BlackRock launches stock ETF with 100% downside hedge

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July 1 (Reuters) – BlackRock has launched a ‘buffer’ exchange-traded fund that seeks to offer a 100% downside hedge to risk-shy investors looking to tap the equity markets, the world’s largest asset manager said on Monday.

So-called buffer or risk-managed ETFs help maximize returns from an asset for investors and simultaneously provide downside protection over a specific period.

The novel product will likely appeal to investors who are hoping to ride a rally in the stock markets as they continue to trade near record highs, but are concerned that a slowing economy and higher-for-longer interest rates can together hurt sentiment going forward.

Buffer ETFs also typically see lower redemption requests during times of heavy market volatility.

“BlackRock is not early – and actually is a little late – to the buffered ETF game, but with (the company’s) size, reach, and marketing machine, it has a fair chance of catching up with and surpassing earlier market entrants,” said Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors.

“Launching buffered ETFs now, when the market is near all-time highs and many investors are nervous – especially with inflation, upcoming elections, and expanding debt – could be especially fortuitous for them,” he added.

The iShares Large Cap Max Buffer Jun ETF started trading on Monday under the ticker symbol ‘MAXJ’.

The asset manager said the ETF will track the returns of the benchmark S&P 500 using options with an upside cap, while providing a 100% hedge to all downside for roughly a year.

“With record levels of cash sitting on the sidelines, many investors are looking for tools to help navigate market volatility before they step back into the market,” said Rachel Aguirre, head of U.S. iShares product, BlackRock.

BlackRock added that it now manages $25 billion in assets under management across more than 40 active ETFs in the United States, as of June 30.

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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