Buffer-ETFs offer defined loss protection and capped gains

Buffer-ETFs, also known as Defined Outcome Funds, are emerging in Europe as UCITS-compliant investment vehicles. These funds combine an equity portfolio with an options structure designed to create a specific risk-reward corridor. By utilizing put options, the funds aim to cushion losses up to a certain threshold, while simultaneously capping potential gains through the sale of call options.

Many of these products feature expense ratios of approximately 0.50 percent and some strategies are modeled after the S&P 500. Providers position these ETFs as a defensive alternative for equity allocations, particularly as a response to the challenges faced by traditional 60/40 portfolios during periods of rising interest rates, where stocks and bonds may decline simultaneously.