A sudden spike in oil prices and rising geopolitical tensions in the Middle East are affecting markets globally, with investors reassessing risks in their portfolios and seeking safe-haven ETFs.
Crude oil prices have shot past the $100-per-barrel mark after reports of military activity in the region around the Strait of Hormuz heightened tensions over oil supply routes. West Texas Intermediate and Brent oil have both risen after traders responded to rising tensions among the U.S., Israel, and Iran.
Low-Volatility ETF Strategies In Focus
The VIX index, or the “fear gauge” of the markets, is currently 25.8, which falls into the high-fear category. When market volatility rises, investors may turn to strategies that help reduce volatility in their portfolios. Low-beta ETFs focus on companies with historically low share price volatility relative to the broader market.
Some of the low volatility ETF options available in the market include:
- The iShares MSCI USA Minimum Volatility Factor ETF (BATS:USMV), which focuses on companies with stable share price movements in the U.S. This ETF has an expense ratio of 0.15%, and a beta of 0.76. Beta lower than 1 signifies that the fund will show weaker price swings than the broader market.
- The Invesco S&P 500 Low Volatility ETF (NYSE:SPLV), which focuses on the least volatile companies in the S&P 500 Index based on the past-year performance. With an expense ratio of 0.25% and beta at 0.61, the fund can offer stability in a volatile market environment.
Investors may also consider other options such as the iShares MSCI EAFE Minimum Volatility Factor ETF (BATS:VXX) and the Franklin International Low Volatility High Dividend ETF (BATS:LVHI).
ProShares VIX Short-Term Futures ETF (BATS:VIXY), designed to track short-term futures linked to the Cboe Volatility Index, is also up more than 5% on Thursday. Often used as a short-term hedge during market turbulence, the ETF tends to rise when equity volatility spikes, though its futures-based structure can lead to performance drag over longer holding periods.
Markets Shrug Off Historic Oil Release
According to reports, the U.S. military attacked and sank several Iranian ships it believed were laying naval mines in the region. However, the situation deteriorated after an attack on oil tankers near Iraq’s port loading facilities disrupted oil exports and led to the closure of Iraqi ports.
President Donald Trump indicated a tougher approach in dealing with the crisis, stating that the U.S. intends to “finish the job.”
The increase in crude oil prices occurred despite attempts to stabilize energy markets. The International Energy Agency (IEA) announced it would release about 400 million barrels of crude oil from member nations’ strategic reserves, the largest such release.
However, it is evident that investors are concerned about prolonged crude oil supply disruptions in the Persian Gulf region, a significant source of crude oil for global markets. Production cuts by some crude oil producers in the region have increased crude oil prices.
If geopolitical tensions continue to drive commodity volatility and weigh on equities, these lower-volatility ETF strategies could attract investors seeking to reduce downside risk while staying invested in the market.
Image created using artificial intelligence via Midjourney.
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