On this week’s episode of ETF Prime, host Nate Geraci sat down with Roxanna Islam, head of sector & industry research at VettaFi. She offers insights on how the recent tariffs announcement could impact ETFs. Additionally, Geraci welcomes MFS’ Emily Dupre to discus her firm’s investment capabilities and ETF market entry.

A Tariffs Summary

The tariffs’ announcement last Wednesday led many ETF investors to question their current allocations. There’s a lot of debate on if the tariffs will work, how long they will last, and how to handle portfolios during a time like this, Islam said.

“This announcement shocked us pretty badly, which is funny because we knew tariffs were happening. But I think the scope and the magnitude was a lot more extreme than we expected,” Islam said. “It’s a complex, moving situation. There are a lot of layers, a lot of uncertainty of how much of this is going to be negotiated away, or how much is going to be set in stone.”

Tariffs were set with a baseline of 10%, but many countries were hit with even higher tariffs based on trade deficits, Islam explained. China had a reciprocal tariff of 34%, EU 20%, and Vietnam 46%.

“These are cumulative tariffs, so you’re adding these to the baseline,” Islam said. “There are also separate tariffs on certain items, like auto, steel, aluminum. It’s really difficult to understand the exact economic implications when you have all these moving parts, and now we’re getting retaliatory tariffs.”

The year was already off to a rough start, but the past week has been particularly hard on markets. U.S. markets lost over $6 trillion in value, entering bear market territory, in the past week.

How to Position Exposure to ETFs to Navigate Tariffs

Sectors

Market volatility following the tariffs’ announcement has hit equities across the board. The growthiest segments of the market — technology, consumer discretionary — have been the hardest hit.

“Every time there’s uncertainty, these are some of the sectors that get hit hard first,” Islam said.

Since the announcement of the tariffs last week, the Technology Select Sector SPDR Fund (XLK) has declined more than 12%. The fund is down 21% year to date. The Consumer Discretionary Select Sector SPDR Fund (XLY) has fallen 11% since the tariffs announcement and almost 20% year to date.

“The thing about both of these sectors is they also use a lot of manufacturing overseas, which means they will be heavily affected by the tariffs,” Islam said.

On the tech side, Islam pointed out that semiconductors’ decline was interesting. So far, semiconductors are exempt from tariffs. However, there is still a residual effect where the end products that use semis are being taxed. So demand for those end products might fall, and that affects the demand for semis.

The VanEck Semiconductor ETF (SMH) and the iShares Semiconductor ETF (SOXX) are each down around 25% year to date.

Country Exposures

It’s not surprising that the countries that were hit harder with tariffs are also suffering a bit more when it comes to the market.

“Asia and Europe have been hit pretty hard,” Islam said. “Asia, broadly, because it’s a real manufacturing hub.”

Islam pointed to the iShares China Large-Cap ETF (FXI) and the VanEck Vietnam ETF (VNM), which are down around 16% and 12%, respectively, since the tariffs announcement. Notably, the story doesn’t look that bad yet when looking at year-to-date performance. FXI and VNM are each outperforming the U.S. equity market on a year-to-date performance basis.

“I think this is really going to test the retail investor in particular. We went through much of the first quarter saying we needed that international diversification,” Islam said. “If you just diversified into international, I think it’s tempting to say, ‘things aren’t going well. It’s time to get out again.’ But, if you’re a long-term investor, it’s important not to make those emotional decisions when it comes to investing.”

ETFs Showing Resiliency in Past Week Amid Tariffs News

There are a handful of ETFs that have demonstrated resiliency in the past week. Islam pointed to the fixed income and gold segments. Two popular gold ETFs include the SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU).

When looking at equities, the more defensive names have fared better. Sectors like consumer staples, healthcare, and utilities have held up a little better. However, Islam noted she wouldn’t say they’ve been outperforming.

A New Player in the ETF Arena

Today, there is much more focus on personalization, tax sensitivity, trading flexibility, and transparency, according to MFS’ Dupre.

“We’re hearing these concerns coming directly from our clients,” she said. “The active ETF is the vehicle that addresses those needs, but it also affords us the opportunity to continue to deliver proven capabilities consistent with our active management approach.

MFS launched its first ETFs, a suite of actively managed funds, at the end of 2024. The firm is known for launching the very first open-end mutual fund in the U.S., in 1924, and has developed a reputation as an experienced active manager.

See more: MFS Brings Signature Bond Mutual Fund Strategies to ETFs

“We think our entry into the space provides differentiated choice within the market and specifically more building- blocklike solutions for client investment portfolios,” Dupre said. “Other firms have gone down the road of really targeted, niche solutions or asset classes. We’re going to just focus on the core asset classes that an advisor can use to build a full portfolio.”