With markets experiencing sharp swings in 2026, many investors are looking for ways to reduce risk while maintaining exposure to equities.

Volatility has risen significantly this year, driven by geopolitical tensions linked to the Iran conflict, ongoing tariff uncertainty, and broader concerns about the pace of technological disruption from artificial intelligence. The CBOE Volatility Index — often referred to as the VIX — has climbed more than 50% since the start of the year, highlighting the growing uncertainty in financial markets.

Against this backdrop, defensive exchange-traded funds are attracting attention from investors seeking stability.

Dividend-Focused ETF Offers Stability

One strategy often used during volatile markets is investing in dividend-paying companies, which tend to be more mature businesses with consistent revenue streams.

The Vanguard High Dividend Yield ETF tracks an index composed of companies with above-average dividend yields. The fund currently holds more than 560 stocks, offering broad diversification across large-cap companies.

Among its largest holdings are Broadcom, JPMorgan Chase, and ExxonMobil.

The ETF has an expense ratio of just 0.04%, making it one of the lowest-cost options for investors looking to gain exposure to dividend-paying stocks. Its dividend yield currently sits around 1.7%, appealing to income-focused investors who want steady returns during uncertain market conditions.

Low-Volatility ETF Targets Risk Reduction

Another defensive approach focuses directly on reducing market volatility rather than maximizing dividends.

The iShares MSCI USA Minimum Volatility Factor ETF is designed to build a portfolio that minimizes overall volatility relative to the broader market.

The fund holds about 170 stocks across multiple sectors, with key positions including ExxonMobil, Duke Energy, and Johnson & Johnson.

With a three-year beta of roughly 0.59, the ETF is significantly less volatile than the broader market. For comparison, the S&P 500 carries a beta of 1.00, meaning it tends to move in line with overall market performance.

The fund charges an expense ratio of 0.15%, still relatively low for a specialized strategy designed to limit market swings.

Balancing Growth and Stability

Defensive ETFs like these are often used as a stabilizing component within diversified portfolios.

While they may not deliver the explosive growth seen in high-risk sectors such as technology or emerging industries, they can provide consistent returns and help cushion portfolios during periods of market turbulence.

For investors navigating uncertain markets, a mix of dividend-focused and low-volatility strategies may offer a balanced approach to managing risk without fully exiting equities.