Checking in Buffermania

Do buffer funds protect on the downside yet participate on the upside?

February 2025. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • The AUM of buffer funds has grown from $5bn to $50bn in four years
  • Somewhat surprising, as these products don´t create much value
  • It seems some investors like participating in illusions

INTRODUCTION

In November 2020, we published our first article on defined outcome ETFs, commonly referred to as buffer ETFs (read Exploring Defined Outcome ETFs). At that time, the market included around 50 funds with nearly $5 billion in assets under management. Fast forward to 2025, the landscape has grown significantly, with over 200 funds managing close to $50 billion. Despite this growth, one constant has been the high average management fee, which remains around 0.80% per annum.

The origins of these funds can be traced back to the structured product space, a market managing over $7 trillion, indicating substantial growth potential. The core idea behind buffer ETFs is to provide some downside protection – for example, the Innovator Laddered Allocation Power Buffer ETF (BUFF) shields investors from the first 15% loss of the U.S. stock market. Of course, this protection comes with a reduced upside, but many investors are willing to make that trade-off.

Now that we have more data, we will revisit the performance of buffer ETFs.

PERFORMANCE OF BUFFER FUNDS

Most buffer funds use one-year options in their portfolio construction, rebalancing on an annual basis. However, there are also fund-of-funds that provide exposure to these strategies on a laddered basis, allowing for more frequent rebalancing of the overall portfolio.

Our focus is on the latter, specifically the Vest US Large Cap 10% Buffer Strategies Fund (BUIGX), Innovator Laddered Allocation Power Buffer ETF (BUFF), FT Vest Laddered Buffer ETF (BUFR), FT Vest Laddered Deep Buffer ETF (BUFD), FT Vest Buffered Allocation Growth ETF (BUFG), and Innovator Laddered Allocation Buffer ETF (BUFB), which collectively manage around $10 billion.

We’ve included BUIGX, a mutual fund, due to its track record dating back to 2016. Notably, the performance of these funds has been near