Even in such a tumultuous year as 2025, plenty of headlines can still get overshadowed by the holidays. Among the geopolitical risks looming over markets, perhaps the biggest near-term concern may be a potential invasion of Venezuela — a situation that can serve as a reminder of the power of active ETFs to combat geopolitical risks.
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Just how severe of an impact would serious military action in Venezuela have on global markets? Already, oil prices have fluctuated amid concerns that an invasion or further military action by the United States may impact oil production in the South American OPEC member nation. Producing and selling one percent of total consumed oil, the country plays a lesser role in OPEC.
However, turning off even 1% of oil production and sales could have notable short-term impacts. Higher energy prices would contribute to further near-term inflation. That also assumes that an incursion or military activity in the country would be short and not become a quagmire.
The bigger story may be how regime change could impact oil production in the country. With Venezuela sitting on one of the world’s largest oil reserves, miltary action would likely reverberate at global levels, impacting other countries’ financial markets.
The brewing Venezuela crisis represents just the kind of geopolitical risk that can shock markets. Active ETFs offer flexibility to adjust as needed, but, crucially, that flexibility is much more than a tool for shocks. Often, their ability to focus on company fundamentals like cash flow or shares outstanding can play a big role. Picking companies with strong data can find investment that can come out ahead after shocks compared to broader markets.
Active ETFs like TSPA, the T. Rowe Price Equity Research ETF, provide a strong option therein. Yes, the fund does have active flexibility, but its greatest strength comes from its bottom-up portfolio construction approach. Identifying companies with deeper strengths and offering adaptability, swapping to active ETFs to end 2025 could prove a shrewd move to prepare for geopolitical risks next year.
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