The defined outcome ETF market, commonly known as buffer ETFs, has grown rapidly in popularity over the last few years, as investors look for funds that explicitly protect against downside risks. In 2022, the stock and bond markets saw a major decline. As bonds failed to provide much ballast, investors increasingly demanded products that could shield against market downturns. ETFs from Innovator, part of Goldman Sachs Asset Management, have been some of the biggest beneficiaries.
Key Takeaways
- As traditional hedges like bonds and gold have struggled amid recent geopolitical volatility, defined outcome ETFs have emerged as a reliable tool for investors seeking explicit protection against downside risk.
- Buffer ETFs leverage options contracts to shield portfolios from a specific degree of market decline, allowing risk-averse investors to participate in market performance while accepting a cap on maximum upside gains.
- The reset of outcome periods drives significant investor inflows, offering a regular opportunity for participants to lock in refreshed downside buffers.
“The majority of advisors don’t really know about defined outcome ETFs, or they’re not using them at this time,” explained Innovator ETFs CIO Graham Day in an interview with VettaFi. Since the Iran War started, traditional hedges have not been effective. While bonds, stocks, and gold disappointed amid Middle East volatility, defined outcome ETFs have met the moment, offering a risk management tool you can count on, he added.
The Safety Net Strategy
Buffer ETFs track a reference asset over a predetermined outcome period, typically a year. The funds use options contracts that expire at the end of the period, to protect investors from a prespecified degree of downside risk in exchange for a cap on upside performance. Defined outcome products are oriented toward risk-averse investors who want exposure to market performance, but are willing to sacrifice maximum upside gains in exchange for a safety net against severe losses.
The Innovator U.S. Equity Power Buffer ETF (PJUL) is a buffer ETF that aims to track the return of the State Street SPDR S&P 500 ETF Trust (SPY), protecting investors from the first 15% of market losses over a 12-month outcome period. PJUL resets at the conclusion of the outcome period, which for this fund was July 1.
Over the last outcome period, PJUL saw a return of just over 11% in comparison to the approximately 21% return seen by SPY over the same period. While SPY yielded a significantly higher net return, PJUL reached its upside cap, limiting any additional returns above 11.3%. Though the downside cushion went unused in the past outcome period, investors may benefit from it amidst future market volatility.
The fund has historically seen significant inflows at the start of each outcome period as investors look to lock in the full 15% downside buffer for the upcoming 12-month period. Additionally, the maximum return ceiling resets at the start of each outcome period, reflecting prevailing equity options pricing and giving investors fresh ground to capture market growth. In July 2025, PJUL saw inflows of $270 million, with the large majority of new capital for the past 12 months arriving toward the start of the new outcome period.
New Offerings in the Buffer ETF Space
As we venture into the second half of 2026, numerous firms have launched buffer ETFs across various outcome periods and degrees of risk.
On July 1, PGIM introduced a series of buffer ETFs that protect against downside risk in SPY over a shorter three-month outcome period, in exchange for an upside cap. The PGIM S&P 500 Quarterly Buffer 20 ETF (PQXX) provides the most downside risk, shielding investors against the first 20% of losses, while the PGIM S&P 500 Quarterly Buffer 5 ETF (PQV) delivers the least amount of downside protection, capturing the first 5% of SPY losses.
For investors seeking higher upside, Allianz Investment Management launched the AllianzIM International Equity Buffer15 Uncapped Jul ETF (JULI). This fund provides a 15% downside buffer against the iShares MSCI EAFE ETF (EFA) over a 12-month period. Rather than using a traditional cap on returns, the fund uses a predetermined spread over which investors get unlimited upside.
Similarly, ARK Investment Management launched the ARK DIET Q3 Buffer ETF (ARKE). The fund aims to limit downside participation within the ARK Disruptive Innovation ETF (ARKK) to approximately 50% over a 12-month outcome period, while providing maximum upside participation above a predefined hurdle rate of roughly 5%.
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