THE TWO PRIMARY ISSUERS OF BUFFER ETFS, Innovator and First Trust, both offer an ETF series each month that provides deep downside protection. Innovator’s offerings provide protection against a 30% loss during the outcome period, and First Trust offers a series that provides protection against a 25% loss. A key consideration for Deep Buffer ETFs is that they do not provide protection against the first 5% loss. In order to have an attractive upside cap during the outcome period, Buffer ETFs that offer a deep buffer must be structured to not provide protection on the first 5% loss. The first 5% level of protection is costly, so by not offering protection on the first 5% loss, it allows for a higher upside cap.
For investors who want deep protection, who are willing to give up protection on the first 5% loss, these Buffer ETFs can be attractive.
Why consider a Buffer ETF that offers deep downside protection?
• If you want protection from a significant market decline, but you would still like the potential to participate in the upside of the market, to a cap, a deep buffer could appeal to you.
25% or 30% downside protection should shield your portfolio from deep losses in an average bear market decline of 34%. But again, the key consideration here is that you have no protection against the first 5% loss during the outcome period.
Innovator’s Ultra Buffers protect from -5% to -35% (30% buffer), while First Trust’s Deep Buffers provide protection from -5% to -30% (25% buffer).
How do the upside caps on Deep Buffer ETFs compare to other Buffer ETFs?
The Ultra Buffer ETFs offered by Innovator in January 2024 offer a helpful comparison:
BJAN (9% protection) = 17.99% upside cap
PJAN (15% protection) = 14.20% upside cap
UJAN (30% protection) (-5% to -35%) = 13.94% upside cap
You can see the upside caps on the Buffer series that offer 15% protection and 30% protection are very similar. How does the Ultra Buffer offer a similar upside cap while protecting against 2x the loss? Again, the way the issuers obtain a competitive upside cap with a Deep or Ultra Buffer ETF is by giving up protection on the first 5% loss. So, this could be a concern for investors considering deep protection.
25% & 30% Buffer ETFs to consider:
Innovator U.S. Equity Ultra Buffer – Reference asset: S&P 500 (SPY)
Buffer: 30% (-5% to -35%), Outcome Period: 12 Months, Expense Ratio: 0.79%
UJAN Ultra Buffer 30% – January
UFEB Ultra Buffer 30% – February
UMAR Ultra Buffer 30% – March
UAPR Ultra Buffer 30% – April
UMAY Ultra Buffer 30% – May
UJUN Ultra Buffer 30% – June
UJUL Ultra Buffer 30% – July
UAUG Ultra Buffer 30% – August
USEP Ultra Buffer 30% – September
UOCT Ultra Buffer 30% – October
UNOV Ultra Buffer 30% – November
UDEC Ultra Buffer 30% – December
FT Vest U.S. Equity Deep Buffer – Reference asset: S&P 500 (SPY)
Buffer: 25% (-5% to -30%), Outcome Period: 12 Months, Expense Ratio: 0.85%
DJAN Deep Buffer 25% – January
DFEB Deep Buffer 25% – February
DMAR Deep Buffer 25% – March
DAPR Deep Buffer 25% – April
DMAY Deep Buffer 25% – May
DJUN Deep Buffer 25% – June
DJUL Deep Buffer 25% – July
DAUG Deep Buffer 25% – August
DSEP Deep Buffer 25% – September
DOCT Deep Buffer 25% – October
DNOV Deep Buffer 25% – November
DDEC Deep Buffer 25% – December