Low-Volatility Funds with High Ratings for Turbulent Markets

When markets get volatile, low-volatility exchange-traded funds and mutual funds get attention.

While the notice is warranted—they’ve been among the more buoyant strategies since consternation about the US’ shifting trade and tariff policy started roiling markets in early April—discretion may be the better part of derisking. Don’t swap into funds designed to avoid the stock market’s extremes just because they’ve performed well lately relative to more aggressive strategies unless you’re willing to make a true long-term allocation to them, because they will lag in any rebound.

Low Volatility’s Year

It has been low-volatility funds’ month and year, so far. A quick search of Morningstar’s database for distinct US-based equity funds and ETFs that were either in Morningstar’s risk-oriented strategic-beta group or had “minimum volatility,” “managed volatility,” “low volatility,” or similar words in their names turned up nearly 100 strategies. On average, from the April 3, 2025, start of the tariff-triggered selloff through April 21, this sample, on average lost about 4.5%, much less than the Morningstar US Market Index’s 9.1% and the average US stock fund, which fell about as far.

“Low volatility” does not mean “no volatility,” though. Several ETFs and funds posted high-single-digit losses during the selloff through April 21, and two—Goldman Sachs ActiveBeta US SmallCap Equity ETF GSSC and Victory Shares US SmallCap High Dividend Volatility Weighted ETF CSB—shed more than 10% each. So far, this selloff has pummeled the small and small-value market zones these strategies sift through for their constituents. (Goldman Sachs’ ActiveBeta lineup isn’t solely made up of low-volatility funds. Volatility is just one of the stock characteristics the multifactor strategies consider.)

International Advantage

Strategies favoring less-variable stocks in non-US developed markets like Europe have done the best during the tariff turmoil. First Trust Horizon Managed Volatility Developed International ETF HDMV gained more than 3.4% in the downturn through April 21, while Fidelity SAI International Low Volatility Index FSKLX and iShares MSCI EAFE Minimum Volatility Factor ETF EFAV recorded nearly 3% rises. International stocks have done better than US equities for most of the year so far. The Morningstar Global Markets ex-USA Index shed a slight 0.9% from April 3 to April 21.

Don’t covet low-volatility funds’ returns, though. Just as the worst time to shop for home insurance is when a hailstorm is lashing your roof shingles, adding a low-volatility fund to your portfolio in the middle or wake of a correction or bear market is usually too little, too late. The time to buy these kinds of strategies is before you need them.

Scrambling for the funds that have done well in the recent undulations probably won’t turn out well because each downturn is unique; what has held up well in the markets’ tariff tantrums may or may not do so next time. If the market’s recent gyrations have you reassessing your risk tolerance and considering taking a little off the table, at least shop among funds that have long-term appeal. Morningstar Manager Research analysts cover and rate highly the following offerings.

Optimized for These Times

BlackRock’s iShares MSCI minimum-volatility funds (ACWV, USMV, EEMV, EFAV) earn Morningstar Medalist Ratings of Silver because their sound design gives them a good shot at delivering competitive risk-adjusted results over full market cycles. The ETFs replicate versions of broader MSCI benchmarks, like the MSCI All Country World Index, that BlackRock systematically coaxes toward defensive stocks. The firm uses a computer optimizer to gauge individual stocks’ volatility and how they interact with each other. So, the ETFs don’t just own the least variable shares in their benchmarks; they’ll include some more volatile holdings, too, and stick close to their indexes’ stock, sector, and country allocations to reduce concentration and prevent unintended bets. The result is a balanced approach that has delivered much less volatility than the conventional market indexes.

Silver-rated Vanguard Global Minimum Volatility VMNVX also uses an optimizer to home in on less erratic stocks, but it trains its sights on the FTSE Global All Cap Hedged Index. It also sticks close to the stock, sector, and country weightings of that benchmark and sweeps in some more volatile names to avoid making big wagers for or against any index constituent. Managed by John Ameriks and Scott Rodemer, the fund also hedges currency risk. Since its inception in 2013, it has been about 12% less volatile than its benchmark, achieving top-quintile Sharpe ratios among global large-blend funds.

Parametric Volatility Risk Premium Defensive EIVPX, also Silver-rated, uses a systematic options-selling strategy to capture equity market upside with reduced volatility. It puts half its assets in stocks and half in US Treasuries and sells out-of-the-money call and put options. The idea is to provide some broad stock exposure and downside protection while collecting premium income on the options. The strategy managed by Alex Zweber has its risks, but its low fee, disciplined execution, and well-designed program set it apart.

Franklin US Low Volatility High Dividend ETF LVHD balances attractive yield with below-average risk by investing in stable dividend-paying stocks. It tracks the QS Low Volatility High Dividend Index, which screens for stocks with durable yields and low volatility. It has delivered higher yields than the Russell 1000 Value Index, but, like all these funds, it has lagged some peers at times due to its strict criteria. Its risk-conscious approach has a decent shot at delivering good risk-adjusted results over time, though.

Goldman Sachs ActiveBeta US Large Cap Equity ETF GSLC and Goldman Sachs ActiveBeta International Equity ETF GSIE aim to beat their broad market segments by leaning toward stocks that behave and share the fundamental characteristics of value, quality, momentum, and low-volatility equities. The funds are diversified and don’t take wild bets for or against their benchmarks. Reasonable expenses add to their appeal.

These funds can take some of the edge off a portfolio in a downturn, but you must make a long-term commitment to them to benefit.