(Bloomberg) -- The recent rout in the S&P 500 driven by anxiety over US tariffs’ impact on the economy is finally giving one group its chance to shine.
Low-volatility stocks are outperforming the overall market and living up to expectations of doing well when things sour. After two underwhelming years, it has become the best-performing investment theme in 2025, among 13 tracked by Bloomberg Intelligence.
“Investors are going to have to live with volatility at least for the remainder of this year,” said Joe Gilbert, portfolio manager at Integrity Asset Management. “The lower volatility names are the place for investors to hide.”
As traders yank money out of the equity market on expectations that higher tariffs and slower economic growth will eventually erode corporate profits, a risk-off mood is playing in favor of shares that tend to be more resilient in turbulent markets.
The S&P 500 Index is down 4.9% from its all-time high, wiping out almost $3 trillion of its post-election advance. Meanwhile, two of the largest low-volatility exchange-traded funds — the Invesco S&P 500 Low-Volatility ETF (SPLV) and the MSCI USA Min-Vol Factor ETF (USMV) — are clocking their best relative performances in a few years.
SPLV, which tracks the performance of the 100 least volatile stocks in the S&P 500, outperformed the benchmark by 5.9 percentage points in February, the most since April 2022, and saw its first monthly inflow since August. And USMV beat the broader index by the most since 2019 during that time.
The stellar showings offer a respite to the ETFs, which trailed the S&P 500 over the past two years. Last year, they each underperformed the benchmark by at least 9.5 percentage points.
A heavy tilt toward some of the calmest US stocks has been a winning strategy for 22V Research’s low-market-correlation portfolio this year. The portfolio has advanced 6.5% so far in 2025, compared with a 0.7% drop in the S&P 500. Its low-volatility stocks include metal products engineer Howmet Aerospace Inc., catering services provider US Foods Holding Corp. and energy producer Ovintiv Inc.
“Rising uncertainty together with risk-off market trends mean the portfolio was particularly well suited to realize 2025 trends,” Dennis DeBusschere, 22V Research’s president and chief market strategist, wrote in a note.
After months of relative calm, uncertainty about a full-fledged trade war has whipsawed investors this week. After falling at least 1.2% on Monday and Tuesday, the S&P 500 bounced back Wednesday after US President Donald Trump gave automakers a one-month exemption from newly imposed tariffs on Mexico and Canada and official economic data painted a mixed picture for growth.
“Even though the de-risking in the US has so far been largely tech centric, disappointing data has potential to broaden the selloff,” Stefano Pascale, Barclays head of the US equity derivatives strategy, wrote in a note.
Opportunity Knocks
To some investors, the recent leg lower in stocks is starting to present a dip-buying opportunity. Some sentiment and positioning indicators suggest that US stocks are already oversold, strategists at HSBC Plc said earlier this week.
For now, US communications, technology and materials stocks are seen as the most vulnerable to trade wars, since these companies have the highest portion of their cost of goods sold outside the US, according to BI.
Meanwhile, health care and staples, the groups that have low-volatility characteristics, are expected to be the “most insulated” from tariffs due to their smaller exposure to overseas markets, BI’s Gina Martin Adams and Nathaniel Welnhofer wrote in a note to clients.
The next test for US stocks arrives on Friday with the monthly payrolls report.
©2025 Bloomberg L.P.