Portfolio construction

ETF trends: Market volatility shakes things up

June 03, 2025 - 5 min read

Senior Vice President, Head of Institutional Product and ETFs – Natixis Investment Managers – US Distribution

Vice President, ETF Capital Markets and Product – Natixis Investment Managers – US Distribution

NICK ELWARD: Welcome to 3-in-3 ETF Trends. We'll get right into it with the first trend. Tyler, what we've seen is a lot of market volatility in this first quarter. And there's impact on investors, of course. Tell us what you think about this market volatility and how investors should be thinking through the issues.

TYLER WILLIAMS: Sure, Nick, happy to. So as we've seen in the past two years, equity markets have been quite strong with returns over 25% in both 2023 and 2024. 2025 has been a bit of more of a bumpy ride. As of 3/31, per Bloomberg, the S&P is down a little over 4%. And, more importantly--or just as importantly, the VIX, the CBOE Volatility Index, is now over 20. Contrast that with last year at an average around 15 and 16, we've definitely seen bigger swings in the equity markets, which has certainly made investors relook at their portfolios and potentially shift some of their ETF allocations.

NICK ELWARD: Yeah, certainly. We've seen the VIX at over 30 at times in this first quarter, and that is something that is noteworthy, and we haven't seen that for several quarters.

All right, Tyler, let's hit on the second trend.

TYLER WILLIAMS: Sure. So Nick, because of the volatility, and the fact that equity markets aren't going straight up and to the right, how do you think investors are changing-- or potentially changing their ETF allocations to maybe favor more active strategies?

NICK ELWARD: Yeah, I think it's all about active ETFs. We've seen that this year, especially. Last year as well. Active ETFs are making the biggest challenge that we've ever seen versus passive ETFs. And that can be seen in a few different areas, but for one, in 2016, Natixis launched its ETF business. At that time, there were only 100 active ETFs. Now, there are nearly 2,000 active ETFs.

TYLER WILLIAMS: Wow.

NICK ELWARD: Second item would be that what we've seen in our financial advisor survey here at Natixis is that 96% of financial advisors plan to increase their active ETF usage or maintain it. And lastly, just looking at the flows into ETFs, now, active ETFs make up 40% of the overall ETF flows. That was less than 5% just two years ago. So we've seen a lot of interest in active ETFs.

TYLER WILLIAMS: Certainly.

NICK ELWARD: A portfolio manager on top of the product, they are sussing out different risks in the portfolio. You don't see that as much in passive products, so that's a second reason. And thirdly, we've seen fee compression in active ETFs. We've seen that delta between the fees on active ETFs and passive ETFs decline. So those are a few reasons why I think active ETFs are competing so strongly with passive ETFs.

TYLER WILLIAMS: Great point, Nick. And I do know that ETFs are considered to be very cheap. That's one of the hallmarks of why the vehicle has been so popular, so it's good to see active managers being able to offer their strategies in a cost-efficient wrapper.

NICK ELWARD: Indeed. All right, Tyler. Let's hit on the third trend, and it connects to this second trend of active ETF flows. Within active ETF flows, we've seen options-oriented ETFs and derivative income ETFs in particular meeting investors' interests, and also driving a lot of flows. Tell us about what's happening in that area.

TYLER WILLIAMS: Yeah, great point, Nick. We have seen an explosion in options-based ETFs on the active site in recent years. What was normally a strategy reserved for maybe more institutional or high-net-worth investors is now being brought to the masses via the ETF wrapper. So in particular within the options overlay category, we believe derivative income ETFs have certainly seen a rise in popularity. Just five years ago, there was only under 20 of these products in the marketplace, and now there's over 120 of these ETFs.

NICK ELWARD: 20 to 120.

TYLER WILLIAMS: Pretty big growth.

NICK ELWARD: Indeed.

TYLER WILLIAMS: And derivative ETFs are designed to provide investors with two things. One, a consistent monthly income stream that maybe is less correlated to traditional fixed-income interest rate moves; and then secondly, it appeals to maybe more conservative investors or more risk-averse investors that want some of that downside cushion when markets start to move against you and be more volatile.

NICK ELWARD: So this seems to line up perfectly with what a retirement income investor would want-- regular monthly income, and then risk mitigation. So I bet a lot of those that are interested, in fact, are retirement income investors, but general investors as well.

TYLER WILLIAMS: Certainly. And with any options overlay strategy, when you're writing calls against your portfolio, you do limit some of your upside, but investors are certainly voting with their wallets, as we've seen from the flows in recent years. Over $100 billion in cumulative flows over the past five years per Morningstar. And it seems like this is the sweet spot between both offering investors a consistent, dependable monthly income stream, as well as some downside protection in the equity market.

