Bruce Bond, CEO of Innovator ETFs, sees an opportunity in buffer exchange-traded funds to offer protection from recent market volatility. He believes that buffer ETFs are a suitable option for investors who want exposure to the market but do not want to take on the full risk. Innovator ETFs issue monthly buffer ETFs, with their August ETF under the ticker PAUG offering 15% downside protection. Bond recommends holding these ETFs until the end of the year, as they are structured around one-year options within the portfolio.
Mark Higgins, senior vice president at Index Fund Advisors, is skeptical of buffer ETFs and similar strategies that allow investors to hedge volatility. He believes that investors may be creating expensive solutions for what is ultimately a simple problem. Higgins suggests that there are cheaper ways to navigate uncertainty in the markets, with the cheapest being not checking the portfolio too frequently and consulting with a financial advisor before making any drastic moves out of surprise or fear. He emphasizes the importance of financial advisors providing calm during turbulent market conditions.
Bond advises investors to consider buffer ETFs as a way to protect themselves from market swings while still participating in potential upside. He highlights the 15% downside protection and 12.8% upside opportunity offered by Innovator ETFs’ August ETF. By holding these ETFs until the end of the year, investors can benefit from the full valuation of options within the portfolio, with a reset scheduled for the following year. This strategy aims to provide a balance between risk protection and market exposure for investors seeking a more stable investment approach.
Higgins suggests that investors need to become more comfortable with market volatility and not rely solely on buffer ETFs to navigate uncertainty. He believes that financial advisors play a crucial role in providing guidance and support during turbulent market conditions, helping investors make informed decisions rather than reacting impulsively. By maintaining a long-term perspective and avoiding overreacting to short-term market fluctuations, investors can build a more resilient investment strategy that is not solely dependent on buffer ETFs for risk management.
Overall, the debate between utilizing buffer ETFs and relying on traditional investment strategies to hedge market volatility highlights the importance of balancing risk protection with long-term market exposure. While buffer ETFs offer a unique approach to managing downside risk, financial advisors like Higgins caution against over-reliance on these strategies for uncertainty in the markets. By combining the benefits of buffer ETFs with a broader investment approach and seeking professional guidance, investors can build a more resilient portfolio that aligns with their long-term financial goals.
