Ascendant opportunities in times of geopolitical conflict 

For the past year, Artificial Intelligence has been the undisputed heavyweight champion of the stock market. But as the conflict in Iran intensifies, the narrative is shifting.

Investors are waking up to a harsh reality: the AI revolution runs on massive amounts of energy and highly complex supply chains both of which are currently under siege.

A flight to security

As AI stocks stumble, a new leader is emerging: the defense and industrials sector. The conflict has severely depleted Western munitions stockpiles, prompting a massive surge in government defense spending.

Companies manufacturing interceptors, advanced radar systems, and aerospace components are seeing multi-year backlog orders fill up overnight. This isn’t just a short-term reaction; it’s a shift in global military procurement.

Market impact

The macroeconomic picture is also shifting due to the energy shock, reviving “stagflation” concerns—a mix of slowing growth and rising inflation. In the fixed-income markets, this inflationary pressure is causing a bear steepening of the yield curve.

Long-term US treasury bills are shifting higher as investors demand a greater premium for prolonged inflation risks, while short-term rates remain relatively anchored by central bank uncertainty.

Positioning for the shift with SXLI

For investors looking to navigate this volatility, industrial funds with heavy defense exposure offer a strategic hedge. While pure-play defense stocks can be highly volatile, broader industrial allocations provide balanced participation.

A prime example is the State Street SPDR S&P US Industrials Select Sector UCITS ETF (Ticker: SXLI).

SXLI is positioned to benefit from the current geopolitical landscape. With 26.87% of its industry allocation dedicated to aerospace and defence, this makes the fund a beneficiary of the ongoing military replenishment cycle without taking on the concentrated risk of a single stock.

Its top holdings feature industry titans at the forefront of this shift, including RTX Corp (5.01%) and Boeing (3.28%), alongside heavy machinery and electrical giants like General Electric (6.65%) and Caterpillar (6.41%).

By tracking large-sized US industrial companies, SXLI captures the upside of the defense spending surge while maintaining the diversification of the broader industrials sector.

So if you are looking to create a more resilient portfolio, you may consider this fund and minimize the effects of ruinous armed conflicts.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)

MATTHEW APOSTOL is an Investment Counselor with Metrobank’s Institutional Investors Coverage Division, where he specializes in creating bespoke financial solutions for high-net-worth individuals, leveraging his experience in investment sales and a strong understanding of financial markets. Matthew holds a Bachelor of Science in Business Economics and is currently pursuing a Master in Applied Economics degree at De La Salle University.