Despite entering a Fed easing cycle and strong corporate earnings, volatility may be on the rise, as election uncertainty continues to heighten. As measured by the VIX index, October volatility has historically spiked by over 30% over the past 4 election years, relative to more muted volatility in all other months.
Although volatility may be on the rise, we encourage investors to stay invested through this tumult, as markets have historically performed well after election uncertainty dissipates.
Source: Morningstar Direct as of 8/31/24 utilizing monthly changes in VIX Index in 2020, 2016, 2012 and 2008.
Source: Morningstar Direct as of 8/31/24. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
With the Fed cutting rates by 50bps in September, 1-year Treasury Bills fell below 4% for the first time since October 20221. The market is currently pricing in 200bps of Fed Fund rate cuts through 2025 2, which may lead risk-averse investors to seek new opportunities to potentially generate higher returns.
1 Treasury Bill rates from U.S. Department of Treasury (treasury.gov)
2 Source: Bloomberg as of 9/23/24 via the WIRP function (world interest rate probabilities).
Rather than moving into – or staying in – cash, investors may consider Max Buffer ETF strategies, which seek to track the share price return of the iShares Core S&P 500 500 ETF (IVV), up to an approximate upside cap, while seeking to provide 100% downside protection (minus fees) for a 12-month hedge period.
Max Buffer ETFs can be used strategically for risk-aware investors to gain equity exposure, or as a tactical trade for investors that may want to mitigate risk ahead of the U.S. election. The purpose of the chart below is to hypothetically illustrate how the cap and buffer are designed to work over the course of the hedge period.
This information is strictly for illustrative and educational purposes and is subject to change. This is not meant as a guarantee of any future result or experience. This information does not represent the actual performance of any iShares or BlackRock fund or strategy. The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision. The funds aim to provide their respective approximate downside buffer against price declines of the Underlying (IVV) over the hedge period, before fees and expenses if held for the entire hedge period. The illustration shows starting caps as of 10/1/2024, for remaining cap values, please refer to the Buffer Comparison Tool.
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Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.
There can be no guarantee that the Buffered Funds will be successful in their strategy to provide downside protection against Underlying ETF losses. The Funds do not provide principal protection or non-principal protection, and, despite the Approximate Buffer (the “Buffer”), an investor may experience significant losses on their investment, including the loss of their entire investment. In the event an investor purchases Fund shares after a Hedge Period begins or sells Fund shares prior to the end of the Hedge Period, the returns realized by the investor will not match those that the Funds seeks to provide. In periods of extreme market volatility, the Funds' return may be subject to downside protection significantly lower than the Buffer and an upside limit significantly below the Approximate Cap (the "Cap"). A new Cap is established during each Rebalance Period and is dependent upon current market conditions. As such, the Cap is likely to change, sometimes significantly, from one Hedge Period to the next.
The Buffered Funds invest in FLEX Options that derive their value from the Underlying ETF. FLEX Options are subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation, and may be less liquid than other securities. The value of FLEX Options may be affected by interest rate changes, dividends, actual and implied volatility levels of the Underlying ETF’s share price, and the remaining time until the FLEX Options expire. Because of these factors, the Buffered Funds’ NAV may not increase or decrease at the same rate as the underlying ETF’s share price.
Actively managed funds do not seek to replicate the performance of a specified index. Actively managed funds may have higher portfolio turnover than index funds.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this material is at the sole discretion of the viewer.
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The iShares Funds are not sponsored, endorsed, issued, sold or promoted by S&P Dow Jones Indices LLC, Russell, and Cboe Global Indices, LLC and/or its affiliates (together, “CGI”). None of these companies make any representation regarding the advisability of investing in the Funds. “Cboe®”is a registered trademark of CGI. BlackRock is not affiliated with S&P Dow Jones Indices LLC, Russell, and CGI.
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