Janus Henderson: Market Mayhem Opens New ETF Entry Points

Market volatility in 2025 has created entry points for exchange-traded fund investors as trade tensions and global uncertainty drive down stock and bond prices.

The first half of this year saw the tech-heavy Nasdaq-100 fall 24% from its peak while the S&P 500 dropped 19%, creating opportunities for investors who had been waiting for better entry points, according to Janus Henderson Investors's recent mid-year outlook. These temporary declines allowed investors to purchase quality companies at reduced prices.

The market stress stems from concerns about new tariffs and shifting global politics, which continue to create uncertainty, according to the report. While most investors dislike volatility, these price swings actually create opportunities for fund managers to find undervalued investments.

The investment firm's analysis shows that major economic changes could benefit the types of investments that have been overlooked, while a handful of large technology stocks dominated returns, creating opportunities for more diversified ETF strategies.

Small-Cap & International ETFs Shine

This year marks a shift away from the mega-cap stocks that led markets for years, the outlook found. Half of all S&P 500 companies now outperform the index over the calendar year, up from 40% in recent years. This broadening gives active ETF managers more opportunities to identify winners and losers.

Small-cap ETFs look particularly appealing after declining in the recent selloff, which created entry points into quality smaller firms at discounted valuations, according to the analysis. These funds have twice the exposure to industrial and materials companies compared to large-cap funds, sectors that could benefit as companies relocate production.

International ETFs are also attracting investor interest, with European and emerging markets stocks trading at lower valuations compared to U.S. shares, the report notes. Historical data show U.S. and foreign stocks alternate leadership about every eight years, and U.S. stocks have led for 14 consecutive years.

Bond ETFs Navigate Rate Volatility

Corporate bond markets experienced dramatic swings this year, with investment-grade company debt starting at tight pricing before spreads widened and then narrowed again, according to Janus Henderson's data.

These moves pushed more investors toward bond ETFs that diversify across different debt types rather than focusing on one sector, the firm noted. The multi-sector category has become one of the fastest-growing areas in fixed income as managers adapt to changing market conditions.

Bond ETFs focused on asset-backed debt demonstrated defensive characteristics during the recent stock market decline, posting small gains or flat returns while the S&P 500 fell nearly 19% from its February high, the analysis found. These specialized debt funds have outperformed corporate bonds during the five most recent market corrections, with only Treasury bonds performing better.

The report indicates volatility will continue creating opportunities for ETF investors who remain selective in both U.S. and international markets as policy uncertainty persists through the remainder of 2025.