The first three months of 2025 have been marked by higher-than-expected market volatility, with investors navigating a surge in uncertainty. As of March 17, the CBOE Volatility Index (VIX) — often called Wall Street’s “fear index” — hovered around 22, after hitting a 2025 peak of 27.9 a week earlier.
The VIX is calculated based on S&P 500 index options prices, reflecting the expected volatility over the next 30 days. A sharp rise in the VIX this early in the year is noteworthy, as it suggests investors are pricing in significant near-term risks.
At the same time, the S&P 500 has officially entered correction territory, having fallen 10% from a recent closing high.
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Several macro factors have contributed to the market rout and spike in volatility. Notably, President Donald Trump’s repeated threats of tariffs on key trading partners like Canada, Mexico and the European Union have kept markets on edge, with investors struggling to price in erratic policy shifts.
Additionally, there are growing concerns over competition risks disrupting U.S. artificial intelligence (AI) efforts, particularly from Chinese startups, which could impact the AI investment boom.
“Rising interest rates and policy uncertainty have created challenges for investors, as central banks navigate the balance between curbing inflation and supporting economic growth,” says Jeff Schwarte, chief equity strategist at Simplify. “Stock market concentration — with a handful of mega-cap technology stocks driving index performance — has also contributed to volatility, as any weakness in these companies leads to outsized market swings.”
Despite the uncertainty, there’s no need to panic-sell. Market timing rarely works well, and instead of going to cash, investors can stay invested while reducing risk by using various defensive-minded exchange-traded funds (ETFs).
“To mitigate risks in this unpredictable environment, investors should consider diversifying with alternative investments such as hedged equity strategies and managed futures, which can provide stability and reduce reliance on traditional equity exposure,” Schwarte explains.
Here’s a look at nine defensive ETFs that can help weather a volatile market:
| ETF | Expense ratio |
| Simplify Hedged Equity ETF (ticker: HEQT) | 0.44% |
| Invesco S&P 500 Low Volatility ETF (SPLV) | 0.25% |
| Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) | 0.30% |
| iShares MSCI USA Min Vol Factor ETF (USMV) | 0.15% |
| Pacer Trendpilot 100 ETF (PTNQ) | 0.65% |
| Pacer Trendpilot U.S. Large Cap ETF (PTLC) | 0.60% |
| JPMorgan Equity Premium Income ETF (JEPI) | 0.35% |
| JPMorgan Hedged Equity Laddered Overlay ETF (HELO) | 0.50% |
| SPDR Bridgewater All Weather ETF (ALLW) | 0.85% |
Simplify Hedged Equity ETF (HEQT)
“By implementing a laddered collar strategy with options expiring over three sequential months, HEQT aims to enhance stability and reduce the impact of rebalancing luck, ensuring a more consistent hedged equity experience,” Schwarte explains. “This structure seeks to provide downside protection while maintaining exposure to the broader equity market.” The ETF uses put spreads for protection.
HEQT’s hedging strategy has historically paid off. The ETF earned a five-star Morningstar rating, indicating that it has outperformed the vast majority of the 149 funds in the “equity hedged” peer category on a risk-adjusted basis. “Since its inception on Nov. 2, 2021, HEQT has delivered an annualized return of 8.5% while significantly reducing risk, with realized volatility of 8.5%,” Schwarte notes.
Invesco S&P 500 Low Volatility ETF (SPLV)
“SPLV owns the 100 stocks in the S&P 500 with the lowest one-year trailing volatility,” says Nick Kalivas, head of factor and core equity ETF product strategy at Invesco. “Stocks are weighted by the inverse of volatility, so the stocks with the lowest volatility receive the highest weight.” The ETF charges a 0.25% expense ratio and pays monthly distributions, with a 2% 30-day SEC yield.
“SPLV exploits return math,” Kalivas explains. “By not falling as much during market sell-offs, it has less ground to make up to reach the prior high — in an extreme example, it takes a 100% return to make up for a 50% loss.” During the 2022 bear market, this ETF fell just 4.9%, significantly lower than the broad market. It also has an overweight to all three defensive sectors — consumer staples, utilities and health care.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
“SPHD selects the 50 stocks in the S&P 500 with the highest yield and lowest one-year trailing volatility,” Kalivas explains. “Stocks are weighted by dividend yield, and the holdings are subject to the constraint of no more than 10 names per sector, a sector cap of 25% and single-stock cap of 3%.” This ETF charges a 0.3% expense ratio and pays a high 4.6% 30-day SEC yield with monthly distributions.
