Why Beating the Market Is Easier in a Bear Market Than a Bull Market — And What This Means for Covered Call ETFs

Most investors assume that a rising market is the easier environment to navigate. Portfolios grow, distributions increase, and confidence builds.

But this intuition is wrong — at least when it comes to relative performance.

Beating the market is structurally easier in a bear market than in a bull market.

Understanding why changes how you evaluate any investment strategy — including covered call ETFs.

The Asymmetry Nobody Talks About

Consider two scenarios.

Scenario A — Bear market:
The S&P 500 falls 20%. Your portfolio falls 8%.
Outperformance: +12 percentage points.

Scenario B — Bull market:
The S&P 500 rises 26%. Your portfolio rises 30%.
Outperformance: +4 percentage points.

In absolute terms, Scenario B feels better. Your portfolio grew 30%. But in relative terms, Scenario A represents three times the outperformance.

More importantly — Scenario A is achievable through quality and structure. Scenario B requires luck or concentration.

This asymmetry is fundamental. It explains why the best long-term investors often build their reputations during bear markets, not bull markets.

Why Outperforming in a Bear Market Is Structurally Easier

In a bear market, the path to outperformance is straightforward: Own quality. Avoid speculation. Protect capital.

Companies with strong balance sheets, consistent earnings, and diversified revenue tend to fall less than the broader market during corrections. This is not a prediction — it is a structural characteristic.

You do not need to identify the next Nvidia. You do not need perfect timing. You simply need to avoid the companies that get massacred — overleveraged businesses, profitless growth stories, highly volatile speculative bets.

The bar is achievable through discipline.

Why Outperforming in a Bull Market Is Structurally Harder

In a bull market, the path to outperformance is much narrower.

When the S&P 500 rises 26% in a year, beating that benchmark requires one of two things:

Option 1 — Concentration in the winners.
In 2023, the S&P 500 gain was heavily driven by seven companies: Nvidia, Meta, Apple, Microsoft, Amazon, Alphabet, and Tesla. A portfolio without heavy exposure to these names simply could not keep up. But identifying those seven companies in advance — and having the conviction to hold large positions — is extraordinarily difficult. Most professional fund managers fail to do it consistently.

Option 2 — Leverage.
Using borrowed money amplifies returns in rising markets. But it also amplifies losses in falling ones — often catastrophically.

For most investors, neither option is realistic or prudent.

The result: in strong bull markets, most active strategies underperform. Not because the managers are incompetent, but because the structural bar is simply higher.

The Data Confirms the Pattern

The pattern is striking. Every covered call ETF in our universe significantly outperformed in 2022 — the bear market year. Every one underperformed in 2023 and 2024 — the bull market years.

This is not a coincidence. It is the mathematical consequence of their structure.

The Covered Call ETF Case Study

Covered call ETFs are perhaps the clearest illustration of this principle.

Their structure is explicitly designed to:

• Protect capital in downturns through option premiums and portfolio quality
• Sacrifice upside in strong rallies by selling call options that cap gains

In 2022, this structure was rewarded. JEPI fell only 3.5% while the S&P 500 fell 18.2%. That is not luck — it is the direct consequence of owning quality stocks and collecting option income during a volatile, declining market.

In 2023, the same structure was penalized. The S&P 500 surged 26%, driven by a narrow group of AI-related mega-caps. JEPI's capped upside and diversified portfolio meant it could only capture 38% of that rally.

The ETF did not change. The market environment did.

What This Means for How You Evaluate Covered Call ETFs

Most retail investors make the same mistake: they evaluate covered call ETFs exclusively during bull markets and conclude they underperform.

This is like evaluating an umbrella on a sunny day and concluding it is useless.

The correct evaluation framework asks:

1. How did this ETF protect capital during the 2022 correction?
2. Over a full market cycle, what was the total return capture?
3. What is the income generated during high-volatility periods?

The Full Cycle Mathematics

Assume a simple two-year cycle:

Year 1 (bear): Market -20%, Portfolio -5%. Relative gain: +15pp
Year 2 (bull): Market +25%, Portfolio +18%. Relative loss: -7pp
Net relative outperformance: +8 percentage points.

The portfolio underperformed in the bull year — and still won over the full cycle.

This is the core proposition of quality-focused, downside-protected strategies. And it is why downside protection deserves more analytical weight than it typically receives.

How CoveredRank Measures This

Our scoring methodology was built around this insight.

Downside Protection — weighted at 25% — measures exactly this: how much of the benchmark's decline did the ETF absorb during negative months?

Total Return Capture — also weighted at 25% — measures cumulative performance versus the benchmark since inception, across all market conditions.

Together, these two criteria answer the most important question: does this ETF earn its keep over a full cycle — not just during the easy years?