As concerns about AI-driven volatility in U.S. markets grew, investors increasingly looked to global funds. Fears of concentration risk within U.S. equities prompted many investors to reassess their domestic market exposure and increase allocations to global funds, particularly in Europe and Asia.

However, the ongoing U.S. conflict with Iran has complicated that narrative. Disruptions to oil supplies or longer restrictions on shipments through the Strait of Hormuz could further raise energy prices, disproportionately hurting economies that rely heavily on imported fuel, particularly emerging markets, Asian economies and several countries in Europe.

Against this backdrop, domestically oriented equities may offer a comparatively more resilient investment avenue. Moreover, markets appear to have largely moved past the initial shock of the Middle East conflict, with the CBOE Volatility Index declining and the S&P 500 moving higher.

The CBOE Volatility Index, which reflects market expectations of near-term volatility, jumped about 26% from Feb. 26 before retreating roughly 11% since March 3. At the same time, the S&P 500 has edged higher, gaining 0.78% over one day, pushing its five-day return into positive territory at 0.19%.

However, volatility remains a constant presence and the challenge for investors is identifying where it may be relatively contained. With the Strait of Hormuz closed, economies heavily dependent on Middle Eastern oil remain particularly vulnerable. At the same time, in a “sell first, ask questions later” environment, U.S. assets seem relatively less exposed to the vulnerabilities facing several global markets.

Building Resilience With Diversified Long-Term ETF Bets

Volatility and uncertainty have not fully subsided, as the future of the Middle East conflict remains unclear. According to CNBC, although Washington has maintained that the military campaign will wrap up within weeks, some analysts caution that the United States could get drawn deeper into Operation Epic Fury if Iran’s regime proves more resilient than anticipated.

These diverging views continue to cloud the outlook for the markets. Additionally, David Solomon, Goldman Sachs CEO, expressed his surprise at the relatively “benign” reaction in financial markets to the Middle East conflict, adding that it may take a “couple of weeks” for investors to fully assess the implications, as quoted on Reuters. 

Against this backdrop, investors may consider increasing their exposure to the United States. They may benefit from adopting a passive, long-term investment approach to help build a resilient and stable portfolio. Adopting passive, long-term strategies helps create long-term momentum by ignoring short-term price fluctuations, minimizing the impact of emotional decision-making and helping avoid impulsive actions.

Equal-Weighted Index Funds

These funds offer sector-level diversification by assigning equal weight to each constituent stock, regardless of market capitalization, thus reducing concentration risk. This makes them a relevant choice for investors seeking diversified exposure across sectors within the domestic market.

Investors can consider Invesco S&P 500 Equal Weight ETF (RSP Quick QuoteRSP - Free Report) , ALPS Equal Sector Weight ETF EQL and Invesco S&P 100 Equal Weight ETF (EQWL Quick QuoteEQWL - Free Report) .

Consumer Staples ETFs

Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can allocate more money to consumer staple funds to safeguard themselves against potential market downturns.

Investors can consider Consumer Staples Select Sector SPDR Fund (XLP Quick QuoteXLP - Free Report) , Vanguard Consumer Staples ETF (VDC Quick QuoteVDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK Quick QuoteIYK - Free Report) .

Utility ETFs

As a low-beta sector, utilities are relatively shielded from market volatility, making them a defensive investment and a safe haven during economic turmoil. Investors often turn to utilities during downturns due to the steady demand for these companies' services.

Investors should gain from funds like Utilities Select Sector SPDR Fund (XLU Quick QuoteXLU - Free Report) , Vanguard Utilities ETF (VPU Quick QuoteVPU - Free Report) and iShares U.S. Utilities ETF (IDU Quick QuoteIDU - Free Report) . All the mentioned funds have a Zacks ETF Rank #2 (Buy), with XLU, VPU and IDU having a dividend yield of 2.45%, 2.47% and 2.02%, respectively.

Value ETFs

Value ETFs focus on stocks characterized by strong fundamentals and robust financial health, which trade below their intrinsic value. They offer the potential for higher, more stable returns and lower volatility than growth and blend stocks. Additionally, value ETFs can serve as a source of income through dividends.

Vanguard Value ETF (VTV Quick QuoteVTV - Free Report) , Avantis U.S. Large Cap Value ETF AVLV and Vanguard Small Cap Value ETF (VBR Quick QuoteVBR - Free Report) could be appealing options.

Quality ETFs

Investors can consider funds like iShares MSCI USA Quality Factor ETF (QUAL Quick QuoteQUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ Quick QuoteSPHQ - Free Report) and JPMorgan U.S. Quality Factor ETF JQUA. Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.