Low Volatility ETFs to Watch Amid Major Tech Sell-Off Over AI Panic

A massive sell-off in shares of tech giants, such as Microsoft MSFT, Salesforce CRM, and ServiceNow NOW, wiped out nearly $1 trillion in industry value in just a week, marking a dramatic shift in market sentiment. According to Reuters, the S&P 500 software and services index plunged 4.6% in a single session on Feb. 5, 2026, shedding approximately $1 trillion in market value since Jan. 28 in a rout dubbed “software-mageddon”(as cited in Yahoo Finance).

This panic has sent broader market volatility soaring. The Cboe Volatility Index (“VIX”), Wall Street's "fear gauge," jumped 17% to close at 21.77 yesterday, its highest level since late November. 

When volatility is this high, the stock market becomes a minefield for high-beta, growth-oriented assets, creating conditions in which low-volatility stocks — and, by extension, exchange-traded funds (ETFs) that hold them and are designed to weather market storms — become particularly attractive.

What Drove the Major Sell-Off?

What caused the software sector to plummet so violently? The latest "AI Panic" was largely triggered by artificial intelligence startup Anthropic, which recently launched a suite of workplace productivity and legal automation tools.

Investors started to panic because AI is no longer just a buzzword for growth; it is now viewed as an existential threat to traditional software business models. If AI agents like Anthropic’s Claude AI can automate legal work, coding, and data analysis, the "wide moats" and predictable recurring revenues of legacy software giants suddenly look very narrow. 

This fear practically turned AI from a tailwind into a disruptive force, leading to double-digit losses for tech bigwigs like Salesforce, Adobe and even specialized firms like Thomson Reuters.

Goldman Sachs' chief U.S. equity strategist noted that near-term earnings might be insufficient to disprove the perceived long-term downside risk from AI (as cited in a Fidelity press release), keeping potential bargain hunters on the sidelines.

The Case for Low Volatility ETFs

As tech-heavy indices like the Nasdaq took the heat, the case for low volatility ETF strategies has never been stronger.  These funds hold stocks that have historically exhibited smaller price swings than the overall market, typically found in sectors like consumer staples, utilities and healthcare. 

It is important to note that there is already a pronounced rotation out of technology and into value-oriented sectors such as consumer staples, which aligns well with the low-volatility investment style (as cited in the Reuters article).

Recent data underscore the shift in sentiment, as U.S. ETFs attracted $165 billion in inflows in January 2026 — more than that in the previous three Januaries combined, according to State Street Investment Management. 

This sprint represented a shifting equity landscape, characterized by a notable move away from the mega-cap concentration that dominated the past three years, toward cyclical and value-oriented sectors, with energy, materials, consumer staples and industrials emerging as the top performers.

Low-Volatility ETFs for Your Watchlist

Given the current climate, investors may consider adding the following low-volatility ETFs to their watchlist. These funds focus on stable, less cyclical companies that can provide a buffer during tech-driven downturns:

iShares MSCI USA Min Vol Factor ETF USMV

This fund, with net assets worth $23.08 billion, offers exposure to 170 U.S. stocks with potentially lower risk than the broad market. Its top three holdings include Exxon Mobil XOM (1.88%), Johnson and Johnson JNJ (1.81%) and Merck MRK (1.72%). 

USMV has gained 2.4% over the past year. The fund charges 15 basis points (bps) as fees. 

iShares MSCI Global Min Vol Factor ETF ACWV

This fund, with net assets worth $3.42 billion, offers exposure to 379 developed and emerging market stocks with potentially low risk. Its top three holdings include JNJ (1.71%), Cisco Systems CSCO (1.63%) and Cencora Inc. COR (1.30%). 

ACWV has rallied 7.9% over the past year. The fund charges 20 bps as fees. 

Invesco S&P 500 Low Volatility ETF SPLV

This fund, with a market value worth $7.77 billion, offers exposure to 101 U.S. large-cap stocks with low volatility for both potential upside participation and risk mitigation. Its top three holdings include JNJ (1.27%), Coca-Cola KO (1.24%) and Realty Income Corp. O (1.23%). 

SPLV has gained 3.9% over the past year. The fund charges 25 bps as fees. 

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

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