With economic uncertainty still clouding the markets, investors are likely looking into defensive strategies to protect their portfolios.
Notably, following the impact of trade tensions, concerns about a possible recession have persisted, with equities remaining highly volatile in the first half of 2025.
Looking ahead to June, Finbold turned to OpenAI’s ChatGPT for insights on defensive investments. The artificial intelligence (AI) tool highlighted two exchange-traded funds (ETFs) that stand out for their stability, income potential, and ability to weather market downturns.
Utilities Select Sector SPDR Fund (XLU)
The first pick is the Utilities Select Sector SPDR Fund (XLU), which focuses on U.S. utility companies providing essential services like electricity, gas, and water. As of the latest market close, XLU was trading at $81.67, up more than 7% year-to-date.
ChatGPT noted that utilities are considered a classic defensive sector as their services remain in demand regardless of economic conditions.
This steady demand supports reliable revenue streams for the companies in XLU’s portfolio, many of which have a strong track record of paying and increasing dividends.
In periods of economic stress or heightened volatility, investors often rotate into sectors like utilities for lower risk and dependable income.
ChatGPT pointed out that XLU has historically shown resilience during downturns, making it a solid choice for conservative investors seeking stability and yield.
iShares MSCI USA Min Vol Factor ETF (USMV)
The second ETF identified by ChatGPT is the iShares MSCI USA Min Vol Factor ETF (USMV). This fund uses an innovative beta approach, selecting U.S. stocks with historically lower volatility to help reduce overall portfolio risk. USMV is currently trading at $93.35, up 4.5% YTD.
By design, USMV aims to provide smoother returns and smaller drawdowns during turbulent markets.
The fund is broadly diversified across U.S. large- and mid-cap stocks and tends to overweight traditionally defensive sectors like healthcare, consumer staples, and utilities.
This makes USMV particularly relevant in the current environment, which is marked by softening labor markets, weakening manufacturing data, and ongoing uncertainty around Federal Reserve policy.
According to ChatGPT, the ETF’s disciplined approach to selecting low-volatility stocks can help reduce the emotional stress of market swings, making it an appealing option for risk-averse investors.
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