In spite of condemnation from the global community, Russia continues to flex its fossil-fueled muscles in the Ukraine. This boorish behavior should significantly impact national security and economic policies within Russia’s former adversary and NATO anchor, the United States of America. From an investor’s perspective, two industries in particular are likely to see renewed national attention and investment due to Russia’s actions: Energy Infrastructure and Aerospace & Defense. Let’s examine why these industries seem primed to thrive due to Russian aggression and review ETF options in each segment.
U.S. Energy Infrastructure
A robust energy supply equals power when it comes to geopolitics. Russia has demonstrated this by rolling into the Ukraine with little worries about painful European Union – or U.S. - ramifications. As a supplier of at least 30% of the EU’s natural gas, Russian President Putin appears to have made the correct calculation that being a key energy supplier would allow it operating room in the Ukraine. Russia’s actions serve as a reminder that a wealth of fossil fuel, and outside nations that depend on it, can quickly translate into power on the world stage.
While the U.S. has been working quickly to be become more energy independent, the Ukraine incident should spark greater and faster development of U.S. energy resources. This in turn will lead to increased expenditures to develop and update energy infrastructure across the country. Here are three ETFs that stand to benefit from this trend.
- EMLP – First Trust North American Energy Infrastructure Fund
- MLPX – Global X MLP & Energy Infrastructure ETF
- YMLI – Yorkville High Income Infrastructure MLP ETF
Aerospace & Defense
Russia’s rambunctiousness is also likely to produce positive momentum for the aerospace and defense industry. While talk of late had been about downsizing defense spending, it now seems this could change quickly. Preparing for conflicts against traditional nation states – not just organizations of unlawful combatants – must now be taken more seriously given Russia’s actions.
Regardless of what the Obama administration does short term, strategic defense spending - specifically NATO defense costs - will be an important topic in the coming Presidential election cycle. The increased attention to defense, not to mention the likelihood of additional spending, will likely benefit these three focused ETFs.
- ITA – iShares Dow Jones U.S. Aerospace & Defense ETF
- PPA – PowerShares Aerospace & Defense Portfolio
- XAR – SPDR S&P Aerospace & Defense ETF
It appears that Russian actions have set in motion several longer-term trends – regardless of the outcome in the Ukraine – that may be worthwhile for investors to keep an eye on. While the industries and related ETFs mentioned above have many factors influencing them, it is hard to underestimate the impact a boisterous Russia may have on them.