As market volatility rattles investors, many are turning to “buffer” ETFs—funds that trade off some upside potential in exchange for protection against downside risk. These ETFs, which use options strategies to cap losses while limiting gains, have drawn $4.7 billion in inflows so far this year, with a notable $140 million coming in on the S&P 500’s worst day of 2024. 

Financial advisors are increasingly adopting them to reassure clients and keep them invested during turbulent times, especially as traditional stock valuations remain high. The appeal lies in downside protection, though investors must accept lower upside caps and higher fees—some charging more than ten times what plain index ETFs do. 

Assets in buffer ETFs surged to $64 billion by February, up from $38 billion at the end of 2023, as their defensive qualities grow more attractive in an uncertain economic and political climate. 

Finsum: Some advisors warn against overcommitting, reminding investors to balance protection with realistic expectations about long-term growth and costs.