Investor demand for new defensive options in the exchange-traded funds (ETFs) space has prompted an uptick in defined outcome funds in recent years. Also known as buffer or target outcome ETFs, these products aim to provide a pre-determined range of returns over a specified period. The appeal lies in their promise of gains without facing the full risk of a market decline. In a bear market or even just a period of broader uncertainty, defined targets can be a comforting way to control risk without giving up entirely on returns.
The recent launches of defined target funds highlight how providers can tweak what is essentially the same strategy in a host of different ways by adjusting the buffers, caps, reference indexes, reset dates, and other parameters. In most cases, though, these funds link to an index of some kind while also providing both a downside buffer to protect against a portion of market losses and an upside cap that limits how much of potential future gains investors can capture. Both the cap and buffer are designed to apply for a particular period of time. The funds below are unique examples of variations on this core strategy.
