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After a prolonged rally throughout much of 2025—even in the face of mounting geopolitical uncertainty, shifting tariff policies, and more—the S&P 500 has cooled its momentum early in 2026. With the market moving increasingly erratically, the S&P is down about 2% year-to-date (YTD) overall. Investors may be feeling that they can no longer rely on a continued upward trajectory.
When volatility looms, a defensive exchange-traded fund (ETF) can provide greater stability. ETFs screening potential holdings for volatility factors may be able to identify and target companies better able to hold steady even as the broader market environment shifts. Other funds seek out alternative metrics to find stable companies, including measures of success like impressive free cash flow. The funds below provide not only a defensive play for investors concerned about volatility this year, but also an opportunity to win some growth at a time when the broader market may be faltering.
1. Low-Volatility Fund With Stability and a Dividend Bonus
The iShares MSCI USA Min Vol Factor ETF tracks an index screening companies for low volatility, resulting in a portfolio of more than 170 U.S. stocks across the market capitalization spectrum. Volatility is a factor often overlooked by investors, and USMV is among a fairly small group of funds focused on this characteristic. That said, it still has sizable assets under management of more than $23 billion and a healthy one-month average trading volume close to 3 million.
USMV’s portfolio is perhaps not broad enough for some investors to be their only exposure to the domestic equities space. It also privileges information technology stocks, which account for more than a quarter of the portfolio. Rather, the main advantage of this fund may be as a means to concentrate U.S. stock exposure on companies that tend to experience smaller share price fluctuations than the broader market.
Of course, lower volatility means both smaller downward movements and potentially smaller gains. For this reason, USMV may primarily appeal to investors when they are concerned about a downturn in the market. Its expense ratio is 0.15%, which is fairly modest given the unique approach the fund takes. With a YTD return of around 5%, though, it has outperformed the market despite having limited upside potential overall. Add in a dividend yield of 1.48% as a bonus and the case for USMV becomes even stronger.
2. A Value Fund Outperforming the Market by a Fair Margin This Year
Although not as defensive as low-volatility names, value stocks may be better able to withstand volatility because of their already-low valuations. The iShares MSCI USA Value Factor ETF seeks large- and mid-cap value names. Like USMV above, it is also weighted toward information technology stocks, with about 37% of the portfolio allocated to these companies.
VLUE has a more narrowly focused portfolio than USMV, with only around 150 names. It is also more heavily concentrated in a few positions, with semiconductor giant Micron Technology Inc. accounting for close to 10% of the portfolio. For this reason, investors will likely want to be careful that they don’t end up overexposed to individual companies if they happen to hold VLUE as well as specific tech names that may be in its basket.
VLUE’s expense ratio of 0.15% matches USMV’s above, and the fund has outperformed its rival with returns of about 8% YTD. On top of that, VLUE provides a compelling dividend yield of 2.07%.
3. Free Cash Flow Stocks May Also Provide Some Stability in Tough Times
Free cash flow is not necessarily a guarantee of share price stability, but companies able to generate ample cash tend to have solid operations and fundamentals, helping to protect against unexpected turbulence in the market.
The Pacer US Cash Cows 100 ETF targets U.S. companies across the Russell 1000 Index with high free cash flow yield. As of the end of 2025, COWZ’s portfolio had a collective free cash flow yield of 6.08%, compared with 3.01% for the broader Russell 1000.
For its unique approach, investors can expect to spend a bit more for COWZ; the fund’s expense ratio is 0.49%. However, investors may find this worthwhile, as the portfolio has solidly outperformed the market YTD, with returns of 6% during that period. Like the funds above, COWZ also provides passive income as an added incentive for investors. It has a dividend yield of 1.39%.