In recent years, markets have rewarded risk. Equity indices have climbed to elevated levels, volatility has periodically spiked but rarely lingered, and traditional 60% equity / 40% fixed income portfolios have faced new pressures as bonds may no longer provide the same cushion for equity market drawdowns as they once did. Many remember 2022 as an example of this.¹

Investors are therefore left with a paradox: strong trailing returns, but persistent unease about what might come next. Whether the concern is geopolitical shocks, earnings uncertainty or simply the inevitability of the next “risk-off” episode, many are asking a different question than they did a few years ago. Not “How do I maximize upside?” but “How do I stay invested in an overall portfolio strategy while reducing the damage of a major drawdown, should it occur?”

Staying Invested—With Defined Boundaries

Target range strategies are designed to answer exactly that question. Rather than owning stocks outright, they use options to define a range of potential outcomes over a specific time period.

Let’s look at the WisdomTree Target Range Fund (GTR) as an example of such a strategy to concretely anchor further considerations.

In simple terms, the strategy buys call options that are already 15% in-the-money and sells call options that are 15% out-of-the-money, creating what is known as a call spread.

Call Spread, Explained²

Now, investors rarely wake up saying, “I need a call spread.” What they say instead is: “Markets have run a long way—what happens if we give some of that back?” Or, “I still want equity exposure, but I can’t afford another 20% drawdown.” After 2022 reminded everyone that both stocks and bonds can fall together, the old diversification playbook feels less automatic.

The real tension isn’t about eliminating risk; it’s about reshaping it. Many investors want to stay in the market because stepping aside entirely risks missing long-term compounding. But they also want clearer boundaries around potential losses. That psychological and portfolio tension, these ideas of participation versus protection, is what naturally leads to structured approaches.

A call spread emerges not as a speculative tactic, but as a compromise: participate in equity upside within a defined range, while explicitly limiting how much capital is at risk over a given period.

To execute a call spread, one must buy a call option, referenced as being ‘long a call’ or a ‘long call’, and one must sell a different call option, referenced as being ‘short a call’ or a ‘short call.’ The underlying asset is the same, but the strike prices are different. Effectively, the long call provides participation in equity upside from a lower starting point, while the short call helps finance that position by capping gains beyond a predetermined level.

Bottom line: The net effect of a call spread is a return profile that seeks to participate in market appreciation within a band, while limiting potential annual losses primarily to the net option premium paid. Because the strategy resets annually, and can “restrike” if markets rally through the cap, it is dynamic rather than static, adjusting its upside ceiling as conditions evolve.

Back to GTR

The WisdomTree Target Range Fund (GTR) packages this structure into a single ETF. It applies the call-spread framework across four major equity exposures—Large Market capitalization U.S. equities

3 (50%), Small Market capitalization U.S. equities⁴ (20%), Developed International equities⁵ (20%) and Emerging Markets equities⁶ (10%)—creating a globally diversified equity footprint.

At the start of each annual period, GTR purchases one-year call options that are 15% in-the-money and sells one-year calls that are 15% out-of-the-money on each underlying ETF. The remaining capital is held in a collateral account, typically invested in fixed income instruments.

Redefining the Risk-Reward Relationship in an Investment Strategy

As noted, equity markets decline, losses are generally limited to the net cost of the call spreads; if markets rise meaningfully, the strategy can reset its strike levels to maintain participation within a newly defined range. The result is not a guarantee of protection, nor an uncapped equity substitute. It is a deliberate trade-off: exchange some upside beyond a ceiling for a defined approach to mitigating large drawdowns. For investors who believe the next phase of the cycle may be more volatile than the last, GTR offers a structured way to remain invested—without being fully exposed to the full force of the next downturn.

So, has it Worked?

Ultimately, the theory only matters if it shows up in real markets. When equities sell off, potentially fast and hard, investors don’t care about option mechanics. They care about outcomes. Does the strategy actually fall less than the benchmark when stress hits? That’s the test that determines whether structure translates into resilience.

Figure 1: Standardized Returns

In Figure 2, we looked at drawdowns during the live performance period of GTR for core market benchmarks, specifically the MSCI ACWI Index (core equities, global benchmark) and the S&P 500 Index (core equities, U.S. benchmark).

• In 2022, broad equity exposure offered little shelter. The MSCI ACWI fell 26.36% and the S&P 500 declined 24.49%, underscoring how globally diversified stocks moved sharply lower together. GTR was down 19.43%.
• The 2025 downdraft told a similar story. The MSCI ACWI dropped 16.07% and the S&P 500 fell 18.75%, reinforcing that benchmark beta can still deliver meaningful drawdowns in stress periods. GTR was down 11.27%.

Figure 2: A Study of Recent Drawdowns

Figure 3 may be more a timely and relevant study because there is such a focus on growth equities amidst all the talk about ‘the AI trade.’ There are many investors out there who have built up significant growth or tech exposure in recent years.

• In the 2021–2022 drawdown, the S&P 500 Growth Index fell 32.70%, while GTR declined 19.21%, illustrating materially reduced downside participation during a severe growth-led selloff.
• The pattern persisted in subsequent stress periods: in 2024 and 2025, GTR's declines (-4.07% and -11.05%) were meaningfully shallower than Growth’s (-12.80% and -22.21%), reinforcing the consistency of downside mitigation.

Figure 3: A Study of Recent U.S. Growth Equity Market Drawdowns

For completeness, we wanted to also review GTR's results relative to the S&P 500 Value Index. The value style has been generating more attention at the start of 2026.

• Even against the more defensive S&P 500 Value Index, downside participation was generally reduced. In 2022 and the 2024–2025 period, GTR's declines (-12.28% and -12.56%) were meaningfully shallower than Value’s (-17.97% and -17.51%).
• In 2023, when value stocks experienced a moderate pullback, results were more comparable (-9.30% vs. -10.93%), illustrating that the strategy’s objective is not immunity, but measured downside moderation across cycles.

Figure 4: A Study of Recent U.S. Value Equity Market Drawdowns

Structured Discipline in an Uncertain Cycle

Markets will continue to rise and fall—that is not a variable investors can control. What can be controlled is how much of those swings a portfolio absorbs. The evidence across multiple stress periods suggests that structured equity exposure can meaningfully moderate drawdowns relative to broad benchmarks. GTR is not about eliminating risk or chasing every rally. It is about redefining the risk-reward balance, staying invested, compounding over time, and doing so with intentional boundaries.

¹ Source: Morningstar. (2023). Just how bad was 2022’s stock and bond market performance? Morningstar.

² Source: Options Clearing Corporation (OCC). (n.d.). Bull call spread. Options Industry Council.

³ Large market capitalization U.S. equities are defined by the S&P 500 Index universe. For operational considerations, ETF options are used for this underlying exposure.

⁴ Small market capitalization U.S. equities are defined by the Russell 2000 Index universe. For operational considerations, ETF options are used for this underlying exposure.

⁵ Developed International equities are defined by the MSCI EAFE Index universe. For operational considerations, ETF options are used for this underlying exposure.

⁶ Emerging Markets equities are defined by the MSCI Emerging Markets Index universe. For operational considerations, ETF options are used for this underlying exposure.