Thematic ETFs as geopolitical safe havens

Abstract

This article examines the dynamic linkages between sector ETFs and the returns of various asset classes, including cryptocurrencies, energy commodities and major stock indices, over the period from 1 January 2023 to 22 September 2025. This period has been characterised by geopolitical developments affecting global financial markets, such as the Israeli-Palestinian conflict and escalating tensions between Israel and Iran, which have increased regional uncertainty and disrupted global oil trade. The findings imply that the dynamics of the Total Connectedness Index (TCI) are mainly driven by contemporaneous, rather than lagged, effects. Defence (ITA) and technology (XLK) ETFs appear to act as emitters, but only to a moderate extent. The Energy ETF (XLE) exhibits a hybrid behaviour, alternating between the roles of emitter and receiver depending on market conditions, Thus, under some market conditions, defence and technology ETFs can act as partial safe havens.