Seeking Stability? Investing in These ETFs Could Make Sense Now
Investors have spent much of 2026 navigating an uncertain market environment while remaining remarkably resilient. However, risks from elevated inflation expectations, AI-driven market volatility and geopolitical tensions continue to linger. These headwinds could keep investor sentiment fragile and fuel further market volatility in the near term.
The CBOE Volatility Index (VIX), which reflects market expectations of near-term volatility, rose 9.56% in a single trading session and has surged 14.13% over the past five trading sessions, highlighting growing investor anxiety and expectations for heightened market volatility.
Tech Pullback Weighs on Markets
Investors are becoming increasingly cautious about the AI trade as concerns over the sustainability of corporate spending on AI weigh on sentiment. The technology sector, particularly semiconductor stocks, has led the recent market weakness as rising concerns over AI-related capital expenditures and rich valuations dampen investor sentiment.
The tech-heavy Nasdaq Composite fell about 1.5% on Thursday, extending its losses to roughly 1.1% over the past five trading sessions and 2.9% over the past month. The recent pullback underscores growing investor caution, raising questions about whether the AI-driven rally can maintain its momentum in the near term.
The Philadelphia Semiconductor Index (SOX) paints an even clearer picture of the increased volatility surrounding the AI trade. The SOX fell about 4.3% in Thursday’s session, bringing its losses to approximately 7.1% over the past five trading sessions and 15% over the past month.
AI Inflation Fears Intensify
In addition to the recent deterioration in the technology sector, rising expectations that AI could fuel inflation are expected to keep investors on edge. Goldman Sachs cautions that the rapid adoption of AI is likely to fuel inflation globally as supply struggles to keep pace with soaring demand for critical AI components, including memory chips and semiconductors. The United States is likely to be hit hardest.
The Wall Street giant forecasts that AI is already adding roughly 20 basis points annually to U.S. core Personal Consumption Expenditures (PCE) inflation. That contribution is expected to more than double to 50 basis points by year-end as AI adoption accelerates and supply constraints persist (Read: Goldman Sounds Alarm on AI-Driven Inflation: ETFs to Watch).
Strait of Hormuz Risks Boost Oil Prices
Renewed disruptions to shipping through the Strait of Hormuz have added another layer of uncertainty for investors, raising the risk of renewed inflationary pressures. Escalating tensions between Washington and Tehran are driving oil prices higher, increasing concerns about potential supply disruptions.
Both West Texas Intermediate (WTI) crude and Brent crude surged, taking their gains over the past five trading sessions to 11.83% and 11.82%, respectively. Higher oil price volatility could keep inflation expectations elevated, complicating the Fed’s policy path.
CENTCOM announced that it conducted the sixth straight night of strikes against Iran, hitting dozens of military targets, including logistics infrastructure and maritime assets, further escalating regional tensions, as quoted on CNBC.
Adding Stability to Your Portfolio With ETFs
With market volatility expected to remain elevated, adopting a more cautious investment approach appears prudent. Investors may benefit from placing greater emphasis on capital preservation and downside protection by allocating a larger share of their portfolios to more conservative strategies.
Such an approach can enhance portfolio resilience, reduce volatility and provide greater stability during periods of market stress.
Increased exposure to the below-mentioned funds can provide a more balanced risk-return profile, enabling investors to participate in market gains while helping cushion the impact of short-term pullbacks.
Low-Volatility ETFs
Low-volatility ETFs seek to provide a smoother investment experience by focusing on stocks that historically exhibit lower levels of market volatility. These funds commonly favor defensive sectors, including healthcare, utilities and consumer staples, where earnings and demand tend to remain more stable during uncertain periods. This makes them attractive for investors looking to balance market exposure with downside protection.
Investors can consider Invesco S&P 500 Low Volatility ETF SPLV and Invesco S&P 500 High Dividend Low Volatility ETF SPHD.
Regarding charging annual fees, SPLV is the cheapest option, charging 0.15%. SPLV has double-digit allocation to utilities (25.35%), financials (21.48%), real estate (17.86%) and industrials (11.85%).
On the other hand, SPHD has double-digit allocations to real estate (22.2%), financials (17.7%), consumer staples (14.9%), utilities (14.8%) and energy (12%). The fund also has a dividend yield of 4.38%.
Volatility ETFs
Volatility ETFs have delivered short-term gains during periods of market chaos and may climb further if volatility continues.
Increasing exposure to these funds in the short term can be a winning move for investors. Increased exposure to volatility ETFs is emerging as a compelling strategy, not only as a hedge against potential short-term downside risks but also as a way to benefit from lingering market uncertainty.
Investors can consider iPath Series B S&P 500 VIX Short-Term Futures ETN VXX, ProShares VIX Short-Term Futures ETF VIXY and ProShares Ultra VIX Short-Term Futures ETF UVXY.
With a one-month average trading volume of 10.58 million shares, VXX is the most liquid option, offering investors easier entry and exit, making it well-suited for tactical positioning and short-term hedging strategies in the current volatile economic backdrop. Regarding charging annual fees, VIXY is the cheapest option, charging 0.85%.
Value ETFs
Investors can leverage value investing, a strategy particularly compelling in today’s economic environment. Value investing through ETFs offers investors an easy and accessible way to follow this strategy. Value ETFs focus on stocks characterized by strong fundamentals and robust financial health, which trade below their intrinsic value.
Investors can consider Vanguard Value ETF VTV, State Street SPDR Portfolio S&P 500 Value ETF SPYV and Schwab U.S. Large-Cap Value ETF SCHV.
All the abovementioned funds have a Zacks ETF Rank #1 (Strong Buy). Regarding charging annual fees, VTV is the cheapest option, charging 0.03%. VTV has gathered an asset base of $23.37 billion, the largest asset base among the other options.
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ProShares Ultra VIX Short-Term Futures ETF (UVXY): ETF Research Reports
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): ETF Research Reports
ProShares VIX Short-Term Futures ETF (VIXY): ETF Research Reports
Vanguard Value Index Fund ETF Shares (VTV): ETF Research Reports
Schwab U.S. Large-Cap Value ETF (SCHV): ETF Research Reports
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
State Street SPDR Portfolio S&P 500 Value ETF (SPYV): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).