Best ETFs to buy now: Top defensive plays amid Middle East crisis

Rising geopolitical tensions in the Middle East, coupled with surging oil prices and renewed inflation concerns, are reshaping investor strategy in 2026.

With volatility climbing and consumer confidence weakening, market participants are increasingly rotating toward defensive assets to preserve capital and manage risk.

The ongoing conflict has disrupted energy supply chains, particularly through the closure of the Strait of Hormuz, pushing crude prices higher and complicating the outlook for inflation and interest rates.

With broader market indexes such as the S&P 500 and the Dow Jones Industrial Average down more than 3% this year, exchange-traded funds (ETFs) that offer stability, income, and inflation protection are gaining prominence.

Dividend ETFs lead returns and income appeal

Dividend-focused ETFs have emerged as the strongest performers among defensive plays, offering both income and resilience in volatile markets.

The Schwab US Dividend Equity ETF (SCHD) stands out with year-to-date gains of 10%, making it the top performer among the funds in this article. 

Its focus on high-quality companies with strong balance sheets and consistent payouts has supported both capital appreciation and income generation.

Similarly, the Vanguard High Dividend Yield ETF (VYM) provides diversified exposure to firms with above-average dividend payouts. 

In an environment where inflation is eroding purchasing power and rate cuts remain uncertain, dividend ETFs are increasingly seen as a core allocation for investors seeking steady returns and downside protection.

Utilities offer stability with steady gains

Utilities have also delivered solid performance, benefiting from their defensive characteristics and predictable demand.

The Utilities Select Sector SPDR Fund (XLU) has gained 5.6% year to date, outperforming many other low-volatility segments. 

The sector’s essential nature—providing electricity, water, and gas—ensures relatively stable revenue streams even during economic slowdowns.

The iShares US Utilities ETF (IDU), which has risen over 4%, offers broader exposure within the sector, helping investors diversify while maintaining a defensive stance.

As uncertainty persists around inflation and growth, utilities continue to attract investor flows as a safe-haven allocation.

Consumer staples remain resilient amid weak sentiment

Consumer staples have held up well as households prioritise essential spending in a challenging economic environment.

The Consumer Staples Select Sector SPDR Fund (XLP) has gained more than 4.7% year to date, supported by strong pricing power among large, established companies in the sector.

Similarly, the iShares US Consumer Staples ETF (IYK), up around 4.5%, provides diversified exposure to companies producing everyday necessities such as food, beverages, and household products.

As rising fuel costs and broader uncertainty weigh on discretionary spending, consumer staples ETFs are likely to remain a key defensive allocation for investors.

Gold ETFs provide inflation and geopolitical hedge

Gold-linked ETFs continue to play an important role as a hedge against inflation and geopolitical risks, even as a stronger dollar and fading rate cut expectations have capped gains.

The SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) have both gained over 4% this year, reflecting sustained investor interest in safe-haven assets.

Gold’s historical role as a store of value makes it particularly relevant during periods of currency volatility and rising price pressures. 

With inflation risks elevated due to higher energy costs, exposure to gold ETFs can help balance portfolios and mitigate downside risks.