5 Sector ETFs Benefiting From Russia-Ukraine Tensions

This story originally appeared on Zacks

U.S. stocks registered a strong rally at the end of the last week despite Russia’s invasion of Ukraine. Bargain-hunting for beaten-down stocks amid geopolitical tensions led to risk-on sentiments. Moreover, as per some market analysts, western sanctions against Russia have not been as harsh as initially feared. Plus, there have been reports that Russia is open to negotiating with Ukraine, even as Russian troops are approaching the capital of Ukraine, Kyiv.

– Zacks

Against this backdrop, below we highlight five sector ETFs that have been benefiting from the Russia-Ukraine tensions.

Defense

Any kind of warfare or military strike means increased purchase and usage of weapons. This benefits the defense and aerospace industry. Defense sector ETFs hauled in $126 million in the week to Feb 21, almost doubling their inflows so far this year, per a Financial Times article.

The Verkhovna Rada of Ukraine on Wednesday passed a law to boost the revenue and expenditure parts of the 2022 state budget by UAH 26.5 billion. Of these, UAH 16 billion was allocated to the Ministry of Defense to increase the state’s defense capabilities and national security.

It says that, the operating environment is pretty hot for aerospace and defense ETFs like iShares US Aerospace & Defense ITA and SPDR S&P Aerospace & Defense ETF (XAR).

Oil/Energy

Russia is energy-rich. And Europe is highly dependent on Russia for energy, importing about 40% of its energy requirement. If Russia tensions increase, gas prices in Europe — which soared to new highs last year — will go up further, per Capital Economics, as quoted on a CNBC article. Russia is the provider of about 35% of Europe’s gas.

Oil breached $100 for the first time since 2014. United States Brent Oil Fund, LP BNO was up 3.2% past week amid heightened tensions in East Europe. So, the energy sector can be considered for short-term gains should the geopolitical tensions continue. For this, investors may try ETFslikeiShares U.S. Oil Equipment & Services ETF (IEZ).

In any case, oil prices have been rising since the beginning of 2022. The upside in crude oil prices was triggered by a variety of factors like easing Omicron variant concerns, outages in Libya causing supply shortages and less OPEC+ output.

Clean Energy

Clean energy stocks have registered an upswing due to the jump in fossil fuels. The sheer jump in the conventional energy sector made the prospects of the alternative energy sector lucrative. After all, the cost of renewable energy generation has been falling in recent years with continued technological innovation. Invesco Solar ETF TAN and WilderHill Clean Energy ETF (PBW) added about 8.3% and 4.6%, respectively, past week.These funds seem excellent choices to play the rebound in the stock market as well as the energy market.

Cyber Security

With the Russian incursion into Ukraine and the resultant Western sanctions against Russia hitting headlines, chances of heavy cybercrime on the global level have come to the fore. Several Ukrainian government websites were offline on Feb 23, 2022 as a result of a mass distributed denial of service (DDoS) attack, a Ukrainian official said, as quoted on a CNBC article.

No wonder, cyber security ETFs staged a rally late last week. Volt Cloud and Cybersecurity Disruption ETF (VCLO) andWisdomtree Cybersecurity Fund (WCBR) gained 3.1% and 3.9%, respectively, last week against 2.2% gains seen in the S&P 500 Index.

Materials

It’s not only oil that has been getting a boost from the crisis. The disruptive metal industry is also following the suit. Ukraine is a major producer of uranium, titanium, iron ore, steel, and ammonia too. And the country’s steel makes up around 10% of Europe’s imports.

In any case, solar industry (which needs usage of several disruptive metals) itself has been thriving with an upward potential. Titanium alloys are also widely used in military applications (another high-demand area currently). This explains why disruptive metal companies have been surging higher. Steel is the backbone of any civilization. So, fears of supply chain woes in this segment sent material stocks soaring.

VanEck Steel ETF SLX and SPDR S&P Metals & Mining ETF XME are two sectors that gained materially last week.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
VanEck Steel ETF (SLX): ETF Research Reports
 
Invesco Solar ETF (TAN): ETF Research Reports
 
United States Brent Oil ETF (BNO): ETF Research Reports
 
SPDR S&P Metals & Mining ETF (XME): ETF Research Reports
 
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research