ProShares has launched three groundbreaking ETFs based on an innovative, patent-pending methodology. The downside protection, or buffer, that these ETFs seek, adjusts automatically to target greater protection as expected volatility rises and less protection when expected volatility falls.
Both the potential protection of the buffer and the upside participation cap adjust proportionally — the higher the expected volatility, the larger the buffer and the higher the cap.
The new ETFS are –
- ProShares S&P 500 Dynamic Buffer ETF (FB)
- ProShares Nasdaq-100 Dynamic Buffer ETF (QB)
- ProShares Russell 2000 Dynamic Buffer ETF (RB)
Each of these new Dynamic Buffer ETFs allow investors to capture gains on days the underlying index rises, up to a cap, while targeting protection against the first 1% to as much as 5% of losses on days the index falls.
A buffer ETF, also known as a defined-outcome ETF, is an investment product that seeks to provide a specific range of outcomes, typically over a one-year period, based on the performance of an underlying asset like the S&P 500 – for example. It achieves this by using options contracts to offer downside protection (a “buffer”) up to a certain percentage loss, while also limiting the potential gains (a “cap”).
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Simplified approach to buffer investing
“We believe our first-of-their-kind Dynamic Buffer ETFs will be highly attractive to the many investors seeking equity market exposure who are concerned about drawdowns, but find that other strategies, like conventional buffer funds, tend to be complex and restrictive,” said ProShares CEO Michael L. Sapir. “We feel confident that the dynamic protection afforded by these new funds will allow investors to rest easier at night and make them more likely to include equity exposure in their portfolios, even during market volatility—which is often the worst time to exit.”
Buffer ETFs have grown to $65 billion in assets under management. Certain attributes of existing buffer ETFs have limited their appeal to many investors since, unless they are bought at the start of an extended fixed period (often as long as a year) and held until the end of that period, they can provide unexpected outcomes.
ProShares’ Dynamic Buffer ETFs avoid this pitfall by not requiring holding for a lengthy period to obtain the benefit of buffer protection. ProShares said this represents a notable breakthrough and a break from past limitations of this fund category.
