THE TWO PRIMARY ISSUERS OF BUFFER ETFS, Innovator and First Trust, both offer an ETF series each month that provides protection against the first 15% loss during the outcome period. Allianz offers a series that provides protection against the first 20% loss. PGIM launched a Buffer series in January 2024 that also provides protection against the first 20% loss.
Why consider a Buffer ETF that offers moderate downside protection?
• If you want protection in the market from a fairly significant market decline, but with the potential to participate in the upside of the market, to a cap, a moderate level of protection may appeal to you.
• If you are not concerned about a major crash or bear market, but you would still like some downside protection, 15% or 20% protection could be the sweet spot for you.
• If you want to protect your unhedged stock portfolio with a moderate buffer.
A 15% or 20% buffer should provide a sufficient amount of downside protection in most market environments. You would typically only need more protection if there is concern about a major market crash or bear market. But again, in most market environments, moderate downside protection would be sufficient, while typically also allowing for attractive upside potential over the outcome period.
When to consider a swap from a Buffer ETF with deep protection to a Buffer ETF with moderate protection?
If you own a Buffer ETF that provides 25% protection or more, you could consider swapping into a moderate Buffer series if the reference asset has already had a significant decline during the outcome period. By swapping into a Buffer series with less protection (after a market decline), the upside cap will be higher, so whenever the market recovers you will participate more fully in the upside.
Consider swapping your unhedged stock portfolio for a Buffer ETF series that offers moderate downside protection.
If you have an unhedged stock portfolio and you are concerned about potential losses, but you don’t want to miss out on gains if the market moves higher, you could invest with a moderate level of protection in Buffer ETFs. You could swap into Buffer ETFs and retain exposure to the market, but with less risk. You reduce your risk, but you also have the potential to participate in the upside of the market, to a cap. A hedged stock portfolio with Buffer ETFs can allow you to stay invested, but with some much-needed downside protection.
How much higher is the upside cap typically for the 15% series vs. the 20% series?
The Buffer ETFs offered by Innovator and Allianz in January 2024 provide a good reference for comparison:
PJAN (15% protection) = 14.2% upside cap
JANW (20% protection) = 11.1% upside cap
If you opt for the 15% level of protection, your potential upside participation is approximately 27% higher than a Buffer series that provides 20% downside protection. Remember, the less protection you purchase, the higher the upside cap. If the reference asset performs well during the outcome period, you would obviously participate more fully in the upside by owning PJAN, rather than JANW. However, JANW does provide an extra 5% downside protection.
15% & 20% Buffer ETFs to consider:
Innovator U.S. Equity Power Buffer – Reference asset: S&P 500 (SPY)
Buffer: 15%, Outcome Period: 12 Months, Expense Ratio: 0.79%
PJAN Power Buffer 15% – January
PFEB Power Buffer 15% – February
PMAR Power Buffer 15% – March
PAPR Power Buffer 15% – April
PMAY Power Buffer 15% – May
PJUN Power Buffer 15% – June
PJUL Power Buffer 15% – July
PAUG Power Buffer 15% – August
PSEP Power Buffer 15% – September
POCT Power Buffer 15% – October
PNOV Power Buffer 15% – November
PDEC Power Buffer 15% – December
FT Vest U.S. Equity Moderate Buffer – Reference asset: S&P 500 (SPY)
Buffer: 15%, Outcome Period: 12 Months, Expense Ratio: 0.85%
GJAN Moderate Buffer 15% – January
GFEB Moderate Buffer 15% – February
GMAR Moderate Buffer 15% – March
GAPR Moderate Buffer 15% – April
GMAY Moderate Buffer 15% – May
GJUN Moderate Buffer 15% – June
GJUL Moderate Buffer 15% – July
GAUG Moderate Buffer 15% – August
GSEP Moderate Buffer 15% – September
GOCT Moderate Buffer 15% – October
GNOV Moderate Buffer 15% – November
GDEC Moderate Buffer 15% – December
AllianzIM Buffer 20 Series – Reference asset: S&P 500 (SPY)
Buffer: 20%, Outcome Period: 12 Months, Expense Ratio: 0.74%
JANW Buffer 20% – January
FEBW Buffer 20% – February
MARW Buffer 20% – March
APRW Buffer 20% – April
MAYW Buffer 20% – May
JUNW Buffer 20% – June
JULW Buffer 20% – July
AUGW Buffer 20% – August
SEPW Buffer 20% – September
OCTW Buffer 20% – October
NVBW Buffer 20% – November
DECW Buffer 20% – December
PGIM U.S. Large-Cap Buffer 20 – Reference Asset: S&P 500 (SPY)
Buffer: 20%, Outcome Period: 12 Months, Expense Ratio: 0.50%
PBJA Buffer 20% – January
PBFB Buffer 20% – February
PBMR Buffer 20% – March
PBAP Buffer 20% – April*
PBMY Buffer 20% – May*
PBJN Buffer 20% – June*
PBJL Buffer 20% – July*
PBAU Buffer 20% – August*
PBSE Buffer 20% – September*
PBOC Buffer 20% – October*
PBNV Buffer 20% – November*
PBDE Buffer 20% – December*
*April – December series will be launched throughout 2024.