Defensive ETFs and Stocks Stand Out in 2026

U.S. markets in 2026 are marked by heightened volatility and a clear sector rotation. After several years in which technology and growth names drove strong, steady gains, value, defensive and dividend stocks have taken the lead. In the first two months of the year, these areas, along with small caps, sharply outperformed the S&P 500 (SPX), although March brought a reversal of that trend.

At the same time, broader macro risks have intensified. Oil prices have surged amid uncertainty around the U.S. conflict with Iran, and Iran has effectively blocked passage through the Strait of Hormuz, pushing commodity prices higher. Inflation remains a concern, U.S. GDP growth slowed substantially in the fourth quarter of 2025, and the economy lost 92,000 jobs in February, contributing to investor unease.

Against this backdrop, the Schwab U.S. Dividend Equity ETF (SCHD) has significantly outpaced the Vanguard S&P 500 ETF (VOO) in 2026. As of March 27, SCHD was up 11% year to date, while VOO was down about 1%, a near mirror image of relative performance from 2023 to 2025 when broad-market, tech-heavy exposure excelled.

SCHD’s strength is tied to its positioning in energy and other defensive sectors. In its 2025 annual reconstitution, the fund nearly doubled its allocation to energy, a move that was initially met with skepticism but proved lucrative as energy stocks surged. Overweight positions in consumer staples and industrials also supported returns during the subsequent months.

Following its most recent reconstitution in March, SCHD’s sector mix remains tilted toward defensive areas. Consumer staples account for 19.2% of the portfolio and healthcare 18.6%, for a combined 38% weight. Energy stands at 16.5%, down slightly from a prior 20% allocation but still a major component.

Industrials represent 11.6% and technology 11%, with more modest exposure to financials, communication services, consumer discretionary and a minimal 0.1% allocation to utilities. Overall, the fund’s structure is similar to the one that produced its recent strong performance, with technology’s weight gradually increasing over the past few years while maintaining a defensive tilt.

While SCHD is currently outperforming, VOO continues to offer broad exposure to U.S. large caps by tracking the S&P 500 (SPX). In a year marked by rapid factor and sector swings, owning the full index helps investors avoid the risk of mistiming rotations between value, growth, defensive and cyclical segments.

Recent history illustrates this challenge: SCHD’s focus on defensive dividend payers led it to badly underperform the S&P 500 for three straight years prior to 2026. The articles note that the pendulum can swing in either direction and that it is impossible to know in advance when leadership will shift between market segments.

Despite the Dow Jones Industrial Average (DJIA) and Nasdaq Composite entering correction territory by late March, the S&P 500 had not yet done so. This is not due to the "Magnificent Seven" mega-cap tech stocks, which have all fallen by double-digit percentages year to date, but rather to gains from other large constituents.

Energy majors ExxonMobil and Chevron, ranked 13th and 19th by index weight, have each risen around 40% so far this year, helped by higher oil and gas prices. Consumer staples leaders Walmart and Costco, ranked 11th and 17th, are both up more than 10% year to date as investors favor companies seen as resilient to inflation and economic strain.

Micron Technology is another notable contributor. Despite a recent pullback, the memory chip maker remains sharply higher for the year and is now the highest-weighted tech name in the S&P 500 outside the Magnificent Seven and Broadcom, sitting at No. 20. Its high-bandwidth memory and NAND products are cited as critical for artificial intelligence infrastructure.

With valuations elevated and macro headwinds mounting, several Vanguard ETFs are highlighted as tools for cautious investors. The Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) holds short-term U.S. Treasury Inflation-Protected Securities. It has returned 3.15% annually over the past decade and is positioned as a potential safe haven, designed to protect purchasing power if inflation accelerates while limiting downside in equity sell-offs.

For investors seeking defensive equity exposure, the Vanguard Consumer Staples ETF (VDC) owns 104 consumer staples stocks, including Walmart, Costco, Procter & Gamble, Coca-Cola and PepsiCo. The fund historically outperformed the broader market in downturns, falling only 4% in 2022 compared with 19% for the S&P 500 and 33% for the Nasdaq Composite, and charges a 0.09% expense ratio.

The Vanguard Dividend Appreciation ETF (VIG) targets large-cap companies with a track record of growing dividends, tracking the S&P U.S. Dividend Growers Index. Its 338-stock portfolio includes Broadcom, Apple, Eli Lilly, Microsoft and JPMorgan Chase. While not immune to declines, it has held up better than the S&P 500 and especially the Nasdaq in past steep corrections, with a 0.04% annual expense ratio.

Beyond U.S. markets, the Vanguard International High Dividend Yield ETF (VYMI) is noted for its recent performance. Over the past year it has outpaced both the S&P 500 and the Nasdaq-100, and over the past five years it has delivered 14.9% average annual returns by net asset value.

Since its February 2016 launch, VYMI has produced 11.7% average annual returns by net asset value. A $10,000 investment at inception would be worth about $30,000 by February 2026. The fund holds 1,532 stocks focused on international large caps with above-average dividend yields, emphasizing well-established, profitable companies.

Its top holdings include pharmaceutical names such as Roche and Novartis, financial institutions like HSBC Holdings and Royal Bank of Canada, energy major Shell and Australian miner BHP Group. About 20.7% of the portfolio is in emerging markets, and the ETF charges a 0.07% expense ratio for this diversified international dividend exposure.