Markets responded negatively to growing geopolitical risk on Tuesday. President Trump’s continued statements about the U.S. taking Greenland, up to and including using tariffs against allied nations, put fear into markets. Stocks dropped, Treasury prices rose, and the dollar declined even more. What, then, should investors do? Rather than just ignoring geopolitical risk, advisors and investors may want to consider how active investing can help.
See more: 3 Takeaways From T. Rowe Price’s 2026 Outlook
Investors around the world are significantly exposed to U.S. stocks. Numerous countries rely on U.S. dollar stability, with many holding significant positions in U.S. Treasurys. Greenland tensions don’t just threaten U.S. stocks via tariff impacts or shocks. If European nations were to dump their Treasurys in response to a U.S. attack on a fellow NATO member, the U.S. economy and the global economic system would see a serious shock, likely more impactful than Liberation Day in 2025.
What, then, should investors do? In 2025, foreign equities benefitted immensely from the dollar’s decline. Tariffs, too, drove investors to diversify abroad, while uncertainty benefitted gold as a source of stability. This year may see foreign equities shine again, but it will be tough to repeat 2025’s performances, especially if worse comes to worst with Greenland.
Instead, investors may want to think about their portfolio processes rather than their allocations. Passive funds, which track their indexes dutifully, get all the good and all the bad from the stocks therein. The S&P 500 can give huge returns for years, but a big shock like economic warfare could slam the key index in the medium term.
Active ETFs, by contrast, offer some key advantages. Firstly, active ETFs don’t have to follow a particular index. Many do follow rules, but their managers can adjust holdings to help outperform. That can even entail simply dropping from an overweight to neutral position, or neutral to underweight, rather than dropping a stock entirely.
Secondly, active ETFs often apply a bottom-up approach. Where index funds must follow whatever is in their index by size — even if the underlying data is ugly — active ETFs closely scrutinize firms’ metrics. That can not only find companies poised for outperformance, but also companies able to persist in tough conditions.
Investors have little control over geopolitical risk and chaos over Greenland. They can, however, embrace a growing list of active ETFs to make their portfolios more adaptable and durable in uncertain times.
For more news, information, and analysis, visit our Active ETF Content Hub.
