**Navigating Market Volatility: Invesco’s John Burrello Recommends Options-Based Income Funds for Stability and Growth**
In the past week, the CBOE Volatility Index (VIX), often called “Wall Street’s fear gauge,” has experienced its most volatile stretch since April. This heightened volatility has left many investors feeling uneasy and questioning how best to protect their portfolios while still seeking returns. Amid these market swings, John Burrello, a senior portfolio manager at Invesco and a member of the firm’s global asset allocation team, has offered strategic guidance on how investors can navigate turbulent conditions using income funds that employ options-based strategies.
**Understanding Options-Based Income Funds**
Options-based income funds are investment vehicles that use options—financial contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price—to generate income and provide downside protection. Unlike traditional stock portfolios, which are often sensitive to the correlations between various asset classes, options strategies can offer what Burrello describes as “structural protection.” This means that the funds are designed to deliver a degree of insulation from market downturns, as well as a steady stream of income that isn’t directly tied to fluctuating interest rates.
According to Burrello, this structural protection is particularly valuable in today’s uncertain environment. “Options are not reliant on the correlations of stocks with another asset class,” he explained in a recent interview with CNBC’s “ETF Edge.” “They can have a more reliable form of downside protection, and also can offer income that’s not interest rate sensitive.” This is a significant advantage, especially as the market anticipates a shift in monetary policy, with Wall Street expecting the Federal Reserve to cut interest rates by a quarter point in the near future.
**Why Interest Rate Independence Matters**
Traditional income-generating investments, such as bonds, are heavily influenced by interest rates set by the Federal Reserve. When rates fall, bond yields tend to decrease, which can reduce the income investors receive. In contrast, options-based strategies can generate returns independent of interest rate movements. This independence, Burrello suggests, is increasingly important as investors look for alternative sources of income in a low-yield environment.
“Adding income without reliance on the Fed is becoming more and more important. I think that’s driving some growth in the space,” Burrello noted. The ability to generate steady income regardless of the Federal Reserve’s actions is attractive to investors who want to reduce their exposure to interest rate risk while still earning a return.
**Invesco’s Options-Based Income Funds**
Invesco, one of the world’s largest asset management firms, offers a suite of income funds that utilize options strategies. Among them are the Invesco QQQ Income Advantage ETF, the Invesco S&P 500 Equal Weight Income Advantage ETF, and the Invesco MSCI EAFE Income Advantage ETF. Each of these funds is designed to provide investors with a combination of income generation and downside protection, but they do so by focusing on different underlying indexes.
So far in 2024, these funds have delivered mixed performances. The Invesco MSCI EAFE Income Advantage ETF, which focuses on developed markets outside of the U.S. and Canada, has posted a robust gain of about 14%. The QQQ Income Advantage ETF, which is tied to the tech-heavy Nasdaq-100, is up approximately 6% year-to-date. Both funds have also gained around 2% in the past week alone, suggesting resilience even amid heightened volatility. Meanwhile, the Invesco S&P 500 Equal Weight Income Advantage ETF, which gives equal weight to all stocks in the S&P 500 rather than focusing on the largest, has been flat for the year.
**The Appeal of Options and Defined Outcome Strategies**
Burrello sees a strong and enduring demand for options-based and so-called “defined outcome” strategies—funds that seek to limit downside risk while providing upside potential. He believes the tailwinds driving interest in these products could persist for years, as investors increasingly seek both income and protection from equity market drawdowns.
“The demand themes of income and defense against equity drawdowns should never go out of style,” he said. “Those are things that every portfolio likely needs at some point throughout someone’s life. They might want to reduce risk to equities. They also might want to add income that’s a diversifying source, and, again, not relying on interest rates.”
In essence,