Top ETF Stories of Q1 2025

Wall Street experienced massive volatility in the first quarter of 2025, largely due to trade uncertainty under the new Trump administration. This sparked concerns about rising inflation, a slowing U.S. economy and a less dovish Fed.

Meanwhile, the artificial intelligence (AI) sector has seen the emergence of low-investment innovations from Chinese tech companies like DeepSeek and Alibaba, putting pressure on Wall Street’s Magnificent Seven stocks.

Overall, the S&P 500 has lost 2.9% so far this year (as of March 26, 2025), the Dow Jones is off 0.21% and the Nasdaq has slumped 7.3%. Meanwhile, international markets gained momentum. All-world exchange-traded fund iShares MSCI ACWI ETF ACWI has added 1% so far this year (as of March 26, 2025).

Below, we have highlighted the top exchange-traded fund (ETF) stories of the first quarter of 2025.

Trump Trade Tensions

In the first quarter of 2025, President Donald Trump's administration intensified the "America First" trade policy, leading to heightened global trade tensions. The administration imposed 25% tariffs on all goods from Mexico and Canada, with the exception of Canadian oil and energy exports, which faced a 10% tariff.

In March, Trump announced a 25% tariff on foreign-made cars, aiming to bolster domestic manufacturing.Although there were delays in some cases, trade tensions dominated the headlines in the first quarter of 2025.

While tensions with China have been escalating, some European goods have also been threatened with tariffs. Several industry executives expressed concerns over increased production costs due to tariffs on materials like steel and aluminum.

The administration's approach has also prompted retaliatory measures from affected countries, further exacerbating global trade tensions. Trade tensions could have a huge impact on ETFs like First Trust S-Network Future Vehicles & Technology ETF CARZ and VanEck Steel ETF SLX.

International Stocks Beat U.S. Stocks

After years of lagging, international stocks have outperformed U.S. markets. Inflation concerns and new tariffs have shifted investor interest abroad, driven by solid European fundamentals. With historically wide valuation gaps, international stocks appear attractive (read: Europe ETFs Beating S&P 500 in 2025: Here's How).

iShares MSCI Poland ETF EPOL was the winning international ETF (up about 39.5%) of the first quarter, along with several other Europe and China ETFs.

Policy Measures & DeepSeek Help China Emerge Winner

Chinese AI startups, particularly DeepSeek, are making waves in the tech sector with cost-efficient innovations.DeepSeek’s R1 model, trained for just $5.6 million compared to OpenAI’s $100 million for GPT-4, highlights China’s growing capabilities.The DeepSeek Buzz and China’s policy easing are likely to boost China tech stocks and ETFs.

Alibaba Group Holding BABA too introduced the QwQ-32B model, an AI system that rivals DeepSeek but requires only a fraction of the data. All these developments in the Chinese space made them a lucrative bet in the first quarter. China stocks are lucratively valued, too (read: Are the Good Times Over for China Tech ETFs?).

KraneShares CSI China Internet ETF KWEB and iShares China Large-Cap ETF FXI added about 23% and 21%, respectively, in the first quarter (as of March 26, 2025).

Gold & Silver Glitter

The gold and silver mining sector of the broader stock market gained strength in the first quarter, given the surge in metal prices. Gold reached an all-time high in March 2025. Ongoing trade tariff disputes and fears of an economic slowdown have increased demand for gold and silver as safe-haven investments (read: Are Silver ETFs Better Plays Than Gold Now?).

Additionally, the U.S. dollar has remained subdued this year. Since metals are priced in the greenback, a weaker dollar has supported higher metal prices. Investors should note that mining stocks often act as leveraged plays on the underlying metals. This is why gold and silver mining ETFs surged in the first quarter.

SPDR Gold Trust GLD is up 13.4% in Q1, while VanEck Gold Miners ETF GDX has advanced 26.4%. iShares Silver Trust SLV has added 13.4%, while iShares MSCI Global Silver and Metals Miners ETF SLVP added about 22%.

Fed Stays Put, ECB Cuts Rate, BoJ Hikes

The Fed kept the federal funds rate unchanged at 4.25%-4.5% in the first quarter of 2025 and pointed to no hurry in further rate cuts due to trade tensions.  Invesco DB US Dollar Index Bullish Fund UUP has lost 3.4% so far this year (as of March 26, 2025) due to trade worries and a steady Fed.

The ECB lowered the three key interest rates by 25 basis points in its March meeting, reducing the deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90%. Before this, the ECB cut rates by 25 bps in January. The move boosted the European markets.

The Bank of Japan (BoJ) raised its key short-term interest rate by 25 basis points to 0.5% in January, the highest level in 17 years. In March 2025, Japan’s benchmark 10-year government bond yield surged to its highest level since 2008 due to the fastest wage growth in over three decades.

These boosted expectations of gradual interest rate hikes by the Bank of Japan (BOJ). Invesco CurrencyShares Japanese Yen Trust FXY added 4.6% in the first quarter (read: Japan 10-Year Bond Yield Hits Highest Level Since 2008: ETFs in Focus).

Bitcoin Erases Gains

Bitcoin has fallen from its post-election highs, with the cryptocurrency on track to end the first quarter of 2025 in the red (as of March 26, 2025). From the start of 2025, Bitcoin registered a shaky trend, weighed down by speculation that the Fed may have limited scope for further interest rate cuts.

In early March, there was an executive order by Donald Trump to establish a strategic Bitcoin reserve for the United States. The reserve will be funded using Bitcoin seized in criminal and civil forfeiture cases, with no plans for the U.S. government to purchase additional Bitcoin at this time. Investors found the move as underwhelming. iShares Bitcoin Trust ETF IBIT lost 11.2% in the year-to-date frame (as of March 26, 2025).

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This article originally published on Zacks Investment Research (zacks.com).

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