Tensions in the Middle East are rising again as clashes in the Gulf continue to disrupt global shipping and reduce hopes for a stable ceasefire among the U.S., Israel, and Iran. Although U.S. President Donald Trump said talks with Iran could resume soon, Iranian officials pushed back by saying no new negotiations are currently planned. At the same time, a two-week ceasefire is set to expire, thereby adding more uncertainty. As a result, the situation remains fragile, and investors may want to hedge against a military escalation with the following defense ETFs:
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- Invesco Aerospace & Defense ETF (PPA)
- iShares U.S. Aerospace & Defense ETF (ITA)
- SPDR S&P Aerospace & Defense ETF (XAR)
Indeed, conditions in the Strait of Hormuz have become increasingly unstable. Iran briefly said that the waterway was open, which caused oil prices to drop sharply, but that quickly changed after tensions escalated again. More specifically, shipping traffic stalled as vessels came under fire and were forced to turn back, while the U.S. Navy seized an Iranian ship in response. Because of this, oil prices surged once again.
In addition, experts warn that significant differences between the U.S. and Iran make a resolution difficult and increase the risk of further escalation. Unfortunately, this could impact global growth as higher oil prices increase everyday costs. Therefore, analysts warn that the longer the disruption continues, the greater the risk to the global economy.
Which Defense ETF Is the Better Buy?
Turning to Wall Street, out of the three ETFs mentioned above, analysts think that XAR has the most room to run. In fact, XAR’s price target of $331.83 per share implies 20.5% upside potential.
