Buffer ETFs provide varying levels of downside protection and upside caps, with performance heavily dependent on whether investors hold through the full annual reset period.
SPY serves as the reference asset for buffer ETFs, and its dividends are excluded from these funds' returns.
IVV is the underlying exposure held by MAXJ, representing roughly 108% of net assets wrapped in a derivative overlay.
MAXJ's full downside protection capped upside severely, returning only 6% over the past year.
PJAN's 15% buffer balanced with a higher cap, returning 11% over the past year and serving as the cleanest teaching example.
BUFR's laddered twelve-month structure holds $9.6 billion in assets, delivering blended protection and a 13% one-year return.
Buffer ETFs like MAXJ, PJAN, and BUFR offer distinct risk-mitigation profiles for equity investors. While MAXJ provides full downside protection at the cost of capped upside, PJAN offers a balanced 15% buffer, and BUFR utilizes a laddered approach to provide continuous exposure. Investors must note that these funds exclude dividends and require holding through the full outcome period to realize stated protections.
Buffer ETFs use a package of long and short FLEX options on a reference asset like the S&P 500 to create a defined payoff structure that absorbs a specific percentage of losses in exchange for capping potential gains.
The stated buffer and cap only apply if you purchase the fund on the reset day and hold it for the entire one-year outcome period. Mid-period buyers receive a different effective buffer and cap based on the fund's current NAV.