The World War 3 Hedged Canadian ETF Portfolio

Multiple parts of the world have been at war for a good part of the last decade. The U.S. formally pulled out of Iraq, yet the power vacuum contributed to the rise of ISIS in the mid-2010s.

In 2022, Russia launched its full-scale invasion of Ukraine, reshaping European security and global energy markets. The Hamas–Israel conflict has devastated Gaza and remains ongoing.

Now we are watching U.S. naval carrier groups and air assets massing in the Persian Gulf amid escalating tensions with Iran. The U.S. is evacuating its embassy staff from Lebanon in anticipation of retaliation. Fun times.

Mark Carney said it best, though his words were predictably politicized: We are entering a “new world order.” That is not necessarily good news for middle powers, and Canada is very much one of them.

In a world defined by blocs, sanctions, proxy wars, and supply chain weaponization, choosing allies and preparing for shocks becomes less theoretical and more practical. That said, my specialty is ETFs, so this article is not advice on bunker construction or shooting down FPV drones.

Consider it a thought exercise: if a broader global conflict were to erupt and capital markets remained functional, how would I construct a portfolio designed to survive, and potentially even benefit from, a hypothetical Third World War? Here’s which Canadian ETFs I would go long on.

80% in SHLD

80% of this hypothetical portfolio goes into the Global X Defense Tech Index ETF (SHLD). I would love to center this around Canadian defense companies, but aside from a few notable names (shoutout to Kraken Robotics, PNG.V) the domestic defense bench is limited.

Canada simply does not have the scale. Our neighbors to the south, on the other hand, have the biggest swinging dick of a military industrial complex in the world, and most of it is publicly traded. That matters if you are trying to express a view through capital markets.

Defense spending is not just a U.S. story, though. Europe has accelerated rearmament following the 2022 invasion of Ukraine by Russia, as policymakers reassess long-term security commitments. South Korea continues to build out its capabilities with North Korea next door. In periods of escalating geopolitical tension, higher military budgets are one of the more predictable fiscal responses.

SHLD attempts to capture that global defense buildup. It tracks a proprietary Global X benchmark focused on defense and aerospace technology. The portfolio includes major contractors such as Lockheed Martin, RTX, Rheinmetall, General Dynamics, Palantir Technologies, Northrop Grumman, L3Harris Technologies, Hanwha Aerospace, and BAE Systems.

Since launching on April 29, 2025, SHLD has grown to roughly $241 million in assets under management. That is a healthy size for a thematic ETF still in its first year. The management fee is 0.49%, which is reasonable for a niche global defense strategy. The final management expense ratio will be clearer after the first full fiscal year.

If your primary objective is to hedge against war, this is about as direct as it gets in ETF form. These are companies whose revenues are explicitly tied to defense contracts, weapons systems, surveillance technology, aerospace platforms, and military infrastructure.

20% in ZGLD

The remaining 20% goes into something that ideally does not move in lockstep with defense equities. If SHLD is the direct geopolitical risk expression, I want a non-correlated asset that can act as ballast.

Some of you might say, just add bonds. But why would I want to lend to governments right as they are about to run record-level deficits to finance a war? If they lose, you get wiped. I cannot think of a worse risk-return trade-off than holding government debt during a fiscal blowout tied to conflict risk.

Instead, I am going with gold. Every central bank worth mentioning has been stockpiling it. China in particular has been steadily increasing reserves while reducing exposure to U.S. Treasuries. Whether that signals anything about a potential Taiwan invasion is still up for debate.

Gold is held by central banks because it cannot be printed. It is no one else’s liability. It does not depend on the creditworthiness of a sovereign issuer. It has served as money or settlement collateral for thousands of years, from Roman legionnaires to modern reserve managers. When trust in fiat currency erodes, capital tends to migrate toward hard assets, and gold remains the reference point.

While I do own some physical bullion, I want something I can rebalance cleanly against SHLD inside a brokerage account. For that, I am using the BMO Gold Bullion ETF (ZGLD).

ZGLD is straightforward. It holds unencumbered 400-troy-ounce gold bars stored in a vault. There are no derivatives, no miners, no operational risk from production. You get spot gold exposure minus a 0.23% management expense ratio, which is reasonable for a physically backed structure.

Since debuting in March 2024, ZGLD has grown to more than $1.7 billion in assets under management. It has also performed strongly amid rising geopolitical tension and sustained central bank demand.

In this portfolio, gold is for insurance. If SHLD benefits from war spending, ZGLD is there for currency instability, capital flight, and the broader loss of confidence that often accompanies prolonged conflict.