How to pursue income strategies with outcome ETFs

• Investors may be familiar with options strategies but having them available inside the ETF wrapper provides a convenient and cost-efficient avenue for access.
• Outcome ETFs are designed to align with specific investment goals, like generating income, providing targeted downside protection, or seeking enhanced growth – which investors are increasingly seeking to do. BlackRock forecasts U.S. outcome ETF assets under management will more than triple to $650 billion by 2030, from $181 billion in 2024.¹
• The iShares Advantage Large Cap Income ETF (BALI) is an example of an outcome ETF, one that targets consistent income with lower volatility than the broader U.S. equity market.

Options strategies might seem complex, but the outcomes they seek to achieve – including income, downside protection or enhanced growth -- can be easier to understand and conveniently pursued with exchange traded funds (ETFs). Enter outcome ETFs.

‘Outcome ETFs’ may be a relatively new phrase, but they are increasingly becoming a vehicle of choice for investors. In 2024, outcome ETF assets under management (AUM) skyrocketed to $181 billion, up from just $5 billion in 2019.² We believe that adoption will continue to accelerate and forecast U.S. outcome ETF assets under management will more than triple to $650 billion by 2030.³  (Download BlackRock’s new report Outcome ETFs – A powerful tool for a changing world to learn more.)

The iShares Advantage Large Cap Income ETF (BALI) is an example of an outcome ETF targeting consistent income with lower volatility than the broader U.S. equity market.

This actively managed ETF invests in a basket of large-cap stocks using a proprietary dividend rotation model that incorporates quantitative analysis. The fund then seeks to enhance income by writing monthly call options on the S&P 500 Index.

This allows investors to have some potential upside market participation, while seeking income from two sources: equity dividends and the sale of call options.

BALI seeks to deliver consistent income and lower volatility without needing to overweight certain sectors or styles, making it an attractive consideration for a core equity exposure. Utilizing the data and technology capabilities of BlackRock’s Systematic Active Equities (SAE) platform, BALI employs a systematic approach with a robust risk management framework. (Learn more about SAE, which uses data-driven insights, scientific testing, and advanced computer modelling techniques to construct portfolios.)

A call options contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy a particular asset at a specified future date at an agreed upon price (commonly known as the “strike price”). When the Fund writes (sells) a call option, the Fund is entitled to receive a premium. Although not perfectly correlated, such call options may have the impact of capping potential gains from the Fund’s long position in equity securities. Therefore, to reduce the potential impact of this cap on the potential gains (with actual results dependent on various factors including the degree of options and futures activity over time), the Fund will buy futures on a large cap equity index.

Of course, individuals and financial advisors may pursue call options strategies outside of ETFs. But that requires a commitment of time and energy into learning the world of options, as well as ongoing rebalancing and monitoring strategies. The advent of outcome ETFs has created a way to simplify access to options strategies for investors. That’s why we believe that outcome ETFs will increasingly become a vehicle of choice as more investors look for clearer investment outcomes and low-cost ways to implement these strategies.

Download BlackRock’s new report Outcome ETFs – A powerful tool for a changing world to learn more about BALI and other outcome ETFs, including the newly launched iShares Large Cap Max Buffer ETF (MMAX) which seeks to help investors hedge downside risk (minus fees) in exchange for a capped upside for the hedge period of 4/1/2025 to 3/31/2026.

With macroeconomic uncertainty driving volatility higher to start 2025, max buffer ETFs can provide a more attractive risk/return profile for investors who are interested in equity growth potential up to an approximate cap.