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July 01, 2024 at 09:29 AM
What You Need to Know
- Using options, its new ETF offers upside exposure to the S&P 500 of up to 10.6% and hedges any downside over a 12-month period.
- Such offerings may appeal to investors looking to tap into stocks’ record-setting rally as worries mount around the outlook for growth and earnings.
- Assets in buffer ETFs have grown to some $46 billion, roughly tripling since October 2022.
BlackRock Inc. is the latest asset manager to launch an exchange-traded fund that offers a way to ride the stock rally — while hedging 100% of the downside if markets plunge.
The iShares Large Cap Max Buffer Jun ETF is set to begin trading under the ticker MAXJ on Monday. Using options, it will provide investors with upside exposure to the S&P 500 to a cap of around 10.6% and hedges all of the downside over a 12-month period.
Such offerings may appeal to investors looking to tap into stocks’ record-setting rally even as worries mount around the outlook for growth and earnings.
At the same time the Federal Reserve is signaling plans to keep interest rates elevated, while the U.S. presidential election adds another potential wild card for markets.
As is typical for so-called buffer or defined-outcome ETFs, investors in MAXJ are only promised the full protection if they keep their money in the fund for its entire lifespan, which in this case is 12 months from the day it begins trading.
Otherwise, they’ll have to jump into the fund when shares are near that starting level. A year from now, they can redeem their shares or roll them into the next cycle.
“They really can almost be viewed as an alternative to cash or Treasury-like instruments in the sense that you’re getting that downside protection, while also the opportunity to capture market growth and upside,” Rachel Aguirre, head of U.S. iShares product at BlackRock, said in an interview.
