What ETFs Should You Hold During War Time? (Detailed Investor Guide)

War and geopolitical conflicts create extreme uncertainty in global markets. Equity markets become volatile, inflation rises, supply chains are disrupted, and investor behavior shifts toward safety and strategic sectors.

In such environments, ETFs (Exchange-Traded Funds) provide an efficient way to reposition your portfolio without taking concentrated risks in individual stocks. The key is to focus on sectors that historically benefit from or remain resilient during wartime conditions.

This article provides a detailed breakdown of the most relevant ETFs to hold during war, including their composition, strategy, and why they perform well.

1. Defense & Aerospace ETFs

One of the most direct beneficiaries of war is the defense sector. Governments increase military spending significantly during conflicts, leading to higher revenues and long-term contracts for defense companies.

A leading example is the iShares U.S. Aerospace & Defense ETF (ITA).

This ETF primarily invests in major U.S. defense contractors such as Lockheed Martin, Raytheon Technologies, Northrop Grumman, and General Dynamics. These companies are deeply integrated into government defense programs, which often expand during wartime.

What makes ITA particularly strong during war is the predictability of defense spending. Military budgets are rarely cut during conflicts—in fact, they tend to increase regardless of economic conditions. This creates stable and often growing revenue streams for companies within the ETF.

Additionally, modern warfare involves cybersecurity, surveillance, and advanced weapons systems, further expanding the growth potential of this sector.

2. Energy ETFs

Energy is one of the most sensitive sectors during war. Conflicts—especially in oil-producing regions—can disrupt supply chains, trigger sanctions, and lead to sharp increases in oil and gas prices.

A key ETF in this category is the Energy Select Sector SPDR Fund (XLE).

XLE includes major energy companies such as ExxonMobil and Chevron. These companies benefit directly from rising oil prices, which often surge during geopolitical instability.

Historically, wars in the Middle East or tensions involving major oil producers have led to spikes in crude oil prices. This translates into higher revenues and profits for energy companies, making energy ETFs one of the strongest performers during prolonged conflicts.

However, this sector can also be volatile. If tensions ease or supply stabilizes, oil prices may drop quickly. Therefore, energy ETFs are best used as a tactical allocation rather than a permanent holding.

3. Gold ETFs

Gold has long been considered a safe-haven asset during times of crisis. When uncertainty rises, investors move capital from risky assets into gold to preserve value.

One of the most popular gold ETFs is the SPDR Gold Shares (GLD).

GLD is designed to track the price of physical gold. Unlike mining stocks, it provides direct exposure to gold prices without operational risks.

During war, gold benefits from several factors. Investors seek stability, currencies may weaken, and central banks often increase gold reserves. All of these contribute to upward pressure on gold prices.

Gold ETFs are particularly useful as a hedge. While equities may decline during conflict, gold often moves in the opposite direction, helping balance overall portfolio performance.

4. Broad Commodity ETFs

War often leads to inflation due to disruptions in supply chains for essential goods such as oil, metals, and agricultural products. This makes commodities an important asset class during such periods.

A well-known ETF in this space is the Invesco DB Commodity Index Tracking Fund (DBC).

DBC provides exposure to a diversified basket of commodities, including crude oil, natural gas, gold, aluminum, and agricultural products like wheat and corn.

The advantage of a broad commodity ETF is diversification. Instead of relying on a single commodity, investors gain exposure to multiple areas that may be impacted by war.

For example, a conflict might disrupt wheat exports from one region while simultaneously affecting oil production elsewhere. A diversified commodity ETF captures both trends, making it a strong inflation hedge.

5. Dividend-Focused ETFs

During war, many investors shift from growth to income and stability. Dividend-paying companies tend to be more mature, financially stable, and less volatile than high-growth stocks.

A strong example is the Vanguard Dividend Appreciation ETF (VIG).

VIG focuses on companies with a consistent history of increasing dividends. These typically include large, established firms with strong cash flows and disciplined management.

The strength of dividend ETFs during wartime lies in their resilience. Even if stock prices fluctuate, investors continue to receive income through dividends. This makes them attractive during uncertain periods.

Additionally, dividend-paying companies often operate in essential sectors such as consumer goods, healthcare, and industrials, which remain in demand regardless of geopolitical conditions.

6. U.S. Treasury Bond ETFs

When markets panic, capital tends to flow into the safest available assets. U.S. government bonds are widely considered among the safest investments in the world.

A leading ETF in this category is the iShares 20+ Year Treasury Bond ETF (TLT).

TLT invests in long-term U.S. Treasury bonds. These bonds typically rise in value when investors move away from riskier assets like stocks.

During war, fear and uncertainty drive demand for safe-haven assets. This often results in falling yields and rising bond prices, benefiting ETFs like TLT.

However, interest rate changes must also be considered. If inflation rises sharply and central banks increase rates, bond prices may face pressure. Despite this, Treasury ETFs still play a critical role in capital preservation.

Strategic Allocation During War

A well-structured wartime portfolio should not rely on a single ETF or sector. Diversification is essential to balance risk and opportunity.

A practical allocation approach could include:

• Defense ETFs for direct exposure to military spending

• Energy ETFs for benefiting from oil price increases

• Gold ETFs for stability and hedging

• Commodity ETFs for inflation protection

• Dividend ETFs for income and reduced volatility

• Treasury bond ETFs for safety

The goal is to create a portfolio that can withstand shocks while still capturing upside in sectors that benefit from conflict.

Final Thoughts

War creates volatility, but it also reveals clear economic patterns. Certain sectors consistently benefit, while others struggle under uncertainty.

ETFs allow investors to quickly adapt to these changes without the need to pick individual stocks. Defense, energy, gold, commodities, dividends, and bonds each serve a specific purpose in a wartime portfolio.

The most successful strategy is not about chasing short-term gains, but about building a resilient allocation that can navigate uncertainty while preserving and growing capital over time.