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Investors piled into ETFs that impose limits on both gains and declines as they sought to shield their assets during the recent market tailspin.
Flows into so-called buffer funds jumped to $393 million last week, according to Morningstar data, as investors prepared for the impact of President Donald Trump’s tariffs. That compares with flows of $206.1 million in the previous week.
Buffer ETFs Gain Popularity
Asset managers are offering more buffered ETFs, which are proving popular with investors wishing to reduce volatility in their portfolios without exiting stocks completely.
Through the use of derivatives like options, the funds limit gains and losses. Innovator ETFs, the world’s biggest fund issuer, said on Friday, April 4, that trading volume surged to around $850 million as investors sought to limit losses while the global trade war battered markets.
“Investors don’t know where to turn when it comes to tariffs and their impact on equities,” Innovator Chief Investment Strategist Tim Urbanowicz, CFA, said in an emailed statement. “With some much-continued uncertainty around retaliation, product specific tariffs and legal challenges to reciprocal tariffs, investors are pouring into buffer ETFs for stability.”
Source: etf.com data
Goldman Sachs Group Inc. (GS) recently issued a line of buffer, or defined outcome, ETFs. Nicknamed “boomer candy” thanks to their appeal to investors in or near retirement, buffer ETFs have garnered roughly $53 billion in total assets, up from $200 million in 2018.
Market Downturn
Market downturns like during the pandemic and 2022 bear markets have helped boost the popularity of the funds, Morningstar analyst Zachary Evens said. Broad S&P 500 ETFs like the Vanguard S&P 500 ETF (VOO) briefly entered bear market territory this week.
“Investors are really attracted to the guardrails they provide,” he said. “When markets go down, they gravitate toward them.”
Evens noted that the category often pulls in most of its flows at the beginning of a month. He said that while last week’s surge may not be an anomaly, investors increasingly gravitate toward the funds when markets get volatile.