From America’s largest bank to its biggest asset manager, Wall Street investment strategies once reserved for private banking clients are increasingly being offered to Main Street investors.
In the midst of a market correction and ongoing uncertainty about the outlook for U.S. stocks and the global economy, JPMorgan Chase and BlackRock are among major players in the ETF space making bets that private strategies will continue to see greater adoption. That includes private credit as a mainstream bond portfolio holding, as well as equity income strategies that involved more complicated trading than traditional dividend equity funds.
“Across our business we are looking at an incredible amount of demand from ETF investors who are looking for access to alternative investment funds, and we find managers are looking to push more into that wealth space to tap into growth to meet investors where they are,” Ben Slavin, managing director and global head of BNY Mellon ETF business, told CNBC’s Bob Pisani on last week’s “ETF Edge” from the Exchange ETF Conference in Las Vegas.
“While mutual funds still make a ton of sense for retirement accounts, interval funds have been really successful in allowing for access to private credit,” Jay Jacobs, head of BlackRock’s US Thematic and Active ETF business, told Pisani from the conference. He was referring to a form of closed-end fund that has existed for a long time, and in which investors can access private credit, albeit with less liquidity than in an ETF.
BlackRock, the world’s largest asset manager and biggest issuer of ETFs, acquired a provider of alternative investments research last year, Preqin, and Jacobs said the firm plans “more indexing of private investments.”
Lack of liquidity in private markets is a key issue for ETFs to solve as they attempt to grow the alternative investment side of the business. These kinds of funds, like Van Eck’s BDC Income ETF — which invests in business development companies that make private loans to small and mid-sized companies — have traditionally been illiquid but because of innovation in the ETF industry, more people are gaining access.
Another trend that is catching on within the ETF market amid the current volatility in stocks is active ETFs designed to offer downside protection while capitalizing on income gained from selling call options. ETFs including the JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) use this approach.
Goldman Sachs Asset Management’s Bryon Lake said on a recent “ETF Edge” — he was among the leaders of the JPMorgan ETF business when JEPI was created and now runs a similar strategy at Goldman — “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.”
Funds like JEPI give investors exposure to sell call strategies.
“There’s multiple ways to win with a strategy like this, as you can remain invested in the equity side and get the return, and capture that premium income which adds to a growing need and growing desire for income across all asset classes, and that’s a really effective way to stay in the market,” Travis Spence, head of JPMorgan Asset Management’s global ETFs business, said on last week’s “ETF Edge.”
The expense ratio on the JPMorgan Equity Premium Income ETF is 0.35 percent, with a 7.2 percent dividend. The firm also offers the JPMorgan Nasdaq Equity Premium Income ETF with the same expense ratio, but with a dividend yield right now of 10.6 percent. “Its an effective trade off in a choppy market,” Spence said.
Thirty years ago, an investor would have had to be a high-end client of a Wall Street private bank that would customize a portfolio in order to participate in the options fund strategy, said Ben Johnson, Morningstar’s head of client solutions and asset management. But now, “ETFs make it easier and cheaper to implement these strategies,” he said.
Buffer ETFs run by Goldman and others, which cap both market upside and downside as a way to mitigate volatility in returns, are also gaining in popularity.
“Clearly, when you look at the flows, there is demand for these products,” Slavin said. “Until recently, it was not really well known,” he added.
The premium income and buffer ETFs can offer investors a way to stay in the market rather than run from it. But in a market that has seen steep declines of late, Jacobs says these strategies also offer a way for investors to get into the market with less fear of quickly losing money. That’s an important point, he said, with trillions of dollars sitting in money market accounts. “A lot of investors are using buffered products to step out of cash and into the market,” he said. “No one wants to be the one who held cash for five years and just put their money into the market and watched it sell off 10%.”
After watching the S&P 500 already lose more than 10% of its value in a three-week period this month, ETF strategies designed to offer protection are getting more attention from advisors and their clients. But Johnson says investors should remember that there is nothing “new” about these investment strategies that have been used on Wall Street for decades, and investors need to weigh both the pros and cons of wrapping them in an ETF structure.
Private credit ETFs are a good example, he said, since interval funds that trade under ticker symbols are already available, albeit in a less liquid trading format. ETFs have structural advantages to offer — an inexpensive way to gain access to what have long been “really expensive, super illiquid investments,” he said. But on the other side, to be approved by the SEC, the ETFs need to “water down a lot of what investors want,” he added.
Nevertheless, Johnson thinks it may just be a matter of time before private credit ETFs are standard. “I think back to bank loans, circa 2011,” he said, when many “balked at ever wrapping it in an ETF. But now that seems fairly common place.”
