As President Trump’s “not going to bend at all” approach to tariffs raises recession risk and helped to send the market into a correction last week, investors may want to consider strategies that focus more on the downside — ways to stay invested but stay protected during major stock downswings.
Alternative exchange-traded funds are an option, and they have been growing in popularity in recent years. But in many cases, retail investors have focused on non-traditional ETFs that ratchet up the risk, rather than dialing it down, Mike Akins, ETF Action founding partner, told Bob Pisani on CNBC’s “ETF Edge” last week. He was referring to ETFs that offer leveraged and inverse exposure to some of the biggest stocks in the market, from Nvidia to Tesla, and which have been highly popular with retail traders.
Meanwhile, other ETF niches within the non-traditional space, known as the buffer and covered call funds, are much more popular with institutional investors. For investors who believe market volatility will persist and think about portfolio construction for the longer-term, Goldman Sachs Asset Management’s Bryon Lake said on “ETF Edge” that looking at these protective strategies make sense.
The S&P 500 dipped into correction territory on March 13, though it managed to claw back some of its losses on Friday to finish the week down over 2%, still its worst week since 2023.
Lake said covered call funds, including premium income strategies, are one option for investors seeking durable returns. He became known for the JPMorgan Equity Premium Income ETF (JEPI), which launched during his tenure as J.P. Morgan Asset Management’s global head of ETFs.
“You sell that call, you get the premium for that, and then you can pay that out as income. As we look at this space, that’s one category that’s been evergreen for investors. A lot of investors are looking for income on a consistent basis,” Lake said.
Goldman has its own covered call ETFs, with options for both the S&P 500 and Nasdaq indexes.
Another option that offers even more downside protection are buffer ETFs, which help investors to potentially avoid substantial losses, capping downside risk via options. Goldman says its new U.S. Large Cap Buffer 3 ETF (GBXC) protects against the first 5% to 15% of losses on the S&P 500, and also prevents further declines beyond 30%. However, it also caps gains to the upside between 5% and 7%.
“A buffer strategy is going to lower the volatility in your portfolio,” Lake said.
Covered call ETFs focused on the U.S. stock market have amassed nearly $100 billion in assets under management, while buffer funds hold over $60 billion, according to ETF Action data.
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