Best ETFs for Slowing Growth in 2025: Why Quality Funds Like VALQ Stand Out

Recession risks are falling but growth is slowing. Discover why quality ETFs like VALQ can help investors stay resilient in 2025.

Recession Risks Ease, But Growth Slows

As 2025 unfolds, investors are watching the Fed closely. Rate cuts appear more likely, which helps reduce recession risks. But even without a recession, the U.S. economy faces slowing growth, leaving traders to ask: which ETFs work best in a slow-growth environment?

Economic Outlook: Less Recession, More Slowdown

Analysts at American Century Investments outlined three possible scenarios:

Stagflation – unlikely, as inflation pressures are easing.

Surprise growth – possible, but would need stronger consumer demand.

Slowing growth – the most probable outcome, with weaker hiring, cautious spending, and softer corporate earnings.

This “slowing growth but no recession” path challenges traditional growth-heavy strategies. While rate cuts can support risk assets, earnings headwinds may keep broad indexes in check.

Why Quality ETFs Work in Slowing Growth Periods

During slow-growth environments, investors often rotate toward quality ETFs. These funds focus on companies with:

Strong balance sheets and manageable debt

Stable profitability across cycles

Dividend payouts that generate consistent income

Defensive sector exposure (utilities, health care, consumer staples)

Quality investing historically outperforms when growth cools but the economy avoids a deep downturn.

Spotlight on VALQ: American Century U.S. Quality Value ETF

One ETF positioned for this environment is the American Century U.S. Quality Value ETF (VALQ).

Expense ratio: 0.29%

YTD return: +5.9%

5-year annualized return: +12.9%.Outperforming ETF Database category (+9.6%) and FactSet segment (+6.3%)

Strategy: Screens for U.S. large- and mid-cap companies with strong quality, value, and income characteristics

By combining value + quality, VALQ balances defensive positioning with opportunities for upside if markets rotate away from tech.

Why VALQ Fits a Slow-Growth Playbook

VALQ and similar quality value ETFs can serve investors in three ways:

Defensive anchor – focus on strong companies less vulnerable to downturns

Sector diversification – avoids overexposure to mega-cap tech

Income support – dividends provide stability in sideways markets

As American Century analysts put it:

“Quality companies with higher profitability and healthy balance sheets may offer attractive potential, especially in defensive sectors.”

FAQs: ETFs for Slowing Growth in 2025

Q: What is the best ETF for slowing growth?

A: Quality ETFs like VALQ are designed to hold companies with strong balance sheets and steady dividends, making them suitable for slow-growth environments.

Q: Do quality ETFs perform well during recessions?

A: Quality ETFs often hold up better during mild recessions or growth slowdowns, though they may lag high-growth sectors in strong bull markets.

Q: Why focus on value and dividends now?

A: When growth slows, investors look for stability and income. Dividend-paying, value-oriented stocks provide consistency while growth stocks may face volatility.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a licensed financial professional before making investment decisions.