Option income, buffer, and levered ETFs are marketed as smarter ways to invest — capturing upside, cushioning losses, or multiplying returns. But how do they actually perform against a simple do-it-yourself alternative built from an index fund and Treasury bills? Atlas Capital CIO Ken Frier examines four popular ETF categories — JEPI, BUFR, SPXL, and SPXU — using five- and ten-year performance data to show where the marketing holds up, where it doesn’t, and what a simpler, lower-cost alternative would have delivered.
Do Risk-Managed ETFs Beat a Simple DIY Portfolio?
Short answer: In three of the four ETF categories examined — option income, buffer, and levered bull funds — a simple do-it-yourself portfolio of an index fund and Treasury bills matched or beat the ETF’s return, at lower cost. The fourth category, 3x-levered bear ETFs, is unsuitable for nearly everyone, in either form. This analysis comes from Ken Frier, Chief Investment Officer of Atlas Capital Advisors.
Is JEPI (an option income ETF) a good investment?
JEPI captures a portion of S&P 500 returns with less volatility and pays a high yield, as advertised. But over five years (June 2021–June 2026), JEPI returned 7.4%/year versus 9.7%/year for a simple 60% S&P 500 Index / 40% Treasury bills mix that has similar risk. JEPI’s yield is also taxed at ordinary income rates, not the lower rates which apply to capital gains or qualified dividends.
Is BUFR (a buffer ETF) worth its fee?
BUFR limits S&P 500 losses but also caps gains and charges a 0.95% expense ratio. Over the same five years, its performance was nearly identical to a simple 60% stocks S&P 500 Index / 40% Treasury bills mix — at no extra cost.
What is volatility decay in leveraged ETFs?
Volatility decay is the return lost to daily rebalancing in leveraged funds. Every fluctuation in the price of the reference security widens the gap between the actual return of the leveraged ETF and the targeted return. Because of volatility decay, the ETF can lose value even when the reference security has gains, as the example in the video shows.
How risky is SPXU (a 3x levered bear ETF)?
Extremely, particularly during a bull market in stocks. A $100,000 investment in SPXU five years ago would be worth about $12,000 today — an 88% loss (-34%/year)which is -2.5x the return of the S&P 500 over the same period. An investor in SPXU ten years ago would have lost nearly all of the original investment – a 99.6% loss (-41% per year). Levered bear strategies have even worse volatility decay than levered bull strategies. Atlas Capital does not recommend levered bear strategies in ETF or DIY form.
Bottom line: Before buying a “protected” or “amplified” ETF, ask what a simple DIY alternative built from the underlying index and Treasury bills would have done. The numbers often tell a different story than the marketing. Atlas Capital can run this comparison for any ETF you currently hold.
