Buffer ETFs are revolutionary products that provide a range of potential outcomes to investors before they invest. These differ from undefined ETFs by setting parameters to the upside and downside. The ETFs offer exposure to the price return of a reference asset (either a broad market ETF or index), to a cap over a 3-month, 6-month, or 1-year outcome period, at which point each ETF will reset. Historically, these types of defined outcome strategies have only been available through structured notes and certain insurance products.

Each Buffer ETF holds a customized basket of FLEX options with varying strike prices (the price at which the option purchaser may buy or sell the security at the expiration date), and the same expiration of approximately one year. This gives each ETF a defined buffer level and upside growth potential (to a cap), over an outcome period. Each ETF intends to roll options components annually, on the last business day of the month associated with each ETF.

Buffer ETFs are typically created with FLEX options. FLEX options offer customized terms of an option, including strike prices, underlying reference assets and expiration dates. They also trade on an exchange, listed on the Chicago Board Options Exchange, and are backed by the Options Clearing Corporation (OCC).

The OCC is guarantor and central counterparty with respect to options. As a result, the ability of a Buffer ETF to meet its objective depends on the OCC being able to meet its obligations.

Designated as a Systemically Important Financial Market Utility (SIFMU), the OCC has heightened risk management and liquidity standards, significantly reducing counterparty risk. Buffer ETFs are not backed by the credit of an issuing institution and therefore are not subject to credit risk.

Intraday liquidity, pricing transparency, and tax efficiency are just a few of the benefits derived from the ETF structure.

Most Buffer ETFs have annual expense ratios of approximately 0.80%. However, there are some Buffer ETF offerings with annual expense ratios of 0.50%.

Investors purchasing shares of a Buffer ETF after its launch date may receive a different payoff profile than those who entered the ETF on day one. However, investors purchasing shares after the first day will still be able to know their potential outcomes, no matter when they invest during the one-year period, based on the current ETF price and the length of time remaining before expiration. Visit the issuing company’s website to see the current parameters for all their Buffer ETF offerings before investing.

Yes. These ETFs are designed to provide point-to-point exposure to the price return of the reference asset. They are not expected to move precisely in line with each respective reference asset during the outcome period (due to the optionality of the underlying portfolio). It is also important to note that there is no assurance that Buffer ETFs will meet their investment objectives.

No. Upon the conclusion of the outcome period, the ETF will automatically reset into a new portfolio with the same exposure, buffer level, and term, and a new upside cap will be determined.

No. Unlike certain insurance products and structured products, ETFs are not backed by the faith and credit of an issuing institution like an insurance company or a bank. This also means that Buffer ETFs are not exposed to credit risk. The options held by the ETFs are guaranteed for settlement by the Options Clearing Corporation (OCC). In the unlikely event the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the ETFs could suffer significant losses. However, regulators have heightened their oversight of the OCC due to its designation as a Systemically Important Financial Market Utility (SIFMU).

Buffer ETFs are designed to offer investors more efficient, cost-effective, and more accessible alternatives to structured notes and certain insurance products. While those products can play an important role in certain investors’ portfolios, characteristics like high fees, illiquidity, lack of transparency, and counterparty risk have set the stage for an alternative, such as Buffer ETFs. Many of the benefits of defined outcome products can be harnessed efficiently and cost-effectively in an ETF wrapper.

The ability to know potential outcome parameters before investing has countless applications. Buffer ETFs appeal to a range of investors seeking stock market growth, to a cap, with a downside buffer. These may include conservative or moderate-risk investors, high-net-worth investors, retirees and pre-retirees.

Buffer ETFs automatically “reset” at the conclusion of their respective outcome periods and may be held indefinitely. At the end of an outcome period, each ETF will roll into a new set of options contracts with the same exposure, buffer level, and term length, and a new upside cap will be determined.

Buffer ETFs can be used as a complement or replacement for both equity and fixed income allocations in existing portfolios. The inherent flexibility of the ETFs, and the price discovery and intraday liquidity now afforded to structured outcomes, make Buffer ETFs an attractive addition to a portfolio.

Buffer ETFs attempt to solve several issues often associated with structured products that seek to provide investors with known return profiles: liquidity risk and counterparty credit risk. Buffer ETFs are fully transparent and more flexible than the typical structured products you might find in the marketplace.

Buffer ETFs invest and capture market exposure in the deepest, most liquid markets in the world. Buffer ETFs allow investors to trade in large sizes at competitive prices. It is critical to remember that liquidity of an ETF is driven by the underlying exposure held by the ETF, not the ETF itself.

Investors can buy and sell Buffer ETFs just like any other ETF. These ETFs are actively quoted/traded during market hours. Furthermore (unlike traditional structured products), investors can buy and sell at any point during an outcome period with ease. Investors can also remain confident that their execution will be consistent due to the deep liquidity profile underlying the Buffer ETFs. The tradability of Buffer ETFs is yet another benefit of the ETF structure, and it allows investors to transact with minimal friction.
If an investor decides to transact intra-outcome period, the current ETF potential outcome parameters can be viewed on the issuer’s website.

While investors may initiate a position at any point during an outcome period, activity tends to be highest around the rebalance date for the Buffer ETFs. Why is this the case? Investors who purchase and hold these ETFs from the start to the end of an outcome period will receive the stated cap and buffer levels. Investors who purchase after the first day of an outcome period will also experience a defined outcome (but with a different set of caps and buffers) if they hold for the remainder of the outcome period. For investors seeking the stated caps/buffers, it’s recommended they initiate a position in the final hour of trading on the day before the new outcome period begins.

Low volume should be of no concern. An ETF’s liquidity is derived from the liquidity of its underlying components. Buffer ETFs track the largest and most well-known underlying indices, so there is considerable liquidity underlying each of the ETFs. If desired, an investor can always enter a limit order for a purchase or sale.

No.