It’s no secret that risk is in vogue right now — at least for issuers.

According to a recent Morningstar report, more than half of soon-to-be-launched funds with prospectuses filed before the end of June are single-stock products, which tend to be more volatile than, say, broad-market funds. But ETFs that hedge against risk are showing their staying power, both for investors and issuers — the category represents more than $77 billion in assets, per data from Morningstar Direct.

“[Leveraged funds] tend to appeal to buyers who have a view on the direction of the underlying asset, and they want to express that point of view,” said Zachary Evens, Morningstar senior analyst. Meanwhile, buffer ETFs, which are in Morningstar’s defined-outcome category, “tend to appeal to advisors or clients who are risk-averse, saving for a large cash outflow, whether it’s college education, a house down payment [or] imminent retirement.”

Buffer the Volatility Slayer

Flows into the defined-outcome category have been steady, which is still a departure from the rapid growth they experienced during the market downturn in 2022 and 2023. There are also differences in demand for buffer ETFs more broadly and derivative income funds more specifically, the latter of which tend to have more volatile inflows and outflows, Evens said. Still, demand for the buffer ETF category has been consistent, he added. “Over the last year, it has not seen one month of outflows,” Evens said. “Investors are looking for protection in one way or another, and defined-outcome products deliver that.”

Some buffer ETFs recently brought to market:

• VanEck’s US Equity Buffer ETF – October (OCT), which launched last week.
• The AllianzIM International Equity Buffer15 Uncapped Jul ETF (JULI), which began trading in July.

Buffed Up: Given the impact that 2022’s downturn had on demand for risk-mitigating products, are volatility and buffer flows inextricably linked? Not necessarily, said Charles Champagne, head of ETF strategy at Allianz Investment Management. There’s certainly interest during times of geopolitical or macroeconomic uncertainty — such as the beginning of the US’ conflict with Iran earlier this year, or the tariff turmoil of last year — but risk aversion is part of any strong portfolio, he added.

“We see more [buffer interest] when there are events happening,” Champagne said. “But generally, we also see pretty steady flow[s] even when markets are strong and tensions are low.”

ETFs are taking investors abroad, no passport required.

Single-country ETFs are growing fast: The products have brought in over $26 billion this year, about four times the $6.5 billion they attracted in 2025, according to TD Securities’ US Weekly ETF report. This makes it one of the fastest-growing categories of equity ETFs, and this demand is driven by four main factors, according to the report: targeted AI exposure, improving fundamentals, diversification and more precise portfolio construction.

“Most of it is tied to investment themes versus the countries themselves,” said Cindy Zarker, client relationship manager at Fuse Research Network. In Japan’s case, for example, structural and governmental factors have played major roles, but themes like AI infrastructure and semiconductors appear to have influenced flows widely among other single-country ETFs, she said.

Don’t Put All Your Yen in One Basket

On an equity sector level, only healthcare and materials ETFs have seen comparable growth, with healthcare going from $1.7 billion in outflows in 2025 to $5.8 billion in inflows so far this year, and materials going from $1.8 billion in 2025 inflows to $8.3 billion in 2026, according to Bloomberg data. But while single-country ETFs can help provide diversification outside of US markets, they’re not necessarily a diversified bet on their own, Zarker cautioned. “If you’re investing for a specific theme because that country is doing a lot with chips or semiconductors, something like that, you do also have the other factors to do with the country and its own politics,” she said, pointing to the US’ ongoing trade war with Canada.

The countries leading this year’s flows are:

• Japan ETFs have brought in $9.5 billion, driven by corporate governance reforms and its improving equity market. The iShares MSCI Japan ETF (EWJ) drew $4.3 billion of that.
• South Korea is close behind, at $9 billion, driven by its increasing role in the AI supply chain. The iShares MSCI South Korea ETF (EWY) accounted for $7.7 billion of these flows.
• Canada came in third, at $3.6 billion, followed by Taiwan, at $3.1 billion.

Packing Light: Joon Um, a CFP at Secure Tax & Accounting, has a significant number of Korean clients who are often interested in investing in the South Korean market. “Single-country ETFs can make sense when someone wants targeted exposure to a country they understand or believe has specific opportunities,” Um said. But he generally sees them as a smaller allocation. “The concentration and geopolitical risks can be much higher than with a broader international fund.”