the sector normally offers strong dividend yields and performs better in a low-rate environment as it requires a huge debt for its operations.
Now, higher safe haven demand dragged down the benchmark U.S. Treasury yields on Feb 23 to 1.99% from 2.05% recorded on Feb 15. This opened up room for higher-yielding utility ETFs. Utilities Select Sector SPDR Fund (XLU - Free Report) , which yields 3.02% annually, lost only 2.5% past week against the 3.5% decline in the S&P 500.
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5 Sector ETFs to Play if Russia-Ukraine Geopolitics Rule
With the global market wavering on geopolitical uncertainties related to Russia’s incursion into Ukraine, investors must closely be eyeing the sectors to invest in. Russia began sending troops into the two breakaway regions of eastern Ukraine – Donetsk and Luhansk – this week.
In response, the United States and its allies levied sanctions against Russia targeting financial institutions, sovereign debt and oligarchs in the country. Germany too halted the approval of the gas pipeline Nord Stream 2 after Russia’s actions (read: 5 Long/Short ETFs to Defend Your Portfolio Against Volatility).
Against this backdrop, below we highlight a few sectors and the related ETFs which may be played if geopolitical tensions continue to remain in the limelight.
Defense
Any kind of warfare or military strikes mean increased purchases and usages of weapons. This benefits the defense and aerospace industry. Defense sector ETFs have hauled in $126 million in the week to Feb 21, almost doubling their inflows so far this year, per a Financial Times article.
The Verkhovna Rada of Ukraine on Wednesday passed a law to boostthe revenue and expenditure parts of the 2022 state budget by UAH 26.5 billion. Of these, UAH 16 billion was allocated to the Ministry of Defense to increase the state's defense capabilities and national security.
It says that, the operating environment is pretty hot for aerospace and defense ETFs likeiShares US Aerospace & Defense (ITA - Free Report) and SPDR S&P Aerospace & Defense ETF (XAR - Free Report) .
Energy
Russia is energy-rich. And Europe is highly dependent on Russia for energy, importing about 40% of its energy requirement. If Russia tensions increase, gas prices in Europe — which soared to new highs last year — will go up further, per Capital Economics, quoted on a CNBC article. Russia is the provider of about 35% of Europe’s gas.
In any case, oil prices have been rising since the beginning of 2022. The upside in the crude oil prices was triggered by a variety of factors like easing Omicron variant concerns, protests in Kazakhstan and outages in Libya causing supply shortages and less OPEC+ output. WTI crude ETF United States Oil (USO - Free Report) added about 3.2% in the last five days (as of Feb 23, 2022).
So, the energy sector can be considered for short-term gains should geopolitical tensions continue. For this, investors may try ETFs like iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report) (read: 5 Leveraged Energy ETFs to Play Russia-Ukraine Tensions).
Cyber Security
With the Russian incursion into Ukraine and the resultant Western sanctions against Russia hitting headlines, chances of heavy cybercrime on the global level have come to the fore. Several Ukrainian government websites were offline on Feb 23, 2022 as a result of a mass distributed denial of service (DDoS) attack, a Ukrainian official said, as quoted on a CNBC article.
This should keep the demand for cyber security charged-up. Although ETFMG Prime Cyber Security ETF (HACK - Free Report) and First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report) , have been down 4.4% and 4% respectively in the past five days, the losses have been lower than the tech-heavy Nasdaq (down over 5%).
Consumer Staples
The consumer staples sector has been an area to watch lately as markets are volatile leading investors to bet big on defensive sectors like consumer staples. The losses in Consumer Staples Select Sector SPDR Fund (XLP - Free Report) (down 1.4% in the past five days) have been narrower than that of the S&P 500 (down 3.4%).
The sector enjoys a few benefits at this moment. Greater spending power in the wake of improving wage growth is helping the consumer segment. Moreover, the sector offers a decent dividend yield which is needed in the present low-yield environment. As long as geopolitical tensions rule the market, consumer staples is likely to outperform, thanks to its non-cyclical nature.
So, investors can have a look at First Trust NASDAQ Food & Beverage ETF FTXG) and First Trust Consumer Staples AlphaDEX Fund (FXG - Free Report) for a defensive equity exposure.
Utilities
The utility sector is considered one of the safe sectors and comes across as one of the best equity picks when the market is tumultuous. Plus, the sector normally offers strong dividend yields and performs better in a low-rate environment as it requires a huge debt for its operations.
Now, higher safe haven demand dragged down the benchmark U.S. Treasury yields on Feb 23 to 1.99% from 2.05% recorded on Feb 15. This opened up room for higher-yielding utility ETFs. Utilities Select Sector SPDR Fund (XLU - Free Report) , which yields 3.02% annually, lost only 2.5% past week against the 3.5% decline in the S&P 500.