Markets appear unlikely to find relief anytime soon, as persistent geopolitical tensions in the Middle East and still-elusive Washington-Tehran peace negotiations continue to weigh on investor sentiment. The S&P 500 Index has fallen about 1.73% over the past five sessions and declined 0.26% on Tuesday.

Middle East tensions flared on Tuesday evening after U.S. forces launched “self-defense” strikes on Iran, in retaliation for the prior day’s helicopter incident, as stated by CENTCOM and as quoted on CNBC. This escalation threatens to further strain the fragile U.S.–Iran ceasefire and could dampen momentum toward a potential peace agreement.

Signs of growing investor anxiety can also be seen in the CBOE Volatility Index (VIX), which reflects market expectations of near-term volatility. Since the end of March, the volatility index has witnessed a steady decline, reflecting relatively resilient market conditions. However, the index has reversed course sharply in recent sessions.

The index has surged nearly 36% over the past five trading sessions, marking a notable shift in sentiment. This increase since early June points to a meaningful pickup in expected market volatility, as investors reassess risks stemming from both geopolitical tensions and broader economic uncertainty.

Tech Weakness Adds an Additional Layer of Market Pressure

Geopolitical uncertainty is not the only source of concern. Recent weakness in the technology sector suggests that market risks extend well beyond developments in the Middle East. The start of June has been marked by a rotation out of high-growth technology and AI names, reflecting a more cautious investor stance amid rising market uncertainty.

The tech-heavy Nasdaq Composite has declined roughly 3.4% over the past five trading sessions and is down about 1.1% over the past month, reflecting investor rotation away from some of the market's most crowded AI trades and reinforcing concerns about the narrow leadership that has driven much of the market's gains.

While volatility has been a recurring theme throughout 2026, equity markets have remained remarkably resilient, largely supported by enthusiasm surrounding artificial intelligence and mega-cap technology companies. However, the recent deterioration in tech performance has raised questions about the AI-driven rally remaining largely narrow and strengthened the case for more defensive portfolio positioning.

Against this backdrop of rising uncertainty, narrow market breadth and increasing volatility, investors may find greater value in positioning portfolios more defensively.

ETFs Positioned to Weather Market Volatility

Persistent market volatility and uncertainty often lead investors to adopt a more risk-averse stance, reassessing portfolio allocations with a greater emphasis on capital preservation and downside protection. A defensive tilt in the short term looks prudent, as staying cautious may help mitigate downside risks.

Conservative investment strategies, including higher allocations to defensive funds, may offer a prudent approach for investors in the current environment. As a result, defensive funds may play an important role in enhancing portfolio stability and reducing volatility without sacrificing long-term participation in the market.

Increased exposure to defensive funds can provide a more balanced risk-return profile, enabling investors to participate in market gains while potentially cushioning the impact of short-term drawdowns. For long-term investors, selectively incorporating defensive strategies may offer a practical way to navigate near-term turbulence while remaining positioned for future opportunities.

Below, we have highlighted a few ETFs where investors can consider increasing exposure. With their diversification and tax efficiency, ETFs offer an effective way to build positions in defensive funds.

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) and iShares U.S. Utilities ETF (IDU Quick QuoteIDU - Free Report) .

Low-Volatility ETFs

Low-volatility ETFs seek to provide a smoother investment experience by focusing on stocks that historically exhibit lower levels of market volatility. These funds commonly favor defensive sectors, including healthcare, utilities and consumer staples, where earnings and demand tend to remain more stable during uncertain periods. This makes them attractive for investors looking to balance market exposure with downside protection.

Investors can consider iShares MSCI USA Min Vol Factor ETF (USMV Quick QuoteUSMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV Quick QuoteSPLV - Free Report) and iShares MSCI EAFE Min Vol Factor ETF (EFAV Quick QuoteEFAV - Free Report) .

Healthcare ETFs

The healthcare sector is non-cyclical, providing a defensive tilt to the portfolio amid market turmoil. Further, the long-term fundamentals remain strong, given encouraging industry trends.

Investors can look at funds like Health Care Select Sector SPDR Fund (XLV Quick QuoteXLV - Free Report) and iShares U.S. Healthcare ETF (IYH Quick QuoteIYH - Free Report) .