When market uncertainty rises, there is typically greater interest in complex ETFs strategies, such as those that use leverage, single-stock exposure, or options. The pitch is compelling, with expectations of outsized gains, precision hedges, and tactical agility. Yet the reality is that these vehicles can amplify losses, deviate from intended exposures, and underperform simple benchmarks during turbulent periods. The reasons are structural and behavioral, and they compound when investors most want predictability.

Risk Landscape of Complex ETFs

• Volatility decay: Leveraged and inverse ETFs are calibrated for single-day objectives. Over multiple days, compounding can produce returns that diverge from the target—especially in whipsaw markets. 
• Rebalancing and transaction costs: As the underlying baskets or derivatives require adjustment, turnover and friction rise, creating drag relative to benchmarks. 
• Structural risks: Swaps and options add a layer of complexity to exposure management; in fast markets, mismatches and execution timing can widen tracking errors. 
• Behavioral risk: Performance chasing and misunderstanding daily reset mechanics lead to poor investor outcomes, particularly when macro uncertainty elevates stress. 
• Concentration risk: Single-stock or niche ETFs magnify company or sector shocks, which is counterproductive during periods of heightened risk.

The Case for “Bread-and-Butter” ETFs

Against this backdrop, the case for broad-market ETFs is straightforward. These mainstream sector, style and market-cap weighted exposures are built to deliver the market they track without the structural drift that comes from complex strategies. Their potential advantage in volatile periods stems from structural simplicity, cost discipline, and portfolio diversification.

• Simplicity and transparency: Straightforward construction makes investment behavior easier to understand and predict, which is an anchor when markets are moving fast. 
• Lower cost and tighter tracking: Reduced reliance on derivatives and lower turnover translate to tighter tracking versus benchmarks and decrease the total cost of ownership.
• Portfolio resilience: Broad diversification mitigates market shocks and reduces the need for tactical investing. 
• Potential fit for long-term goals: Compounding of market returns—without the worry of leverage-induced disruptions, supports disciplined investing over time.

The data below illustrates how broad S&P 500^® exposure maintains more predictable compounding and shallower drawdowns versus leveraged exposure, particularly when volatility rises.

Implications for Portfolio Construction

Investors may benefit when they spend less effort on timing complex exposures and more effort on calibrating simple, reliable beta exposures¹ . Bread-and-butter ETFs—low-cost index funds with broad, diversified market exposure—provide predictable building blocks for core allocations, risk budgeting, and rebalancing, so decisions remain anchored to objectives rather than headlines.

Why BNY’s ETF Capabilities Align with “Bread-and-Butter” Investing

BNY’s strengths in ETFs and index equity strategies are purpose-built for investors when volatility rises. While complex products can have specialized roles, the backbone of most portfolios is simple, transparent exposure with tight tracking and operational resilience. BNY’s capabilities support that backbone:

• Index equity and discipline: Clear methodology, consistent implementation and tracking discipline support the predictability broad-market investors seek. 
• Liquidity and execution support: Deep market connectivity and trading support help minimize slippage and spreads—especially valuable when volatility elevates dispersion. 
• Operational resilience and risk controls: Strong infrastructure, robust governance and defined controls help maintain tracking and mitigate operational risks during fast markets. 
• Cost efficiency: Streamlined processes help keep total costs low and tracking tight. 
• Breadth and simplicity: A range of straightforward exposures across marketcap segments, sectors and styles provides diversified core building blocks without structural complexity.

As products become more complex and nuanced, innovation and behavioral risks become heightened. Bread-and-butter ETFs remain a reliable path to achieving intended exposures. They promote discipline through simplicity, reduce the need for timing, and allow long-term compounding to work as designed. BNY’s ETF capabilities align directly with this approach: helping investors access the market cleanly, track targets tightly, and stay focused on goals.