Buffer ETFs Have Worked for Investors (So Far)

“Buffer” exchange-traded funds have been selling like hotcakes. Over the five years ended Feb. 28, 2025, investors poured $33.6 billion into these ETFs, which invest in various combinations of options to achieve particular risk/reward payoffs.

But have these ETFs worked for investors? That question is arguably more pertinent to buffer ETFs than it is to other types of funds for a few reasons. For one, investors are drawn to buffer ETFs by the greater certainty they try to offer. For instance, Innovator U.S. Equity Power Buffer ETF January PJAN aims to capture the first 11.2% of the S&P 500’s price return (after fees) while avoiding the first 14.2% of losses over the year ended Dec. 31, 2025.

While a certain mix of stocks and bonds would probably generate a return in that range, there’s no assurance of that. Without it, investors have put a premium on obtaining the “defined outcome” they believe ETFs like this one can deliver. And, indeed, they’re paying more for buffer ETFs—which cost about 0.77% on average—than they would for a low-cost allocation fund.

It also comes down to these products’ objective: To deliver a return that falls within a predetermined range. Sure, if the ETFs make good on that goal, then it’s a victory of sorts. But what really counts is how much investors take home, that is, the return of their average dollar, and that hinges not just on the ETFs’ returns but also the timing and magnitude of their buys and sells.

How Buffer ETF Investors Fared

Given that, I estimated buffer ETFs’ dollar-weighted returns over the five years ended February 2025. This estimate accounts not just for the ETFs’ total returns (that is, time-weighted) but also the timing and magnitude of investors’ cash flows. What I found is that the average dollar invested in buffer ETFs earned around 10.7% per year, exceeding the ETFs’ 9.4% annual aggregate total return.

This is encouraging, but it’s also worth considering how the average dollar performed over the various outcome periods (that is, Jan. 1 to Dec. 31, March 1 to Feb. 28, and so on). Why? If investors don’t hold a buffer ETF from the start to the end of an outcome period, there’s no assurance that they’ll earn a return within the specified outcome range. That makes it worth looking at the buffer ETFs’ dollar-weighted returns broken down by starting month, as these outcome periods are where the rubber meets the road, practically speaking.

In summary, investors appear to have succeeded across the 11 different outcome starting months, earning the ETFs’ total return and then some in nearly every case. (There were no “May” starting month buffer ETFs as of Feb. 28, 2020, explaining their absence from this study.)

Why Buffer ETF Investors Succeeded

It appears that investors’ success in capturing buffer ETFs’ returns boils down to two factors: (1) fortuitously timed inflows amid a gradually rising market and (2) purchases concentrated around the start of each outcome period.

1) Fortuitous Timing

As mentioned earlier, buffer ETFs have seen a steady demand over the past five years. Moreover, some of the inflows came at especially fortuitous times, and it appears that buoyed the ETFs’ dollar-weighted returns.

To illustrate, I broke down the five-year period ended Feb. 28, 2025, into one-year segments and then measured the buffer ETFs’ dollar- and time-weighted returns over each segment.

The ETFs’ dollar-weighted returns approximated their aggregate total returns in four of the five years. But in the year ended Feb. 28, 2021, the average dollar invested in buffer ETFs earned a considerably higher return than the ETFs did in aggregate, thanks to large inflows to February-, April-, July-, and August-dated buffer ETFs in March 2020, just before the market exploded higher.

2) Concentrated purchases

One of the more striking aspects of the pattern of flows to buffer ETFs is how the flows to the ETFs tend to cluster around the month in which the outcome period begins.

For instance, over the five years ended Feb. 28, 2025, the August buffer ETFs saw around $1.8 billion of inflows in August of each year or in the month immediately preceding (July) and following (September) it, compared with $300 million in outflows over the other nine months. This held to varying degrees for the other months, too.

All told, the buffer ETFs I evaluated saw nearly $20 billion of inflows in the specified outcome month or in the months right before or after it versus $9 billion of outflows in the other nine months.

In effect, these ETFs have received consistent annual inflows during the period, but those flows have been heavily concentrated toward the start of each outcome period. This appears to have ensured that most of the assets were in a position to participate in the ETFs’ returns over each outcome period.

Takeaways for Investors

So far, at least, it appears that buffer ETFs are working for investors. The return of the average dollar invested in buffer ETFs has exceeded the ETFs’ total returns, meaning investors have been able to achieve the potential outcomes advertised.

That doesn’t make the case for investing in buffer ETFs a slam dunk, though. As mentioned, one can probably achieve a return in a buffer ETF’s range by combining stocks and bonds. Moreover, there’s no guarantee the next drawdown will be as hard on bonds as the last one was in 2022. If bonds fare better the next time or equity markets sell off sharply—a vulnerability for buffer ETFs, given they usually provide only partial downside protection—it could take some of the shine off.

That said, some investors, like those approaching or just entering retirement, might not be able to tolerate the risk of a damaging drawdown in a standard stock and bond mix, however nominal that risk might be. Others might be unnerved by market gyrations and prone to make changes based on emotion, to their detriment. In circumstances like these, you could make a case for buffer ETFs, as they do appear to confer greater certainty than a traditional allocation could, especially in a scenario in which stocks and bonds fall together.

Even for those taken by buffer ETFs’ attributes, it’s worth remaining mindful of the trade-offs they involve, including higher cost and complexity, partial exposure to stock market losses, and lack of participation in equity dividends (as the ETFs’ payoff is typically tied to a “price only” index return). Also, our other research has found that traditional allocation funds have also notched dollar-weighted returns that approximate their total returns. Thus, while investors in buffer ETFs appear to have captured all of their total returns, it’s not as if that marks a major improvement over what we’ve tended to observe in comparable areas like target-risk and target-date funds.

Switched On

Here are other things I’m writing, reading, listening to, or watching:

• Christine Benz with timely and useful tips on retirement spending amid market volatility.
• Daniel Sotiroff on the square peg and round hole that is private assets in ETFs.
• Speaking of which, here’s Outer Beach Conor with a running chronicle of developments at SPDR SSGA IG Public & Private Credit ETF.
• More private-asset hijinx: Closed-end fund Destiny Tech100’s annual report in which the manager discloses the fund is a “going concern” because, uh, its holdings are too illiquid to pay the manager’s (nosebleed high) fees.
• Fool around, find out: The Wall Street Journal on what happens when you long Tesla and short Ford in an ETF and then add a turn of leverage for good measure.
• Rick Ferri was kind enough to have me on the excellent Bogleheads on Investing podcast; we talked trends in funds and ETFs, the private/public convergence, the rise of active ETFs, why leveraged ETFs are for the birds, and more.
• Fleetwood Mac: “Silver Springs (Live).”

Don’t Be a Stranger

I love hearing from you. Have some feedback? An angle for an article? Email me at jeffrey.ptak@morningstar.com. If you’re so inclined, you can also follow me on Twitter/X at @syouth1, and I do some odds-and-ends writing on a Substack called Basis Pointing.