As market volatility rattles investors, many are turning to buffer ETFs—funds that limit downside losses in exchange for capped upside gains. These products, offered by firms like Innovator, BlackRock, and Allianz, use options strategies to provide partial protection during market downturns, making them especially appealing during recent selloffs.

In the first months of the year, buffer ETFs attracted nearly $5 billion in inflows, with a sharp pickup in demand during periods of steep market declines, such as the S&P 500’s worst day in 2024. 

While financial advisors increasingly recommend buffer ETFs to nervous clients seeking equity exposure with built-in protection, critics point to their higher fees and reduced potential for gains in strong bull markets. The upside cap investors receive often shrinks in volatile environments, making the cost of protection steeper just when it feels most necessary. 

Finsum: For those prioritizing risk management over maximum returns, buffer ETFs offer a middle ground—at a price.