If the recent roller coaster in equity markets has you thinking about defense, you’re not alone. After years of growth-led momentum and high valuations in sectors like technology, many investors are rotating toward more defensive corners of the market that tend to hold up better—or at least hurt less—when volatility spikes and risk assets wobble.
Below we spotlight three defensive ETFs that can serve as ballast in choppy markets: the State Street Utilities Select Sector SPDR ETF (XLU), the iShares Gold Trust (IAU), and the State Street Consumer Staples Select Sector SPDR ETF (XLP). Each offers a different flavor of defense, from stable cash flows and dividends to real-world commodity exposure. We’ll also take a look at year-to-date (YTD) performance to help illustrate how they’ve been behaving as 2026 gets underway.
It’s important to note that the bull market is still in full effect, so it’s too early to think about selling stocks wholesale. But we’ve seen a fair amount of rotation in the last few months already (even before Tuesday’s Greenland- and tariff-induced selloff), and it’s never too early to prepare a strategy to protect your portfolio from the next drawdown, and you can do that with defensive ETFs.
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3 Defensive ETFs to Protect Your Portfolio
Before we dive into the ETFs, let’s set the stage a bit. First off, the rotation into defensive sectors isn’t a new phenomenon. Growth stocks peaked at the end of October and, as measured by the Vanguard Growth ETF (VUG), have fallen 5.6% since October 29, 2025.
Over that same period, XLP is higher by 7.6%, IAU is higher by an astronomical 20.5%, and XLU is lower by 4.4%.
It should be noted that XLU was riding the wave of the AI data center buildout and stands to benefit should growth swing back into favor.
In other words, if you rotate to defense, you’re not going to be ahead of the crowd, but based on the still-elevated valuations in growth, there’s still runway for the rotation to continue.
Utilities Select Sector SPDR Fund (XLU)
Why it’s defensive: Utilities are classic defensive equities. Companies in this space provide essential services—power, water, gas—that tend to be less sensitive to economic cycles and earnings downturns.
As mentioned above, XLU is in something of a push-pull between the defensive forces that typically power utilities and the AI-driven valuations that have driven shares up by 36% in the last two years. So far this year, XLU has declined by 0.2%.
That gives XLU a bit of a defensive pedigree (it also has a 2.7% yield) with a growth angle to it as well. If growth stocks go over the falls, XLU should fall less, but it’s still subject to a bit more AI-related risk than the other names on this list.
iShares Gold Trust (IAU)
Why it’s defensive: Gold doesn’t produce earnings or dividends, but it has traditionally acted as a flight-to-safety hedge and a store of value during periods of elevated volatility, inflation concerns, or geopolitical stress.
Gold has been crushing it for years, and it’s showing no signs of slowing down in 2026. So far this year, IAU is higher by 9.8%, and it’s up 129.5% since the beginning of 2024.
Precious metals have obviously been getting a ton of attention of late, but given the political backdrop, the reemergence of the “Sell America” theme (which is probably more appropriately a sell fiat theme, given gold’s performance against all the major currencies) and the possibility of inflationary rate cuts in the months ahead, gold still shines as a defensive hedge.
Consumer Staples Select Sector SPDR Fund (XLP)
Why it’s defensive: Consumer staples encompass goods people buy regardless of economic conditions—think food, beverages, household products, and essential cigarettes or personal care items. This resilience translates into relatively stable revenues and earnings.
So far this year, XLP is higher by 6.1%, but the fund is higher by only 14.4% since the beginning of 2024 and 26.7% in the last five years.
That five-year span is a good representation of the value of staples: They underperform in the great times and outperform in the bad times. Of the three defensive ETFs on this list, XLP is the purest defensive play (given the AI angle for utilities and the recent performance of gold).
It’s also important to remember that playing defense doesn’t mean abandoning offense. Your best bet is to tactically allocate your portfolio by changing how much exposure you have to different areas of the market based on the prevailing conditions, and for the last few months, investors would have done well to dial up the defense and tune down the growth.
And if you’re looking for individual defensive stocks (and more color on defensive areas of the market), consider a subscription to Clif Droke’s Cabot Turnaround Letter. In it, Clif highlights the best-looking turnaround stocks, and he’s got a particular eye for precious metals as well.
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*This post was originally published in 2020 and has been updated.
