The Vanguard S&P 500 ETF (VOO) was up 14% as of July 26, near its all-time high. With four months to go, VOO has already set a new calendar year record with $51 billion of net inflows. Yet, VettaFi believes many advisors are cautiously optimistic. In mid-July, VettaFi hosted a webcast for advisors in partnership with State Street Global Advisors. During the event we asked attendees a series of questions. One sought to learn what advisors were most concerned about. “Market valuations” topped the list of choices with 56%, ahead of the U.S. election and geopolitical tensions. The VettaFi poll took place before President Biden announced plan to not seek a second term.
Despite the concerns, in a separate question advisors told VettaFi they still favored US equities. The US equities asset class received 51% of the vote for which was most appealing to add to client portfolios. International equities, US fixed income and gold garnered some but less interest. Many investors might initially think about reducing US stock exposure, despite finding them relatively appealing. We think a growing wave of new ETFs seeks to address the combination of these two sentiments.
Investors Said 'HELO' to Another Active JPMorgan ETF
The JPMorgan Hedged Equity Laddered Overlay ETF (HELO) is one example. Launched in September 2023, HELO has gathered $1 billion. The ETF invests in a portfolio of U.S. large cap stocks while employing a laddered options strategy that seeks to reduce downside risk in falling markets.
HELO takes an active stock picking approach. For example, in the second quarter of 2024 performance was impacted by overweighting stocks like Bristol Myers Squibb and not owning certain S&P 500 stocks like Intel.
Fidelity and Parametric Offer Stock Focused Alternatives
Year to date through July 26, HELO and PHEQ were up 10.5% and 7.2%, respectively. The use of options resulted in more modest returns than VOO. However, in the two-week period ended July 26, HELO and PHEQ were down 1.3% and 1.4%. These losses were narrower than VOO’s 3.3%. FHEQ was down 2.4%.
With approximately 275 days remaining, the remaining protection level for CPSM has changed. However, Calamos was launching a new Calamos S&P 500 Structured Protection – August (CPSA) on August 1 offering fresh 100% downside protection for a year.
The initial success of Calamos has resulted in competition. One such fund, the Innovator Equity Defined Protection ETF 6Mo Jan/Jul (JAJL), came to market in July and has $132 million. Like CPSM, JAJL does not directly own equites the way HELO, FHEQ, PHEQ does but uses options.
Even with a growing number of risk-mitigating ETFs offering equity-like ETFs, we believe education remains key. Many still do not appreciate that it’s time in the market not timing the market that matters most.