Check out the companies making headlines in premarket trading. PVH Corp — The fashion stock soared about 16% on the back of stronger-than-expected earnings for the fourth quarter. The Calvin Klein and Tommy Hilfiger parent earned $3.27 per share, excluding items, on $2.37 billion in revenue, beating the consensus forecasts of analysts polled by LSEG for $3.21 a share and revenue at $2.33 billion. Johnson & Johnson — Shares pulled back 4% after a U.S. bankruptcy judge denied the health-care product maker’s $10 billion settlement proposal tied to thousands of lawsuits alleging its baby powder and other talc products caused ovarian cancer. The judge said Johnson & Johnson’s plan did not have enough support from the women who allegedly got cancer from its products. Airlines — Several air carrier stocks slid after downgrades by Jefferies. American and Delta both fell nearly 2% after moving to hold ratings, while Southwest lost more than 3% following its downgrade to underperform. Xpeng — U.S.-listed shares of the Chinese electric vehicle company rallied 3%. Xpeng delivered 33,205 vehicles in March, marking an increase of more than 260% from the same month a year ago. Newsmax — Shares of the conservative cable news network surged more than 22% in the premarket, adding to gains from the previous session when Newsmax soared more than 700% in its public debut on the New York Stock Exchange. The stock, which opened at $14 a share and was priced at $10 a share, closed Monday at $83.51. Shake Shack — Shares of the burger chain rose 3% after Loop Capital Markets upgraded the stock to buy from hold. The investment firm said Shake Shack has a strong track record of beating sales expectations and that a recent pullback for the stock has created a buying opportunity. First Watch Restaurant Group — Shares advanced more than 3% after receiving an upgrade to buy from hold at TD Cowen. The firm said that it expects 2025 to see an improvement in same-store sales as a result of “more effective” marketing. — CNBC’s Sean Conlon, Sarah Min and Jesse Pound contributed reporting
Market uncertainty should “peak” around the Wednesday tariff deadline, according to Evercore ISI.
In a note this week, Julian Emanuel wrote investors should resist tariff angst and accumulate stocks.
“All you need is a little less uncertainty,” the firm’s senior managing director said Monday on CNBC’s “Fast Money.”
Emanuel compares the market pessimism to the March 2023 regional bank failures.
“The mood this morning and over the weekend talking with clients and talking with colleagues is as negative as I can remember going back to when Silicon Valley Bank blew up,” he said. “We didn’t know the Fed was going to ‘take care of business.'”
They were the S&P 500’s worst performing sectors of the month and quarter. But at these levels, according to Emanuel, companies will want to do stock buybacks which would help boost prices.
Meanwhile, he would avoid the recent leaders.
“What’s interesting about today is that everyone basically moved their sectors in the direction of how the entire quarter was going,” Emanuel said. “You saw consumer staples outperform. You saw health care very strong. In our view, those are probably the places where defense has been hiding.”
Health care gained 6% in the first quarter while consumer staples gained about 5%.
Emanuel thinks the market will regain its footing. His S&P 500 year-end price target is 6,800, which implies a 21% gain from Monday’s close.
“We don’t think you need a material clarity,” he said. “You need… the very, very extreme scenarios [tied to tariffs] becoming less possible.”
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Hedge funds are dumping stocks at a rapid pace as President Donald Trump’s aggressive tariff agenda spiked volatility on Wall Street. These professional traders have net sold global equities for six weeks in a row, with last week’s notional de-grossing amount reaching the largest level since July, according to data from Goldman Sachs’ prime brokerage unit. The cohort has been particularly fleeing high-flying technology names, offloading shares at the fastest pace in six months. The selling last week was also the second largest notionally in the last five years, Goldman’s data suggested. .SPX YTD mountain S & P 500 Bank of America trading desk also flagged bearish sentiment among hedge funds and other money managers. “Sentiment in all conversations is pretty bearish. It seems like long/short books are very tight, from a risk/exposure perspective. Long Onlies seem very defensively positioned,” BofA trading desk said in a note to clients Monday. “The mood is very very cautious.” Hedge funds were retreating at a time when the macroeconomic environment suddenly grew less certain. President Donald Trump ‘s aggressive tariff charges on imports into the U.S. stoked fears of dampened consumer spending, slower economic growth and even a recession. Investors are bracing for Trump’s Wednesday imposition of reciprocal tariffs on “all countries .” The White House has already slapped punitive tariffs on aluminum, steel and autos, along with increased tariffs on all goods from China. Earlier this month, the S & P 500 dipped into correction territory, or falling 10% from its recent peak. The benchmark is now trading 9.5% below that record high from February. Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!