The US stock market is struggling this year, but the low-volatility equity risk premium is still outperforming by a wide margin year to date, based on a set of ETFs through Tuesday’s close (Mar. 25). The solid increase for the risk premium so far in 2025 is especially stark compared with the modest loss for stocks overall.
The iShares MSCI Minimum Volatility ETF (NYSE:USMV) is up 4.9% on the year so far. That’s well ahead of the rest of the factor field and, and is comfortably ahead of the 1.5% loss for the stock market generally, based on the SPDR S&P 500 ETF (SPY).
Weighing on investor sentiment writ large is uncertainty about the outlook and implications for President Trump’s tariffs, which are set to start on Apr. 2. The market has rallied this week, reportedly on Trump’s comments on Monday that not all proposed tariffs would be enforced.
“The market was primed to respond well if the administration pulled back on some of the tariff threats or even provided off ramps for the tensions, and that’s kind of what we’re seeing here,” said Ross Mayfield, investment strategist at Baird.
Despite the bounce that’s lifted the S&P 500 Index in recent days, low-vol remains far ahead of the broad market this year. The USMV proxy for the strategy continues to reflect a moderately bullish technical profile through yesterday’s close.
Although the ETF has pulled back from its record high reached in February, USMV has been relatively stable. But there may be limits to the low-vol’s upside in the current environment.
Tariff uncertainty continues to cloud the outlook for the economy, financial markets and the Federal Reserve’s monetary policy. Until there’s more clarity on how tariffs will be implemented and what it means for economic activity, the stock market – and the low-vol strategy – may be in a holding pattern.