The experts believe that there is a significant advantage at play, despite the fact that some investors are afraid that exchange-traded funds with options overlays could significantly limit returns.
It has been suggested by Tony Rochte, the global head of exchange-traded funds (ETFs) at Morgan Stanley, that hedging measures such as options, which function as a wager against the equity position of a fund, also safeguard against severe losses.
He stated this in an interview with CNBC's "ETF Edge." "They might be capped on the upside, but they're certainly capping their downside protection as well," according to him. People are beginning to return to the broad-based equities market as a result of this, which is a significant development.
Alison Doyle, who is in charge of ETP listings at Nasdaq, has stated that the utilization of the risk management method is becoming increasingly popular among investors.
In 2023, more than seventy-five percent of all ETF launches were active. "I believe that portfolios that have options-embedded strategies within the portfolios are the most notable within the active exchange-traded fund (ETF) space," she stated in the same interview. Consider the fact that seventy-five percent of the exchange-traded funds (ETFs) that were introduced in the previous year were either active equities or equity derivative strategies.
Rochte, an analyst at Morgan Stanley, believes that as a consequence of this, more investors are shifting their money away from popular fixed-income products and into risk assets.
There are some customers that are interested in re-risking their portfolio. They are observing the appreciation of the stock market. They want to move out of a money market account or a certificate of deposit that pays 5%, and they are doing it by utilizing these options-based tactics, the Nasdaq, and a variety of other exchanges.
Covered call exchange-traded funds (ETFs) that are based on the Nasdaq-100 index are a popular strategy for investors to capitalize on the dominance of the Big Tech sector, according to Doyle of Nasdaq. It has come to our attention that there are some managers that are willing to license the Nasdaq-100 index in order to provide that technological exposure together with options methods.
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