Investors who pumped tens of billions of dollars into funds offering insulation from volatility suffered sharp losses during this week’s stock sell-off, highlighting the perils for retail traders seeking easy ways to ride out market uncertainty.
“Covered call” ETFs have boomed in popularity in recent years, with assets under management growing from about $18bn in early 2022 to roughly $80bn as of July, according to Morningstar data. Covered call strategies involve buying a basket of stocks while selling income-generating derivatives tied to the underlying assets.
Inflows have been driven by the prospect of equity-like price gains combined with bond-style income and low volatility. JPMorgan’s popular Equity Premium Income fund (JEPI), the largest actively managed ETF in the US, aims to provide “a significant portion of the returns associated with the S&P 500 index with less volatility”, according to the fund’s marketing material.