2025's Underperforming ETFs: Strategic Opportunities in Red-In-Green Markets

The 2025 ETF landscape has been marked by stark contrasts. While large-cap equity and fixed-income ETFs have attracted record inflows, sector-specific funds like the S&P India Tech (-23.43%) and MarketVector US Listed Oil Services (-16.76%) have underperformed, reflecting broader macroeconomic and sector-specific challenges. However, these declines also signal opportunities for investors willing to navigate red-in-green markets-sectors where sustainability-driven recovery trends could unlock value.

Underperformance: A Closer Look

The S&P India Tech ETF's sharp decline underscores vulnerabilities in the Indian technology sector, including economic volatility and trade tensions, according to a justETF review. Similarly, the MarketVector US Listed Oil Services ETF has struggled amid shifting energy demand and the rise of alternative fuels, as shown in an iShares flows report. These underperformers highlight the risks of concentrated sector exposure in a volatile market.

Yet, beneath the surface, green transitions and sustainability initiatives are reshaping these sectors. For instance, India's tech industry is rebounding through AI adoption and government-led digital transformation. The NASSCOM Strategic Review notes that the sector's FY25 revenue is projected to hit $283 billion, driven by a 5.1% year-over-year growth in IT services and a surge in cloud-native technologies. Meanwhile, India's oil services sector is pivoting toward decarbonization, with companies like Oil India Limited joining global decarbonization charters and investing in methane detection technologies, as noted on Oil India's sustainability page.

Red-In-Green Opportunities: Strategic ETFs and Sectors

Investors seeking to capitalize on these trends should consider undervalued ETFs aligned with sustainability-driven recovery. The First Trust Technology AlphaDEX ETF (FXL) and SPDR S&P Software & Services ETF (XSW) offer exposure to AI-driven software and services, sectors poised for long-term growth, according to a Nasdaq roundup. In India, the Franklin FTSE India ETF (FLIN) and Invesco India ETF (PIN) provide diversified access to a market where tech and renewable energy are converging, as highlighted in a U.S. News ranking.

For the energy transition, the oil services sector's pivot to sustainability is gaining traction. Companies within the MarketVector ETF are increasingly adopting carbon capture and renewable energy projects, even as traditional fossil fuel demand wanes, as detailed in an Inspenet analysis. While specific case studies of ETF holdings remain sparse, broader industry trends-such as the U.S. energy sector's $2.4 billion green hydrogen subsidy-signal a structural shift, according to an EY insight.

The Path Forward

The red-in-green strategy hinges on identifying sectors where sustainability is not just a buzzword but a catalyst for reinvention. India's tech sector, for example, is leveraging green bonds and fintech to fund renewable projects, while its oil services firms are integrating AI for efficient exploration, as highlighted in a ScienceDirect study. These transitions are not without risks-macroeconomic headwinds and regulatory shifts remain concerns-but the long-term potential for ESG-aligned growth is compelling.

For investors, the key lies in balancing short-term volatility with long-term vision. By targeting ETFs that align with green transitions-whether in AI-driven software, renewable energy, or decarbonized oil services-portfolios can position themselves to benefit from both market corrections and sustainability-driven innovation.