President Trump’s tariffs have sent shockwaves through the financial markets. Despite rolling back the initial tariff wall, the U.S. and China remain deadlocked in a trade war that shows few signs of ending anytime soon. This means investors should prepare their portfolio to weather the impact of elevated tariffs.
In this article, we’ll look at actionable steps you can take to protect your portfolio from the impact of tariffs over the coming months.
Measuring the Impact
Most investors are acutely aware of the market impact of tariffs over the short term. Following President Trump’s ‘Liberation Day,’ the S&P 500 index fell 10% in just two days before rebounding as the administration walked back tariffs on most countries. As of April 29, 2025, the S&P 500 index is still down about 5.4% since the beginning of the year.
Of course, the actual impact on the economy will take longer to materialize. Consumer confidence fell nearly 8% to 86 in April, which is its lowest reading since 2011. Meanwhile, the annualized gross domestic product (GDP) fell from 2.4% in the final months of 2024 to just 0.3% in the first quarter of 2025, pointing to early signs of a possible recession.
These dynamics put the Federal Reserve in a tough spot. While tariffs could send near-term inflation sharply higher and justify higher interest rates, the slowing economy may require low interest rates to buffer any decline. These opposing dynamics could lead to a phenomenon known as ‘stagflation’ in the extreme—slow growth with high inflation.
Protecting Your Portfolio
The most important step to mitigate any market risk, including tariff risk, is diversification. While large-cap stocks fell nearly 20% between February and April of 2025, bonds have risen by about 1% and global equities have risen by about 5%. Diversified portfolios have therefore seen much less of a loss than those concentrated in U.S. equities.
Investors looking to take a more active approach can further limit risk using exchange-traded funds (ETFs) designed to limit volatility or downside risk. While these funds may sacrifice upside potential, active investors that believe the market will head lower may be willing to sacrifice upside to greatly limit their downside exposure.
Low Volatility ETFs
Low volatility ETFs leverage strategies to reduce market volatility while retaining exposure to equities. For instance, some funds select the least volatile stocks from the S&P 500 and weight them by their volatility while others use optimization techniques that minimize variance control for market beta, size, and style tilts.
These ETFs are sorted by their YTD total return, which ranges from -3.1% to 4.9%. They have AUM between $830M and $7.7B, with expenses running between 0.16% and 0.48%. They are currently yielding between 1.6% and 3.6%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Franklin International Low Volatility High Dividend Index ETF | LVHI | ETF | No | $1.86B | 4.9% | 1.6% | 0.4% |
| Invesco S&P 500 High Dividend Low Volatility ETF | SPHD | ETF | No | $3.47B | -1% | 3.6% | 0.3% |
| Invesco S&P 500 Low Volatility ETF | SPLV | ETF | No | $7.68B | 3.3% | 1.9% | 0.25% |
| Fidelity Low Volatility Factor ETF | FDLO | ETF | No | $1.4B | -2.4% | 1.6% | 0.16% |
| ALPS | O'Shares U.S. Quality Dividend ETF | OUSA | ETF | No | $838M | -3.1% | 1.7% | 0.48% |
Defined Outcome ETFs
Defined outcome ETFs, also known as buffered ETFs, offer pre-determined risk profiles over specific time periods. For instance, they may use options to track the performance of an underlying index and sell call options tied to the same index, creating a price floor when the market declines and a cap on potential gains.
These ETFs are sorted by their YTD total return, which ranges from -4.5% to -1.2%. They have AUM between $770M and $1.21B, with expenses running between 0.69% and 1.1%. They currently do not pay dividends.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| AB Conservative Buffer ETF | BUFC | ETF | Yes | $773M | -1.2% | 0% | 0.69% |
| FT Vest Laddered Deep Buffer ETF | BUFD | ETF | Yes | $1.21B | -3.3% | 0% | 1.05% |
| FT Vest Laddered Nasdaq Buffer ETF | BUFQ | ETF | Yes | $927M | -4.5% | 0% | 1.1% |
In addition to these funds, Innovator and FT Vest offer products with rollovers each month rather than ladders, enabling investors to select more specific exposure.
Risks & Other Considerations
Minimum volatility ETFs represent a fairly safe and low-cost option to reduce volatility, but they don’t eliminate exposure to downside. Given the high correlations throughout equities, they could experience a sharp decline during a correction. They only provide a modest buffer by investing in stocks that tend to react less to these drops.
On the other hand, buffered ETFs offer partial or complete protection, depending on your requirements. The trade-off is that these funds are typically actively managed and more expensive. And the level of protection resets on a regular basis, meaning it’s essential to check what protection remains before you make a purchase.
The Bottom Line
There’s little doubt that tariffs will have an enormous impact on the market, and there are already signs they’re impacting the economy. The first step to protect your portfolio is to ensure it’s properly diversified into fixed income and global markets. And those seeking further protection might consider minimum volatility or buffered ETFs.
