ETF Prime: Murphy Highlights 5 ETF Categories Benefiting in Market Turmoil

Uncertainty is the current buzzword, and for good reason, Murphy said.

“I think it’s mostly policy uncertainty, and that’s making everybody nervous because it feels like things can change dramatically from day to day on the policy front,” she said. “That’s leading to historically high volatility.”

As a result, Goldman Sachs recently lowered GDP projections for the year and called for higher inflation. Additionally, there are concerns about consumer confidence and that the Fed may not have any tools left to really save the day if need be, Murphy added.

On the other hand, there’s also a view that this turmoil is just temporary policy noise; it’s not really about weakening economic fundamentals.

“So it’s really kind of a mixed picture, which makes it really difficult for markets to price risk, and that just makes everybody nervous,” she noted.

This lack of clarity is leading investors to look for ways to bubble-wrap portfolios. This is a call to diversify, Murphy commented, but to also focus on capital preservation, rather than just chasing risk for a potential higher reward.

Low Volatility

The best-performing factor year to date is low volatility, which is also the factor that may be getting the least attention among investors.

“If you look at low volatility, they haven’t really attracted any assets for a very long time,” Murphy said. “Low vol has been out of favor in this high-growth, high-risk era, but in 2025, they’re really delivering the goods. The performance is really strong.”

The Invesco S&P 500 Low Volatility ETF (SPLV A+) picks the lowest volatility stocks in the S&P 500, and is notably beating the S&P 500, as measured by the SPDR S&P 500 ETF Trust (SPY A), by several percentage points.

“I think it’s an interesting factor that in itself also has other embedded factor tilts,” Murphy explained. “It tilts a little bit into small size, it tilts a little bit into dividend, it tilts a little bit into value. So it’s picking up all of these factors that should be performing well as investors rotate out of the high-risk, high-growth, high tech part of the market.” 

Low volatility ETFs are also underbought, so the P/E ratio of SPLV is low relative to the rest of the market, Murphy added. For these reasons, SPLV and low volatility ETFs can be an attractive play for investors who are nervous about rising volatility.

Defensive Equity

Murphy named defensive equity as the second category worth watching. She thinks of defensive equity as an “equity plus.” 

In the space of U.S. equity, that would be the entire defined outcome buffer category. Investors are giving up a little bit of upside potential for downside protection, an attractive trade-off for many investors. The demand for butter strategies has been really robust, according to Murphy.

“There are a lot of different ETFs in the space, from a lot of great providers like Innovator, Calamos, NEOS. There’s a bunch of them, and they all offer phenomenal products,” she said.

This category of ETFs has succeeded in delivering value to investors, and money is flocking to them confirming that, Murphy noted. “So I think that continues to be a defensive way to participate in the market that is really interesting,” she added. 

Another way to get defensive equity is looking overseas to non-U.S. equity.

This year, all the conversation has been about international equity, Murphy said, especially Europe, as it has handily outperformed the U.S. this year. There are a lot of international ETFs picking up considerable assets in 2025.

Funds worth consideration include the Vanguard Total International Stock ETF (VXUS A), the iShares Core MSCI Emerging Markets ETF (IEMG A), and the SPDR Portfolio Developed World ex-US ETF (SPDW A).

Income

“We’re talking about increased possibility of recession, we’re talking about inflation risk, we’re talking about all these things that erode purchasing power, jeopardize your job status,” Murphy said. 

For these reasons, securing income is becoming increasingly important, and demand is observed across categories. Both equity income as well as traditional fixed income are seeing increased demand. 

“I think it’s important to remember that option premium is not the same as income from fixed income. It’s potentially more rewarding because it is riskier,” Murphy noted.

Equity income ETFs like the JPMorgan Equity Premium Income Fund (JEPI A) and the JPMorgan NASDAQ Equity Premium Income ETF (JEPQ A+) are among the 20 most-bought ETFs this year.

For fixed income, investors are largely avoiding duration. Appetite has been focused on the short end, like your zero- to three-month T-bills, one- to two-year ultra short, and even the Bloomberg U.S. Aggregate Bond Index, according to Murphy.

“Bond funds have been gathering assets,” she said. “The iShares Core U.S. Aggregate Bond ETF (AGG A) has a duration right now that’s under six years, so it’s not that long at the moment, and it’s yielding about 4.5%. This is a good range of yield with very little risk.”

The Classic Diversifier

The fourth category worth watching is gold, the classic diversifier. Gold has had a strong 2025 so far and is already up double digits year to date. 

Gold’s success is not going unnoticed. The SPDR Gold Shares (GLD A-) and the iShares Gold Trust (IAU A-), the two largest gold ETFs on the market, picked up more than $5 billion in February alone, Murphy noted.

Gold is an asset that could provide portfolio protection diversification in 2025 if it continues on the path that is right now, Murphy added.

Thematics

Finally, thematics are worth keeping an eye on. There are many short-term themes that are interesting and can potentially generate outperformance, Murphy said.

Defense spending is one theme that has been hugely popular this year. European countries have committed massive amounts of defense and infrastructure spending, making this a global opportunity. 

Defense spending, spending on military, would also tangentially be spending into AI infrastructure as it relates to defense, Murphy added.

The Global X Defense Tech ETF (SHLD B-) is a fund that offers exposure to defense spending. 

Lydon, a strategic investor in the ETF space, sees great opportunities within ETF issuers, ETF distribution, and the index area.

“Most importantly, in December, we took a minority position in NEOS Investments, which is an up-and-coming ETF issuer. They specialize in enhanced income strategies,” Lydon added.

The team behind NEOS has been in the space for over 10 years and launched one of the first covered call ETFs. NEOS was launched over two years ago and stands out for its consideration to tax efficiency.

“It’s not just the monthly income that’s important, but the tax efficiency,” Lydon said. “Without digging too deep into it, it all depends on the types of options that you buy.”

NEOS’ flagship ETF, the NEOS S&P 500 High Income ETF (SPYI A), had a distribution of 11.7% last year, but 94% of that distribution was return to capital treatment, Lydon said. 

“That means you’re paying very little currently on taxes,” he explained. “You are having to adjust your cost basis for that, so eventually you’re going to have to pay for it down the road, but it’s going to be a long-term capital gain.”

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