Low-volatility ETFs have outperformed the broader market in early 2025, as investors grapple with economic uncertainty stemming from President Trump’s trade policies. The iShares MSCI USA Min Vol Factor ETF (USMV) and the Invesco S&P 500 Low Volatility ETF (SPLV) have fallen less than the S&P 500 and Nasdaq Composite this week and year-to-date. This is because these funds are overweight in defensive sectors and underweight in tech.
While these ETFs lagged during the AI-driven market rally of 2023 and 2024, rising trade tensions have increased market volatility, benefiting low-volatility strategies. The Cboe Volatility Index (VIX) has surged, and investors are flocking to safe-haven assets. Actively managed low-volatility ETFs, such as the AB US Low Volatility Equity ETF (LOWV), offer an alternative approach by investing in quality, stable companies, aiming to capture market upside while mitigating downside risk. However, LOWV has underperformed USMV and SPLV this week due to its tech-heavy approach, though still outperforming the S&P 500 and Nasdaq.
