Wall Street Wants More of Your Stock and Bond Money Privatized in Risky Markets

Wall Street investment strategies that were once the domain of private banking clients are now becoming more accessible to everyday investors, thanks to major financial institutions expanding their offerings.

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Firms such as JPMorgan Chase and BlackRock are leading this shift, betting that private investment strategies will see broader adoption through exchange-traded funds (ETFs). These strategies include private credit as a core component of bond portfolios and equity income approaches that incorporate more complex trading techniques beyond traditional dividend-focused funds.

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According to Ben Slavin, managing director and global head of BNY Mellon’s ETF business, demand for alternative investments within ETFs is growing significantly. Speaking on “ETF Edge” from the Exchange ETF Conference in Las Vegas, Slavin noted that asset managers are eager to expand into the wealth management space to meet investor demand. He emphasized that firms are increasingly looking to connect with investors where they are, making sophisticated strategies more accessible.

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Jay Jacobs, head of BlackRock’s U.S. Thematic and Active ETF business, pointed out that while mutual funds remain a staple for retirement accounts, interval funds—structured as closed-end funds that allow access to private credit with less liquidity than ETFs—are gaining popularity. BlackRock has taken a proactive approach in this space by acquiring alternative investment research provider Preqin. Jacobs stated that BlackRock intends to continue indexing private investments, making these strategies more widely available.

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One notable development in this area is the Securities and Exchange Commission (SEC) recently approving the first private credit ETF, though the decision was met with some controversy. The challenge for ETFs entering private markets lies in addressing liquidity issues, which have traditionally made private investments less accessible.

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However, innovation in the ETF industry has enabled more investors to participate in alternative strategies. For example, Van Eck’s BDC Income ETF provides exposure to business development companies that lend to small and mid-sized firms—an area that was previously difficult for retail investors to access.

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Another trend gaining momentum in the ETF market, particularly in response to current stock market volatility, is the rise of actively managed ETFs designed to provide downside protection while generating income through selling call options.

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JPMorgan has been at the forefront of this movement with products such as the JPMorgan Equity Premium Income ETF (JEPI) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ). These funds generate additional income by selling call options, a strategy that allows investors to stay in the equity market while earning premium income.

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Bryon Lake of Goldman Sachs Asset Management, who was previously involved in launching JEPI at JPMorgan, explained on a recent episode of “ETF Edge” that selling call options provides a steady income stream. Investors benefit from equity exposure while also collecting income from selling options, which has become an attractive strategy in uncertain markets.

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Travis Spence, head of JPMorgan Asset Management’s global ETF business, echoed this sentiment, emphasizing that such strategies offer multiple advantages. Investors not only participate in equity market gains but also capture premium income, addressing a growing demand for consistent income across asset classes.

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The JPMorgan Equity Premium Income ETF carries an expense ratio of 0.35% and currently yields 7.2%, while the JPMorgan Nasdaq Equity Premium Income ETF offers the same expense ratio with a higher dividend yield of 10.6%. Spence described this approach as an effective trade-off in volatile market conditions.

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Historically, these types of options-based strategies were exclusive to high-net-worth clients who received customized portfolio solutions from private banks. However, ETFs have democratized access, making it easier and more cost-effective for everyday investors to implement these strategies. According to Ben Johnson, Morningstar’s head of client solutions and asset management, what was once a specialized offering for elite investors has now become mainstream through ETFs.

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Another category of ETFs gaining traction is buffer ETFs, which limit both potential gains and losses to help smooth out market volatility. These funds, offered by firms like Goldman Sachs, appeal to investors who seek market participation but want to reduce risk exposure. Slavin noted that investor demand for such products has increased significantly, even though they were not widely known until recently.

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Both premium income and buffer ETFs provide investors with an opportunity to remain in the market rather than fleeing during downturns. With the S&P 500 experiencing sharp declines, many investors are hesitant to re-enter the market for fear of immediate losses.

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However, Jacobs highlighted that buffered ETFs serve as a bridge, allowing investors to transition from cash holdings back into equities with reduced downside risk. He pointed out that with trillions of dollars parked in money market accounts, these strategies offer a safer way to reallocate funds into the stock market.

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“No one wants to be the investor who held cash for five years and then finally moved back into the market only to watch their investments drop by 10%,” Jacobs explained. The recent market pullback, with the S&P 500 declining more than 10% in a span of three weeks, has drawn increased attention to ETFs that provide downside protection.

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Despite the growing popularity of these strategies, Johnson cautioned that investors should recognize that there is nothing inherently new about them. Options-based strategies and private credit investments have been used on Wall Street for decades. What has changed is the way they are packaged within ETF structures, making them more accessible and cost-effective.

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However, Johnson warned that while ETFs offer advantages such as lower fees and increased liquidity, they often require regulatory adjustments that dilute some of the benefits traditionally associated with private investments.

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For instance, private credit ETFs must comply with SEC regulations, which may require them to adjust their structures in ways that make them less appealing to some investors. Johnson pointed out that interval funds, which have been around for years, already offer private credit exposure but with limited liquidity. While ETFs can make these investments more accessible, they must balance regulatory requirements with investor expectations.

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Nevertheless, Johnson believes private credit ETFs will become more commonplace over time. He compared the current skepticism to initial doubts about bank loan ETFs back in 2011, which have since become a widely accepted investment vehicle. The evolution of the ETF industry suggests that alternative investment strategies will continue to expand, providing Main Street investors with opportunities that were once reserved for Wall Street’s elite.

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