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.”
Capital One secured approvals from banking regulators Friday for its $35 billion acquisition of Discover Financial — a deal that analysts believe could have far-reaching benefits beyond just the Club holding. The news Wells Fargo research analysts said the greenlights from the Federal Reserve and the Office of the Comptroller of the Currency highlight a softer regulatory environment under the Trump administration. That bodes well for investment banking businesses in large U.S. banks such as fellow portfolio name Goldman Sachs . In a Sunday note, the analysts described the Capital One-Discovery merger as a “clearing event” for more bank deals that should likely “kick off further bank consolidation.” They added, “The approval is a down payment on the improved regulatory environment from the new administration.” Research analysts at Wells Fargo said the Discover acquisition will not only boost Capital One’s earnings potential but also provide “more than enough cushion to protect” it from an uncertain macroeconomic environment. The analysts reiterated their buy-equivalent rating on shares of Capital One, which said it has all the necessary approvals now and plans to close the Discover purchase on May 18. Capital One, which reports earnings after Tuesday’s closing bell, has three main segments: credit cards, consumer banking and commercial banking. It gets most of its revenue from credit cards. The merger development was not enough to boost financial stocks as concerns about President Donald Trump’s so-called reciprocal tariffs continue to rattle the market. Capital One shares, which shot up more than 5% shortly after Monday’s open, reversed lower and spent the afternoon around the flat line. Goldman was little changed after the open but saw declines accelerate as the S & P 500 sank more than 3%. COF 1Y mountain Capital One 1 year Big picture Coming into 2025, investors had high hopes that Trump’s more lenient stance on antitrust issues would lead to more mergers and acquisitions (M & A) and initial public offerings (IPOs). But with tariff and recession concerns gripping the market, deal activity has not rebounded as much as expected during the president’s first few months in office. Investment banks make money by offering M & A advisory services and IPO underwriting. Case in point: Heightened uncertainty about the outlook for the economy has disrupted plans for big-name IPOs like fintech firm Klarna and ticketing platform StubHub over the past month. Last week, Goldman also posted weaker-than-expected revenue for its investment banking division during the first quarter . CEO David Solomon acknowledged that dealmaking expectations have not panned out yet. “We are entering the second quarter with a markedly different operating environment than earlier this year,” Solomon said during the post-earnings conference call. Corporate clients are “concerned by the significant near-term and longer-term uncertainty that has constrained their ability to make important decisions,” the exec said. Bottom line We’re thrilled that bank regulators have decided to move forward with the Discover deal. It’s a key reason the Club first started a position in Capital One. The acquisition should support earnings growth and price-to-earnings multiple expansion over the long run. Upon completion of the transaction, Capital One, a major credit card issuer in its own right, will own Discover’s payment network, which will decrease its reliance on Mastercard and Visa . On Monday, we added to our Capital One position . “We got the catalyst we wanted in Capital One,” Jim Cramer said during the Morning Meeting. “The stock didn’t move [much]. That’s an opportunity.” GS 1Y mountain Goldman Sachs 1 year Like analysts, we’re also hoping this is a positive sign about the U.S. regulatory backdrop. Fewer deals blocked by regulators means more upside for Goldman’s crucial investment banking business. But for a material rebound, more clarity on tariff policy is needed. “What Goldman excels at is helping clients in a time of turmoil, and they did great there,” Jim said after the firm’s earnings last Monday. “But .. when you take a look at investment banking, they’re just not making a lot of money.” Thankfully, the weakness was offset by Goldman’s trading business due to the stock market’s volatility. WFC 1Y mountain Wells Fargo 1 year Finally, Club holding Wells Fargo also stands to benefit from a more lenient regulatory regime. Wells has been working to convince the Fed to lift the $1.95 trillion asset cap imposed in 2018 for misdeeds at the bank that predated CEO Charlie Scharf’s tenure. We think Scharf and his team have done a great job cleaning things up. It’s only a matter of time until the asset cap is lifted, which would allow Wells to expand its balance sheet. When that happens, Wells can grow its budding fee-based business like investment banking and not rely so heavily on interest-based revenues, which are at the mercy of the Fed’s monetary policy decision. (Jim Cramer’s Charitable Trust is long COF, GS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Screens display the logos and trading information for Capital One Financial and Discover Financial as traders work on the floor at the New York Stock Exchange on Feb. 20, 2024.
Brendan Mcdermid | Reuters
Capital One secured approvals from banking regulators Friday for its $35 billion acquisition of Discover Financial — a deal that analysts believe could have far-reaching benefits beyond just the Club holding.
Torsten Slok, chief economist at Apollo Global Management, is certain the U.S. will fall into a recession this year if tariffs stay where they are. “It’s all conditioned on tariffs staying in place at these levels, and if they stay at these levels, we will absolutely have a recession in 2025,” Slok told CNBC’s ” Squawk on the Street ” on Monday. If the high tariffs that were put in place earlier this month remain in effect, odds of a two-quarter contraction in economic output stand at 90%, with gross domestic product dropping by four percentage points, according to the private equity firm’s economist. President Trump on April 9 granted a 90-day reprieve for many tariffs, while hiking those on China to 145%. Central to Slok’s recession forecast are the China tariffs, which he argues are especially damaging for small businesses that less likely to hold sufficient cash on hand to pay the higher tax on imported goods. “They basically do not have money and cash to pay 145% extra,” Slok said. “So, we will have bankruptcies of retailers of very significant magnitudes if this is allowed to continue.” Jobs, sentiment damage Any slump in retail would end up damaging the labor market and consumer sentiment, since small businesses with fewer than 500 workers make up 80% of total employment, according to Slok, who previously worked at Deutsche Bank and Bank of America after stints at the IMF and OECD. Particular attention should be paid to weekly jobless claims reports as job market weakness will show up there first. “The impact of tariffs, especially on China, is still weighing heavily, in particular, on small businesses,” Slok said. “And we have not seen that in jobless claims yet, but we should expect to see that.” Recession calls have grown on Wall Street in April, though the frequent tariff changes have made it nearly impossible for forecasters to measure the full impact. Earlier this month, JPMorgan Asset Management’s David Kelly, immediately following the April 2 announcement, said there’s a 60% chance of a recession, depending on whether high tariffs stay in place. 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!