Tariff Shocks and Defensive Strategies: How ETF Markets Are Reacting

Tariff Announcements Trigger Record ETF Volatility

Exchange-traded funds (ETFs) are facing a wave of investor repositioning following dramatic policy shifts out of Washington. On April 2, President Trump announced sweeping new tariffs on almost all imports into the United States, dubbing the move “Liberation Day.” The resulting market turmoil sent the S&P 500 and Nasdaq into correction territory, while the Dow Jones Industrial Average recorded its worst two-day decline on record—falling more than 4,000 points.

This sharp drop in equities sparked a surge in the CBOE Volatility Index (VIX), indicating heightened market anxiety. ETF investors, seeking shelter from the turbulence, have begun shifting capital toward safer sectors, leading to sharp inflows into defensive and commodity-linked ETFs.

According to Wikipedia’s entry on the 2025 stock market crash, these recent events are part of the broader economic reaction to global trade disruptions and fears of an extended slowdown.

Safe-Haven ETFs Surge as Investors Flee Risk
The most significant beneficiaries of the recent risk-off sentiment have been ETFs linked to precious metals, fixed income, and defensive equity sectors. SPDR Gold Shares (GLD) has seen record demand, with assets under management surpassing $100 billion. Gold prices have spiked to over $3,300 per ounce, reflecting a flight to safety.

Meanwhile, U.S. fixed-income ETFs pulled in over $100 billion during the first quarter of 2025, led by short-term Treasury funds like iShares 0-3 Month Treasury Bond ETF (SGOV). This rush into bonds signals that investors are anticipating potential rate cuts by the Federal Reserve in response to slowing economic activity.

Sector-based ETFs focused on traditionally stable areas like utilities (IDU), healthcare (VHT), and consumer staples (FTSA) are also experiencing renewed interest. These areas tend to outperform during economic downturns due to consistent demand.

A recent report from Business Insider highlights how fund managers are now prioritizing capital preservation over aggressive growth strategies.

Risks Mount for High-Yield and Commodity ETFs

While defensive ETFs thrive, others are under pressure. Collateralized loan obligation ETFs such as Janus Henderson AAA CLO ETF (JAAA) are seeing significant outflows. Investors are wary of credit quality deterioration, and many CLO ETFs are now trading below their net asset value.

Similarly, commodity-based ETFs like United States Oil Fund (USO) and Invesco DB Agriculture Fund (DBA) are reeling from falling oil prices and weaker global demand projections. Inflows into these funds have slowed considerably amid concerns over reduced industrial activity.

Despite the broader selloff, some sector-specific ETFs have held up. The VanEck Semiconductor ETF (SMH) has gained nearly 4% on the back of bullish performance from Nvidia and AMD. The iShares Silver Trust (SLV) is also up over 17% year-to-date, benefiting from increased demand for industrial metals.

As market volatility continues, ETF investors are urged to monitor sector exposure and focus on diversification. In the face of economic uncertainty, the ability to pivot quickly remains essential.