Following the outbreak of the war in Iran, the Financial Times reported that U.S. Defense Secretary Pete Hegseth’s broker at Morgan Stanley attempted to place a multimillion-dollar investment into an exchange-traded fund, or ETF, in the weeks prior.
The fund in question was the iShares Defense Industrials Active ETF (ticker: IDEF), an actively managed defense strategy with more than $3.5 billion in assets under management. According to the Financial Times, the trade never went through because at the time, Morgan Stanley did not offer the ETF.
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Ironically, had Hegseth’s investment been completed, it would have fallen into the red. IDEF is only up about 5% year to date through May 20 on a price return basis. Investors who bought the ETF around the start of hostilities in March and held would have lost about 10%.
This highlights one of the biggest challenges with trying to position a portfolio around geopolitical conflicts. The obvious trades are often already “priced in,” meaning investors have already bid up valuations in anticipation before the event fully unfolds.
“War is most profitable for the defense contractors leading up to a possible war, that’s when you want to buy,” says Matthew Tuttle, CEO and chief investment officer at Tuttle Capital Management.
However, that does not mean geopolitical tensions create no viable investment opportunities. Rather, market leadership can emerge in less obvious places due to second-order effects.
In 2026, North American energy producers have been among the clearest beneficiaries as oil supply disruptions pushed crude prices higher. Rare earth metals and mining companies have also rallied amid fears of supply chain fragmentation and export controls.
For investors, ETFs can provide diversified exposure to these geopolitically sensitive themes without requiring concentrated bets on individual companies or commodities.
Here are six of the best ETFs to consider amid heightened geopolitical tensions in 2026:
| ETF | Expense Ratio |
| Select STOXX Europe Aerospace & Defense ETF (EUAD) | 0.50% |
| Global X Defense Tech ETF (SHLD) | 0.50% |
| VanEck Rare Earth and Strategic Metals ETF (REMX) | 0.53% |
| Sprott Rare Earths Ex-China ETF (REXC) | 0.65% |
| Franklin FTSE Switzerland ETF (FLSW) | 0.09% |
| Invesco CurrencyShares Swiss Franc Trust (FXF) | 0.40% |
Select STOXX Europe Aerospace & Defense ETF (EUAD)
“European defense has gone from a footnote into a standalone trade,” Tuttle explains. “More and more European countries are looking to cut U.S. dependence.” That trend accelerated in May 2025 when the Council of the European Union launched the Security Action for Europe initiative. The program provides up to 150 billion euros ($174 billion) in long-term loans to member states for defense investments.
Investors seeking concentrated exposure to this trend can use EUAD, which charges a 0.5% expense ratio. The ETF’s holdings must be headquartered in Europe and derive at least 50% of their revenue from aerospace or defense activities. Notable top holdings in EUAD include Rolls-Royce Holdings PLC (OTC: RYCEY), Safran SA (OTC: SAFRY), Airbus SE (OTC: EADSY), BAE Systems PLC (OTC: BAESY) and Rheinmetall AG (OTC: RNMBY).
Global X Defense Tech ETF (SHLD)
Many of the long-standing defense ETFs often overweight the major U.S. prime contractors, many of which derive substantial revenue from aerospace programs. Investors seeking a more diversified defense theme may find SHLD appealing, at a 0.5% expense ratio. The ETF focuses less on traditional aerospace exposure and more on companies tied to armaments, robotics, fuel systems and cybersecurity.
Top holdings in SHLD still include major defense contractors such as Lockheed Martin Corp. (LMT), General Dynamics Corp. (GD) and RTX Corp. (RTX). However, the ETF’s fourth-largest holding, Palantir Technologies Inc. (PLTR), stands out as a technology company included because of its growing role in military intelligence, battlefield analytics and defense-related AI systems.
VanEck Rare Earth and Strategic Metals ETF (REMX)
“The investment case for REMX is shaped by supply chain concerns and geopolitical realities,” explains Andrew Musgraves, vice president and senior product manager at VanEck. “China’s dominant position in rare-earth production and processing has elevated these materials from niche commodities to matters of national security.” REMX is the largest ETF of its kind, with $3 billion in assets under management.
“Against this backdrop, demand continues to rise alongside electrification, energy transition initiatives and technological advancement, positioning the companies held in REMX at the center of several trends,” Musgraves explains. The energy crisis stemming from the Strait of Hormuz disruption has only increased the urgency, as rare earth materials remain a critical supply bottleneck for technologies.
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Sprott Rare Earths Ex-China ETF (REXC)
One potential weakness with REMX is its sizable China exposure, which currently accounts for 27% of the portfolio. If tensions between the U.S. and China were to escalate further, investors could face risks tied to sanctions, export controls or delistings. That concern has fueled the rise of “ex-China” ETFs, which specifically remove Chinese exposure from otherwise broad international themes.
For rare earth exposure, investors can instead consider REXC, which tracks the Nasdaq Sprott Rare Earth Ex-China Index. Unlike REMX, Australia is the largest country represented and accounts for 47% of REXC’s portfolio. However, investors should still be comfortable with concentration risk. The ETF holds just 34 companies, and 45% of the portfolio falls into the small-cap category below $2 billion.
Franklin FTSE Switzerland ETF (FLSW)
Switzerland has long been viewed as a geopolitical safe haven due to its military neutrality, stable political institutions, resilient banking system and strong rule of law. The country is not a member of NATO and has historically maintained a defensive posture built around difficult terrain and a highly mobilizable citizen military. Investors seeking exposure to Swiss equities can use FLSW.
The ETF holds globally recognized Swiss consumer staple, financial and healthcare companies such as Nestlé SA (NESN.SW), UBS Group AG (UBS) and Novartis AG (NVS). FLSW charges a 0.09% expense ratio, substantially cheaper than the 0.5% charged by the older and larger iShares MSCI Switzerland ETF (EWL). For a $10,000 investment, that works out to roughly $9 per year in fee drag instead of $50.
Invesco CurrencyShares Swiss Franc Trust (FXF)
While FLSW may benefit from Switzerland’s safe-haven reputation, it still carries full equity market risk. If global equities broadly sell off, Swiss stocks can still decline alongside them even during periods of geopolitical stress. Investors seeking Swiss exposure without direct stock market risk may instead consider FXF, which tracks the value of the Swiss franc relative to the U.S. dollar.
One thing investors should note is that FXF currently produces little to no yield. That is largely because the Swiss National Bank has maintained a 0% policy interest rate since June 2025 amid subdued domestic inflation and relative currency stability. As a result, FXF functions more as a currency stability or safe-haven vehicle than an income investment. The ETF charges a 0.4% expense ratio.
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Update 05/21/26: This story was published at an earlier date and has been updated with new information.
