Buffer ETFs have been gaining attention as a potential hedge against the recent market volatility. Bruce Bond, CEO of Innovator ETFs, believes that buffer exchange-traded funds provide an opportunity for investors to protect themselves from the downside of the market. These buffer ETFs are designed to offer exposure to the market while minimizing the risk associated with it. For example, Innovator ETFs issue monthly buffer ETFs like PAUG, which provide 15% downside protection for investors.
The Upside and Downside of Buffer ETFs
According to Bond, investors who are interested in investing in the S&P 500 can utilize buffer ETFs to do so while also gaining downside protection. This means that investors have the potential to earn returns on the upside, while also limiting their losses on the downside. Bond recommends holding these ETFs until the end of the year, as they are structured around one-year options within the portfolio. This allows for the options to be fully valued at the end of the year before being reset for the following year.
Despite the benefits that buffer ETFs offer, there are skeptics like Mark Higgins, senior vice president at Index Fund Advisors. Higgins expressed concerns about the costliness of using buffer ETFs to hedge volatility, stating that it may be an expensive solution for a relatively simple problem. He believes that investors should become more comfortable with the normal volatility of the market rather than relying on expensive strategies like buffer ETFs. Higgins advocates for cheaper solutions such as not checking your portfolio too often and seeking advice from financial advisors before making any sudden decisions out of fear or surprise.
Higgins emphasizes the importance of financial advisors in providing reassurance and guidance to investors during times of market uncertainty. He believes that financial advisors who fulfill their roles effectively can offer calm and perspective to investors, helping them navigate market volatility with confidence. Ultimately, Higgins suggests that building a trusting relationship with a financial advisor can prove to be a more cost-effective and reliable solution compared to investing in buffer ETFs.