3 Great ETFs Having a Lousy 2025

Lan Anh Tran: Past performance does not indicate future returns, but seeing poor performance on an ETF you like is unnerving. In those moments, it’s worth remembering that a good strategy should deliver strong, risk-adjusted returns over the full market cycle.

There might be moments where the results look lackluster compared to their benchmark or peers, but it’s more important to know that if that underperformance makes sense, given the market conditions. If a fund stumbled when you expect it, you should also recover when you expect it, too. To demonstrate, let us look at three great ETFs that are having a lousy 2025 and parse out why they are not doing so well.

3 Great ETFs Having a Lousy 2025

1. iShares MSCI USA Quality Factor ETF QUAL
2. Avantis US Small Cap Value ETF AVUV
3. Vanguard Short-Term Inflation-Protected Securities ETF VTIP

First up is Silver-rated iShares MSCI USA Quality Factor ETF. The ETF captures large- to mid-cap companies with high profitability, low leverage, and stable earnings growth. It ranks each company against sector peers by these measures and scoops in the top-ranking names for its 125-stock portfolio. The final portfolio enjoys stronger profitability metrics. And has a higher percentage of wide moat stocks than the Russell 1000 Index.

As expected, the ETF’s quality tilt has not been helping in this year’s frothy market. It lagged the category index by 6 percentage points between January and October 2025, albeit with lower volatility. It did start out the year nicely, outpacing the benchmark by 60 basis points during the market volatilities between February and April 2025. But excluding some of the major market leaders that did not meet its quality screen hurt performance during the market rally that followed. While this fund might not offer the flashiest returns in strong equity markets, investors can continue to count on it during hard times. It has, and should continue, to outperform when others wobble, such as during the market volatilities earlier this year, as we mentioned, or the market shock in March 2020, where it beat the category index by 84 basis points.

Another stock ETF having a middling year is Silver-rated Avantis US Small Cap Value. Searching for lower valuations can sometimes turn up low-quality names, but this ETF avoids distressed stocks by adding a profitability screen to its criteria. Companies must have both a low price/book ratio and strong cash flow to be included. The ETF ranks stocks by both factors and adds top-ranking names until it owns a fourth of the total small-cap universe. It weight selected stocks by their market capitalization, tilting more toward cheaper and more profitable stocks. The resulting portfolio has a deep-value tilt, but excellent fundamentals, harvesting the value premium without compromising on quality.

Unfortunately, however, both small-cap and value stocks have lacked the broader market this year. And as expected, this ETF shares a similar fate. It trailed the category index by over 6 percentage points in the year-to-date period ending October 2025, a stark contrast from its strong performance in prior years. The ETF’s small-cap focus put a dent in its returns as smaller companies struggled against market volatilities in the first quarter. It did capture some of the subsequent market rebound, but much less than the category index due to its strong value tilt. But not to worry, this underperformance was not enough to erase the ETF’s since-inception advantage. It still led the category index by 4.5% annually since its 2019 inception, thanks to its high-quality portfolio and sensible value tilt. The ETF outpaced the Russell 2000 Value Index by 8 percentage points per year between 2021 and 2024. Especially when small-value stocks were in favor in 2021. It should continue to do well in these conditions and over the full market cycle, though it might take a slightly bumpier ride to get there.

Last but not least, Gold-rated Vanguard Short-Term Inflation-Protected Securities ETF. This ETF pulls in inflation-protected Treasuries, otherwise known as TIPS, with less than five years to maturity. The principal amount of TIPS rises when the Consumer Price Index rises, so they pay out higher coupon payments when inflation increases. They protect investors against unexpected inflation, and this ETF only owns short-term TIPS, which carry little interest rate risk. It also has negligible credit risk, as TIPS are issued by the US Treasury and backed by the US government.

Nonetheless, the ETF’s low level of credit and duration risk was not rewarded during recent markets. Yield had been trending down for most of 2025, and credit spreads plunged after the initial bust in the first quarter, favoring riskier bonds over the ETF’s high-quality, low-duration portfolio. But this ETF has and should continue to offer protection when it matters, during stress markets. It outpaced the category average by over 2 percentage points in 2022, for instance, as rising interest rates and high inflation pushed most asset classes deep into the red. It also beat the category average by over 2 percentage points in March 2020 and should continue to outperform when credit spreads widen.

Thanks to its downside protection in major market shocks, the ETF beat its category average since its 2012 inception through October 2025, with lower volatility and better risk-adjusted return.

Watch 3 Promising Bond ETFs to Keep an Eye On for more from Lan Anh Tran.