For the past few months, geopolitical uncertainty has dominated the markets. How has ETF activity been during this period of volatility? And what’s the biggest trend shaping the ETF space today?
While ETF flows started 2025 strong coinciding with all-time highs in the S&P 500 and Nasdaq, April marked a slowdown as heightened market volatility and geopolitical uncertainty weighed on investor sentiment. According to recent data, U.S. ETFs collected approximately $36 billion in April, the lowest monthly total since August 2023. Not surprisingly, due to April’s risk off sentiment, fixed income ETF flows, especially short-term US Treasury ETFs, garnered relatively more interest than equity ETFs, for the safety, liquidity and yield they provide.
Despite the April pullback, the overall broader trend remains clear: heightened volatility continues to drive investors toward ETFs. However, the nature of this demand is evolving. More investors are no longer simply seeking low-cost broad market exposure; they are increasingly looking for specific market solutions like protection, income and thematic strategies. This shift is evident in the continued strong flows into buffered and target income ETF strategies last month even as overall flows tapered. As market conditions remain uncertain, ETFs can be indispensable building blocks, not just for exposure to specific assets, but for actively managing risk and generating returns in a challenging environment.
With this broader uncertainty, how can investors use ETFs to mitigate risk in this market environment?
During these periods of broader uncertainty, ETFs offer investors a flexible and efficient way to mitigate risk without needing to overhaul their entire portfolios. One of the most effective approaches in the equity markets is the use of buffer ETFs, which aim to cushion downside while participating in market appreciation. These strategies have gained traction for their ability to keep clients invested in the markets even during periods of extreme volatility. In times like these, it is tempting to sell, but history shows that missing even part of the recovery can dramatically alter long-term returns.
Meanwhile, target income ETFs are also gaining traction as investors prioritize steady cash flow over uncertain long-term gains. These ETFs are typically designed to generate attractive monthly or quarterly income streams by combining high-dividend equities, covered-call strategies, or fixed income exposures. Target income ETFs not only provide diversification, but they also help anchor portfolios with more predictable income, which can be particularly comforting during periods of heightened volatility.
In addition to any tariff developments, what news headlines are you keeping an eye on?
Beyond headline announcements of new trade deals or ongoing negotiations, our focus is squarely on how the administration’s economic policies are impacting hard economic data. Until now, markets had only soft data, like consumer confidence, which recently plunged to a five-year low, to gauge the potential effects of the impending trade war. However, the recent release of Q1 U.S. GDP, which contracted by 0.3%, provided the first hard evidence of economic strain, marking the worst print in three years.
Attention now turns to key upcoming indicators, including nonfarm payrolls, CPI and corporate earnings, which will carry even greater weight in shaping market expectations. These hard economic signals also play a more critical role in Federal Reserve decision-making. If we see continued economic deterioration alongside rising unemployment, the Fed may be compelled to loosen monetary policy, regardless of whether inflation pressures persist. A rate cut won’t lower prices or put goods back on the shelf, but it could signal to the markets that the Fed is keeping a close watch on the economy.