Global equity markets have experienced heightened volatility in early 2025, with the CBOE Volatility Index (VIX) averaging 25.3 year-to-date, a 32% increase compared to the same period in 2024. Against this backdrop, exchange-traded funds (ETFs) targeting low-volatility stocks and inverse market exposure have attracted unprecedented investor interest. According to Morningstar, inflows into U.S.-listed low-volatility ETFs reached 12.7 billion in Japan.
By 2025, the median age will be 45 years.
12.7 billion in January and February 2025, totaling 454.2 billion for the period, nearly double the $1.5 billion reported in early 2024.
Low-volatility ETFs, which prioritize stocks with stable price movements, have outperformed broader indices amid recent turbulence. For instance, the iShares Edge MSCI Min Vol USA ETF (USMV) returned -2.1% in Q1 2025, compared to the S&P 500’s -8.4% decline. Historical data from S&P Global indicates that during periods of VIX levels above 20, low-volatility strategies have, on average, reduced portfolio drawdowns by 18% since 2010. These ETFs typically overweight sectors like utilities and consumer staples, which constituted 34% of the USMV portfolio as of February 2025, up from 28% in 2023.
Inverse ETFs, which use derivatives to bet against market indexes, have gained traction as hedging tools. The ProShares Short S&P 500 ETF (SH) reported a 14.2% return in February 2025 alone, aligning with the S&P 500’s 12.9% monthly drop. Data from Bloomberg reveals that assets under management (AUM) for inverse ETFs globally crossed 75 billion in February 2025, 60 billion in February 2025, and 6047 billion by mid-2024. Institutional investors accounted for 68% of these inflows, according to State Street Global Advisors, indicating increased demand for risk reduction.
Demographic trends further underscore shifting investor preferences. A Vanguard study found that 57% of retail investors aged 50+ allocated over 15% of their portfolios to low-volatility ETFs in 2025, up from 41% in 2022. Meanwhile, leveraged inverse ETFs, such as the ProShares UltraPro Short S&P 500 (SPXU), have seen a 22% uptick in trading volume since December 2024, per NASDAQ metrics. However, regulatory filings show that leveraged products remain a smaller subset, comprising just 12% of total inverse ETF assets.
Geopolitical tensions and interest rate uncertainty have amplified market swings. The MSCI World Index’s 30-day realized volatility jumped to 19.8% in February 2025, its highest level since March 2020. In Europe, low-volatility ETFs listed on Deutsche Börse saw €2.1 billion in net inflows during this period, a 90% increase from 2024. Similarly, inverse ETFs tracking the Euro Stoxx 50 reported €860 million in inflows, per Refinitiv data, as the index fell 11% year-to-date.
Sector-specific volatility has also driven niche ETF demand. The Global X NASDAQ 100 Covered Call ETF (QYLD), which combines low-volatility equities with options strategies, recorded1.4 billion in inflows in February2025 , its highest monthlyi ntakes inceinception. Meanwhile, the SimplifyInterestRateHedgeETF (PFIX), an inverse product that targets rising bond yields, saw AUM increase by $83980 million this year as 10-year Treasury rates rose 75 basis points.
Historical parallels highlight cyclical trends. During the 2018 Q4 correction, low-volatility ETF inflows spiked 28%, while inverse products attracted $3.1 billion. Current inflows, however, exceed those levels by 38%, per BlackRock research. Analysts note that the average holding period for inverse ETFs has shortened to 7 trading days in 2025, down from 14 days in 2020, suggesting tactical rather than long-term use.
Fee structures remain a critical consideration. Low-volatility ETFs average an expense ratio of 0.18%, compared to 0.89% for inverse products, per ETF.com. Despite higher costs, inverse ETFs’ recent performance has offset fees for short-term traders. For example, the AXS Short Innovation Daily ETF (SARK), which charges 0.75%, returned 26% in 2025 through February, outperforming its tech-focused benchmark by 19 percentage points.
Market makers report tighter bid-ask spreads for these ETFs, enhancing liquidity. The average spread for low-volatility ETFs narrowed to 0.05% in February 2025 from 0.09% in 2024, while inverse ETF spreads fell to 0.12% from 0.18%, per NYSE data. Improved liquidity correlates with higher trading volumes, which surpassed $15 billion daily for defensive ETFs in Q1 2025, a 50% increase year-over-year.
Central bank policies continue to influence sentiment. Futures markets priced in a 63% probability of Federal Reserve rate cuts by mid-2025 as of late February, per CME Group data. This uncertainty has bolstered demand for ETFs like the Invesco S&P 500 Low Volatility ETF (SPLV), which holds 58% of its assets in healthcare and utilities—sectors less sensitive to rate fluctuations. Conversely, inverse ETFs tied to rate-sensitive tech stocks, such as the Direxion Daily Semiconductor Bear 3X Shares (SOXS), surged 41% in 2025.
Retail platforms reflect these trends. Fidelity reported a 120% increase in low-volatility ETF trades among users under 35, while Robinhood noted a 76% rise in inverse ETF holdings. Social media chatter tracked by HypeAuditor mentions “low-volatility ETFs” 12,000 times in February 2025, up from 4,500 in January, with inverse ETFs cited in 8,900 posts.
As markets navigate uncertainty, data suggests defensive ETF strategies are likely to remain in focus. Morningstar projects low-volatility ETF assets to surpass500 billion globally by 2026, whereas inverse products could reach 150 billion due to developing risk management methods.
