BlackRock launches stock ETF with 100% downside hedge

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 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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Reporting by Manya Saini in Bengaluru; Editing by Maju Samuel

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