How ETFs Can Help on Halloween

The S&P 500 is up sharply in 2024, as are many other indexes. While this has been a treat for advisors and their clients, some investors might be spooked. So let’s take a quick stroll, nowhere near the graveyard, and see how ETFs can help avoid some nightmares this Halloween. 

Many have expressed fear that the market cap of the top stocks in the S&P 500 Index has swelled. This is true. However, investors in the SPDR S&P 500 ETF (SPY A) and its peers have 93% of their assets invested outside of Apple. Investors who find the weighting of one stock too large can turn to the Invesco S&P 500 Equal Weight ETF (RSP A-), which has 99.8% of its assets in stocks not named NVIDIA. 

Many ETFs provide much-needed diversification benefits to investors who can easily fall in love with stocks only to be scared when a selloff inevitably occurs. 

The S&P 500 index can still decline sharply in a short period of time despite the 23% gain this year. This is why options-based ETFs offering some or a lot of downside protection have gained popularity. For example, the Innovator US Equity Power Buffer ETF – October (POCT B+) has $840 million in assets. POCT provides a buffer against the first 15% of losses over the 12-month period ended Sept. 30, 2025, in exchange for an 11% cap.

Yet for some investors, 15% downside protection is not enough. For them, the Calamos S&P 500 Structured Al Protection ETF – October (CPSO) might be what they want. As of Oct. 28, CPSO had a recent cap of 6.3% and a protection level of 99.7%.

Both Calamos and Innovator, as well as some of their peers, will have options-based products with a new 12-month period starting in November. 

Over the last couple of years, investors have benefited from the attractive risk-free income available in money market funds. However, in September, the Fed cut interest rates by 50 basis points. There’s a strong market consensus for more reductions before year-end, making money market funds less appealing. Advisors and investors are expected to make allocation changes. 

During last week’s VettaFi Fixed Income Symposium, 74% of respondents said they expect to decrease their money market allocation in the next 12 months. Meanwhile, only 4.6% plan to increase it. 

Short-term bond ETFs, such as the Neuberger Berman Short Duration Income ETF (NBSD ) and the T. Rowe Price Ultra-Short Bond ETF (TBUX B-) are among the active ETFs worthy of consideration. While they incur more risk than money market ETFs, they have low rate sensitivity and sport yields of 5% or higher. Rather than hiding in cash, these funds provide room for some additional treats. Investors moving out of cash could help the ETF industry set a record for net inflows.

Here’s hoping today you end up with the candy of your choice in your jack-o-lantern. I am perpetually on the hunt for Reese’s Dark Chocolate Peanut Butter Cups.

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