Amid trade wars and fears of slowing economic growth, jittery investors this year have poured billions into funds that help protect them from a potential plunge in the stock market. One type of investment—low-volatility S&P 500 exchange-traded funds (ETFs)—chooses stocks in the S&P 500 that tend to fluctuate less than the overall index. But these ETFs are only about 15% less volatile than the index.
New alternative: “Buffer” ETFs, which cap the losses (but also the gains) on your investment with the help of hedging techniques, including the use of stock options. (Options give the buffer ETF the right to buy or sell shares in an underlying asset—such as shares in an ETF that tracks the S&P 500—at a specific price in the future.)
Two attractive buffer ETFs now…*
Amplify BlackSwan Growth & Treasury Core ETF (SWAN) invests 90% of its portfolio in US Treasuries with various maturities and 10% in S&P 500 index options. No matter how much the index falls, the most you are likely to lose over a one-year period is 10% of your investment. Because US Treasuries tend to rise in value when the stock market plunges, it’s possible this ETF would have little or no losses even in a bear market. Your gains are limited to 70% of the index’s gains. AmplifyETFs.com
Innovator S&P 500 Buffer ETF (BJUN) is part of a new lineup of 15 ETFs, each of which offers a different combination of maximum losses and gains—which are partly dependent on when in the ETF’s one-year time period you invest. If you invested in this particular ETF on June 1, you could lose no more than 9% over 12 months and gain no more than 16.5%. Note: The Innovator ETFs have a relatively high expense ratio of 0.79%. InnovatorETFs.com
*Buffer ETFs do not include S&P 500 stock dividends.