BlackRock enters booming market for stock ETFs with a 100% hedge

The S&P 500 gained around 14.5% in the first half of the year, buoyed by solid US growth and soaring megacap technology stocks

BlackRock Inc. is the latest asset manager to launch an exchange-traded fund that offers a way to ride the stock rally — while hedging 100% of the downside if markets plunge.

The iShares Large Cap Max Buffer Jun ETF is set to begin trading under the ticker MAXJ on Monday. Using options, it will provide investors with upside exposure to the S&P 500 to a cap of around 10.6% and hedge all of the downside over a 12-month period.

Such offerings may appeal to investors looking to tap into stocks’ record-setting rally even as worries mount around the outlook for growth and earnings. At the same time the Federal Reserve is signaling plans to keep interest rates elevated, while the US presidential election adds another potential wild card for markets.

As is typical for so-called buffer or defined-outcome ETFs, investors in MAXJ are only promised the full protection if they keep their money in the fund for its entire lifespan, which in this case is 12 months from the day it begins trading. Otherwise, they’ll have to jump into the fund when shares are near that starting level. A year from now, they can redeem their shares or roll them into the next cycle.

“They really can almost be viewed as an alternative to cash or Treasury-like instruments in the sense that you’re getting that downside protection, while also the opportunity to capture market growth and upside,” Rachel Aguirre, head of US iShares product at BlackRock, said in an interview.

BlackRock plans to issue the ETF in a series every three months, with the next one expected to debut on Oct. 1, followed by subsequent versions in January and April, it said in a press release. The cap will reset automatically at the end of each one-year period.

Assets in buffer ETFs have grown to some $46 billion, roughly tripling since October 2022, according to Bloomberg Intelligence.

While defensive-minded investors can get elevated risk-free payouts on Treasury bills, Aguirre said that these products would comfortably exceed those kind of returns in the event equities stage a fresh leg up. The S&P 500 gained around 14.5% in the first half of the year, buoyed by solid US growth and soaring megacap technology stocks.

An ETF from Innovator ETFs that promises 100% protection against losses over a six-month period is also set to launch Monday. It will trade under the ticker JAJL.