“Investors may be interested in dividend yield if the Federal Reserve continues to reduce interest rates,” Kalivas argues. “Historically, a falling three-month (Treasury) bill rate has coincided with declining growth in money market fund assets, which may cause investors to seek equity income as cash looks for a new home.” With SPHD, investors get paid monthly to remain invested and wait out volatility.
iShares MSCI USA Min Vol Factor ETF (USMV)
Another way to take risk off the table while remaining invested in equities is via a minimum-volatility strategy. Whereas low-volatility strategies simply select the least volatile stocks, minimum-volatility strategies like USMV construct a portfolio that optimizes for lower risk in the aggregate by considering both individual stock volatility and the correlations (or lack of) between holdings.
As a result, USMV is less lopsided in terms of sector concentration than SPLV is. Instead of overweighting the defensive sectors, USMV overweights technology and financials the same as the S&P 500 does. USMV has historically delivered on its promise, losing 9.4% during the 2022 bear market while its peer category fell by 17%. The ETF is also cheaper than SPLV, with a 0.15% expense ratio.
Pacer Trendpilot 100 ETF (PTNQ)
“PTNQ is designed to capture the majority of the increase in the Nasdaq-100, while also placing an emphasis on managing downside risk,” says Sean O’Hara, president at Pacer ETFs Distributors. This ETF uses a trend-following model based on the 200-day simple moving average (SMA) for the Nasdaq-100 index, a technical indicator that historically has been a reliable predictor of uptrends and downtrends.
Depending on the closing price of the Nasdaq-100 relative to its 200-day SMA, PTNQ can be fully invested in equities, take a cautious approach with 50% in Treasury bills or fully risk-off with 100% invested in Treasury bills. As of March 17, the ETF is 50% invested in Treasury bills due to the recent correction, which could help it avoid further downside risk.
[READ: 7 Best Treasury ETFs to Buy Now]
Pacer Trendpilot U.S. Large Cap ETF (PTLC)
PTLC uses the same 200-day SMA rotation strategy as PTNQ, but with a crucial difference. Instead of using the Nasdaq-100 as its underlying portfolio, PTLC tracks the S&P 500. This may be desirable to investors leaning more toward broad market exposure, as opposed to concentrated mega-cap technology sector names. The ETF charges a 0.6% expense ratio, lower than that of PTNQ.
As of March 17, PTLC remains 100% invested in equities. While the Nasdaq-100 has closed below its 200-day SMA, the S&P 500 has yet to incur a similar drawdown, so the ETF’s trend-following strategy hasn’t kicked in. But should this happen, expect PTLC to go risk-off into Treasury bills. During the 2022 bear market, PTLC’s strategy helped limit losses to 8.6%, less than half its category average of 17%.
JPMorgan Equity Premium Income ETF (JEPI)
For a reasonable 0.35% expense ratio, JEPI provides exposure to a two-part strategy. It starts by actively selecting a subset of stocks from the S&P 500, screened for lower volatility. Then, the ETF sells out-of-the-money covered call options on the S&P 500 via the use of equity-linked notes. This caps upside price appreciation but enhances income potential. JEPI currently pays a 7.2% 30-day SEC yield.
JEPI’s strategy has historically outperformed during volatile bear markets. In 2022, the ETF recorded a 3.5% loss, markedly lower than broad equities. Higher market volatility increases the options premiums harvested by JEPI’s covered call strategies. This, along with the portfolio of lower-volatility stocks, makes JEPI a defensive, income-oriented option. The ETF currently pays distributions on a monthly basis.
JPMorgan Hedged Equity Laddered Overlay ETF (HELO)
HELO is managed by Hamilton Reiner, the same portfolio manager behind JEPI. But unlike JEPI, this ETF doesn’t focus on income. Instead, it employs put spreads, a type of multi-leg options strategy that aims to buffer losses while capping upside over a specific period. By laddering put spreads, HELO provides consistent downside protection throughout the year. All this comes at a reasonable 0.5% expense ratio.
HELO hasn’t been around for long, but it uses a similar strategy as the long-standing JPMorgan Hedged Equity I Fund (JHEQX). Morningstar notes that JHEQX offers “reliable execution of a thoughtful strategy,” commenting that, historically, it has been able to deliver better risk-adjusted returns than the S&P 500 while markedly reducing downside volatility, offering a “smoother ride” overall.
SPDR Bridgewater All Weather ETF (ALLW)
The “All Weather” fund is the flagship strategy of hedge fund Bridgewater Associates. Ray Dalio and his colleagues came up with this strategy as an all-encompassing way to navigate what they consider to be the four dominant economic scenarios — rising growth, rising inflation, falling growth and falling inflation. All Weather was designed to perform consistently regardless of the macro narrative.
Retail investors can now access a variant of All Weather via ALLW. This ETF allocates to global equities, inflation-protected securities, bonds and commodities based on risk parity, meaning that all four asset classes contribute similar levels of volatility. ALLW also uses embedded leverage via futures to gain higher exposure to each asset class. However, it does come at a higher 0.85% expense ratio.
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9 Defensive ETFs for a Volatile Market originally appeared on usnews.com
Update 03/17/25: This story was published at an earlier date and has been updated with new information.
