Buffered ETFs for a Rocky Market
Buffered ETFs provide protection during market downturns, but in exchange, your gains are capped.


Rocky markets have put a spotlight on defined-outcome exchange-traded funds (ETFs), which protect investors from a portion of stock market losses in exchange for capping some of the gains.
These funds, also called buffered ETFs, invest in options linked to a broad benchmark in order to provide a specific amount of downside protection – 9%, 10%, 15%, 20% or even 100% – over a distinct time frame called the outcome period, typically one year (though three-month funds are now popular).
How much you forfeit in gains depends on the amount of protection the fund offers. The bigger the cushion, the smaller the potential gain.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A recently launched PGIM fund tied to the S&P 500 Index with 100% protection on losses over one year had a 7% cap on upside returns, while an Allianz ETF with a 10% shield sported a cap of roughly 16%, net of fees.
It's important to find a fund that aligns with your investment objectives and risk tolerance, says Mike Loukas, chief executive of the firm behind TrueShares defined-outcome funds.
To get you started, we've highlighted a few buffered ETFs that may work for investors with certain risk tolerances. Use these suggestions to start your own research.
How to find the best buffered ETFs for you
Bear in mind that the strategies, which charge average annual fees of 0.72%, are structured around specific outcome periods because of the options they buy, but the funds themselves are designed to be buy-and-hold investments.
When a fund's outcome period expires, the fund managers reset it by buying new options for the next cycle.
That said, the timing of purchases should be deliberate. To take advantage of a fund's full downside buffer, it's best to buy shares in a defined-outcome fund a day before the start of the period (the day the fund resets).
"I recommend buying on the reset day, an hour or so before the market closes,” says Beverly Hills, California, adviser Stuart Chaussee. Remember, the advertised protection and cap on gains only apply over the full outcome period.
And note that the cap on gains will likely vary from one outcome period to the next because it is based on options prices at the start of the period, which fluctuate.
For conservative investors: A 100% buffered fund protects against a colossal stock market loss over a one-year period. And if the market doesn't falter, you might do better than a money market fund.
The current cap on gains for the iShares Large Cap Max Buffer (MAXJ), which will reset June 30, is 10.6% for investors who bought at the start of the outcome period last June.
A 20% buffer fund is another option. Chaussee likes the AllianzIM U.S. Large Cap Buffer20 July (JULW). The fund's current cap, which resets July 1, is 11.64%.
For moderate-risk investors: Funds with 15% buffers on declines are the most popular with investors. The July-dated fund of a popular series, the Innovator U.S. Equity Power Buffer ETF July (PJUL), had a cap of 13.7% on gains for investors who bought shares last June. It will reset June 30.
For aggressive investors: Funds with 9% cushions against losses are the obvious choice here. The current cap on the Innovator U.S. Equity Buffer ETF July (BJUL), which will reset on June 30, is 17.4%.
Bullish investors could consider TrueShares Structured Outcome funds. Instead of a cap on gains, investors can expect to reap 73% to 85% of the S&P 500's price return, in exchange for 8% to 12% protection on losses. The TrueShares Structured July-dated fund (JULZ) resets June 30.
This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.
-
Summer Programs for Kids at Risk Due to Trump Grant Funding Cuts
Tax Dollars Some after-school and summer programs may begin to cut back hours or shut down entirely due to federal cuts to volunteer programs.
-
Over 50 and Still Paying Student Loans? Here's Some Help
It's the club no one wants to join. But if you are over 50 and still paying student loans, there are ways to tackle both debt and retirement savings.
-
Eight Estate Planning Steps to Protect Your Loved Ones (and Your Legacy)
Two-thirds of Americans don't have an estate plan. If you're one of them, these are the essential steps to take now to prevent problems for your family later.
-
The Six Pros This Adviser Says You Need to Sell Your Business
Selling your business isn't as simple as getting the best price and walking away. These are the six professionals you'll need to get a deal across the finish line.
-
The Three C's to Financial Success: A Financial Planner's Guide to Build Wealth
Consistency, commitment and confidence in your chosen strategy are more critical to your financial success than finding the 'perfect' financial plan.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key Pieces
If retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?
If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
After the Disaster: An Expert's Guide to Deciding Whether to Rebuild or Relocate
Homeowners hit by disaster must weigh the emotional desire to rebuild against the financial realities of insurance coverage, unexpected costs and future risk.
-
A Financial Expert's Tips for Lending Money to Family and Friends
What starts as a lifeline can turn into a minefield if the borrower ghosts the lender. Following these three steps can help you avoid family feuds over funds.
-
Stock Market Today: Good Feelings and Solid Data Lift Stocks
Resilience and de-escalation defined another generally positive day for financial markets.