NICK ELWARD: All right, Tyler, thank you. And thank you to our audience for joining us today. Again, this is Nick Elward, for Tyler Williams, thank you for joining the Natixis Investment Managers 3 in 3 ETF show.

TYLER WILLIAMS: Thank you. And visit im.natixis.com for more information on ETFs.

Active exchange-traded funds (ETFs) continue the sprint in the investment race, posting impressive inflows as investors embrace the flexibility and precision they can offer over traditional mutual funds. Understanding what experts are observing in the market and in this rapidly growing category is important, especially when navigating clients’ needs for tax and cost efficiencies, and diversification goals.

In this video, Nick Elward, Senior Vice President, Head of Institutional Product and ETFs, and Tyler Williams, Vice President, ETF Capital Markets and Product, discuss three ETF trends advisors need to know within minutes. The pair dive into the following:

Market volatility: The S&P 500^®Index¹ has seen a decline of about 4%, and the Cboe Volatility Index^® (VIX^®)² has risen above 20, compared to last year's levels of 15–16. This increase in volatility is attributed to various external factors, such as geopolitical risks, tariff concerns, interest rate fluctuations, and a general slowdown in economic growth. "Investors are definitely a bit more skittish based on various outside concerns like geopolitical, tariff risk, interest rate risk, and a general growth slowdown in the economy," says Williams.

Active ETFs: The most recent Natixis Investment Manager Survey³ of financial advisors found that 96% plan to either add or maintain their active ETF level. Active ETFs now account for 40% of the total ETF flows into the market so far this year through February 6.⁴ "Active ETFs provide a chance to beat a peer group and beat a benchmark,” says Elward. “I think that's why investors are interested in active."

Derivative income ETFs: The derivative income space is now the third-biggest ETF category by AUM as of March 31.⁵ The number of derivative income ETFs has grown from under 20 five years ago to over 120 today.⁶ "Derivative income ETFs appeal to investors because they offer two things. One, the potential for a consistent monthly income stream on average, and two, a diversified way to play both the equity markets and complement traditional fixed income," says Williams.

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The views and opinions are as of April 1, 2025, and may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary. Although Natixis Investment Managers believes the information provided in this material to be reliable, including that from third-party sources, it does not guarantee the accuracy, adequacy or completeness of such information.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed-income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

Exchange-traded funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are not individually redeemable directly with the Fund, and are bought and sold on the secondary market at market price, which may be higher or lower than the ETF's net asset value (NAV). Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns.

Derivatives involve risk of loss and may entail additional risks. Because derivatives depend on the performance of an underlying asset, they can be highly volatile and are subject to market and credit risks.

Diversification does not guarantee a profit or protect against a loss.

¹ S&P 500^® Index is a widely recognized measure of U.S. stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the U.S. equities market.

² Cboe Volatility Index^® (VIX^®) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500^® index (SPX). It is derived from the prices of SPX index options with near-term expiration dates and it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment and, in particular, the degree of fear among market participants. VIX is an index designed to track market volatility as an independent entity. The Market Volatility Index is calculated based on option activity and is used as an indicator of investor sentiment, with high values implying pessimism and low values implying optimism.

³ The 2025 Natixis Investment Managers Wealth Industry Survey was conducted in December 2024 and January 2025 and included 520 individuals in 20 countries throughout North America, Latin America, the United Kingdom, Continental Europe, Asia and the Middle East.

⁴ In reference to number of active ETFs on the market, this data was sourced from ISS SimFund as of 3/31/25.

⁵ In reference to active ETF flows as a percentage of total ETF flows, this data was sourced from Bloomberg as of 2/28/25 for year-to-date inflows.

⁶ In reference to derivative income category flows over the past 5 years, this data was sourced from Morningstar as of 4/30/2025.

In reference to ETF cost, as of 5/12/25, the average fee on US-Listed ETFs is 56bps per Bloomberg.

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ALPS Distributors, Inc. (member FINRA) is the distributor for Natixis ETFs. ALPS Distributors, Inc. is not affiliated with Natixis Investment Managers. Natixis Distribution, LLC (member FINRA | SIPC) is a marketing agent.

Harris Associates L.P. is the Fund’s investment adviser. The Oakmark ETFs are distributed by Foreside Fund Services, LLC. Harris Associates L.P. and Harris Associates Securities L.P. are not affiliated with Foreside Fund Services, LLC.

OAKMARK, OAKMARK FUNDS, OAKMARK INTERNATIONAL, and OAKMARK and tree design are trademarks owned or registered by Harris Associates in the U.S. and/or other countries.

Natixis Distribution, LLC (Member FINRA | SIPC), is a marketing agent for the Oakmark Funds and Oakmark ETF.

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