Many investors' portfolios have been on a rollercoaster this month. This volatility has been influenced by the developing conflict in the Middle East.
A new report from VanEck has shed light on the sectors that may hold up in this current environment.
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Global energy fragility
According to VanEck, The Middle East crisis has reinforced how fragile global energy security is, particularly given Iran's role in oil production and the Strait of Hormuz chokepoint.
As a result, investors are wondering how best to position themselves for the turmoil.
VanEck said we may be moving from a short-lived shock to a conflict that could last months, disrupting crude oil and LNG supply and affecting the energy system's core infrastructure, transport, production, and refining.
We think gold, defence, commodities and quality are structurally positioned for this environment.
Gold still a safe-haven
VanEck said gold is supported by central bank accumulation, fiscal deterioration and geopolitical uncertainty.
Since the crisis broke out, gold has risen back above US$5,200/oz on safe-haven demand, and we think it is expected to push further.
According to the report, the structural drivers for gold, central banks accumulating at the fastest pace since Bretton Woods, US fiscal deterioration and the slow unwinding of dollar hegemony were in place before the Middle East conflict.
The Strait of Hormuz threat, if it materialises, introduces the prospect of an inflationary oil shock on top of an already uncertain rate environment. That combination, geopolitical uncertainty plus inflation risk, is an environment in which gold has historically performed best.
For investors looking to gain exposure to gold shares, options include:
- Vaneck Gold Bullion ETF (ASX: NUGG)
- VanEck Vectors Gold Miners ETF (ASX: GDX) – gives investors instant access to 92 of the largest and most liquid global gold mining companies.
Defence
VanEck also noted defence spending was already in a structural upcycle; the conflict has accelerated the long-term repricing of security.
In terms of defence, if investors think long-term yields are near their highs, they could consider layering in duration, at the same time, with short-term rates rising, the yields on floating rate exposures will increase as rates rise. In addition, US Treasuries offer a potential portfolio hedge against risk-off periods and periods of rising rates.
ASX ETFs to consider in this sector include:
- Vaneck Global Defence Etf (ASX: DFND)
- Betashares Global Defence ETF – Beta Global Defence ETF (ASX: ARMR).
More information on global defence ETFs can be found here.
Energy and quality
Furthermore, demand for traditional energy has increased, and investors are once again turning to traditional resources as well as critical minerals for strategic portfolio exposures.
In terms of quality investing:
The uncertainty creates volatility and quality companies tend to do relatively well in these environments as investors seek companies with stronger balance sheets and stable earnings.
Real assets also tend to perform relatively well because they provide tangible, consistent cash flows and act as inflation hedges.
For investors seeking energy and quality focussed exposure:
