Finance
Wall Street wants to privatize more of your money in market correction
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.”
The SEC recently approved the first private credit ETF, though not without some controversy.
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.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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