Financial Products for Hedging with Vest Co-Founder Jeff Chang

What It Covers

Jeff Chang, cofounder and president of Vest, explains how his firm built a $50 billion ETF business around defined outcome investing — using options and derivatives to create buffered funds and income-generating strategies that give investors downside protection with capped upside, targeting wealth preservation over wealth accumulation across equities, fixed income, gold, and Bitcoin.

Key Questions Answered

• •Buffer Fund Mechanics: Vest's flagship BUFR ETF provides a 10% downside buffer on S&P 500 exposure with a predetermined upside cap — roughly 15%. In 2022, when the S&P fell 22%, buffered investors lost only 12%. The compounding advantage emerges because preserving capital in down years leaves more assets to grow during subsequent recoveries like 2023 and 2024.
• •ETF Tax Efficiency via In-Kind Redemptions: A 2019 SEC rule change allowed options to be transferred in-kind during ETF redemptions, eliminating the need to sell securities and potentially trigger capital gains. Vest launched its first buffer ETFs in November 2019 immediately after this ruling, in partnership with First Trust. This structural advantage makes buffered ETFs significantly more tax-efficient than equivalent mutual fund wrappers.
• •Covered Call Income Generation: Vest's KNG ETF tracks S&P dividend aristocrats — companies growing dividends for 25 consecutive years — and writes covered calls on approximately 20% of each position weekly. The underlying index yields under 2%, but the covered call overlay pushes the distribution yield above 8% annually. Weekly options are preferred because time decay accelerates in the final week, maximizing premium capture.
• •Portfolio Risk Diversification Beyond 60/40: Rather than relying on stock-bond negative correlation for risk management — which failed in both 1981 and 2022 — Chang recommends allocating roughly 10% of a portfolio into buffered strategies. This introduces options-based hedging as a third source of risk management, maintaining similar overall portfolio volatility while providing protection if inflation returns and bonds and stocks fall simultaneously.
• •Compliance and Scalability as the Real Barrier to Options Adoption: Surveys of financial advisors consistently cite compliance burden and trading scalability as the primary reasons they avoid options. Packaging options strategies inside ETFs eliminates both barriers — advisors can rebalance quarterly rather than managing individual option expirations. Chang frames this as the "bagged apple" effect from behavioral economics: simplifying access dramatically increases adoption of otherwise available tools.
• •Startup Success Framework — Grit, Influence, Creativity, Intelligence: Chang ranks four founder attributes in order of importance: grit first, influence second, creativity third, intelligence last. He argues influence — the ability to make others believe in a vision — is essential because nothing succeeds alone. Vest operated four years without founder salaries before generating revenue, demonstrating that resilience and partnership-building matter more than raw intelligence in building durable businesses.