Over the weekend, tensions in the Middle East escalated.
Israel and Iran exchanged a fresh wave of attacks. This included an attack on the world's biggest gas field according to Bloomberg, stoking fears of a wider conflict.
Oil and gold prices have spiked in response to the conflict. At the time of writing, oil is going for US$73.891 per barrel while gold has lifted to US$3,431.19.
Last week, ASX energy shares led the pack. Oil and gas giant Woodside Energy Group Ltd (ASX: WDS) soared 9.9% and reached a 3-month share price high of $25.88 on Friday.
How should I position my portfolio?
ASX investors may be wondering how to insulate their portfolios from geopolitical conflict.
Aside from investing in energy shares or gold, ASX investors can buy companies with exposure to defense industries. Instead of trying to pick winners, ASX investors can buy exchange traded funds (ETFs) with exposure to the entire industry.
Australia's first defence-focused ETF, the Vaneck Global Defence ETF (ASX: DFND), is an excellent option.
The DFND ETF contains 29 holdings, with exposure to a portfolio of listed global companies involved in the military or defence industries.
The fund is relatively geographically diversified. As of May 2025, 52% of investments were listed in the US, 11% in France, 8% in South Korea, 8% in Italy, 6% in Sweden, and the remainder across various countries.
Its annual management fee is relatively high for an ASX ETF at 0.65%. However, given its performance, it has been well worth it so far. Since listing in September 2024, its share price has risen 74%.
For the year to date, the DFND ETF is up 48%, compared to the S&P/ASX 200 Index (ASX: XJO) which is just 4% higher.
Last Friday, the DFND ETF was up 4.3%, as investors piled in.
What else?
Another option to consider is the Betashares Global Defence ETF (ASX: ARMR).
ARMR provides exposure to up to 60 companies, which make more than 50% of their revenue from developing and manufacturing military and defense equipment, as well as defense technology. This ETF only invests in companies headquartered in NATO countries and major NATO allies, including Australia, Japan, and South Korea.
The ARMR ETF's management expense is slightly lower than the DFND ETF at 0.55%. However, its performance has also lagged. For the year to date, it has risen 39%, compared to 48% for the DFND ETF. However, both ASX ETFs have beaten the market by a wide margin.
Those interested in hedging against further geopolitical conflict in the Middle East, may wish to consider these two ASX ETFs.
