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5 Myths of Buffer ETFs, Debunked
Over the last decade, defined outcome ETFs, or buffer ETFs, have gone from zero to holding more than $70 billion in AUM by the end of 2025. Since they first appeared on the scene in 2018, numerous iterations on the same idea have cropped up. Yet as they have evolved, some of the most common myths about them have lingered, leaving advisors and investors with misinformation that can get in the way of achieving their investment objectives. Let’s bust a few of those myths.
Myth #1: All Buffer ETFs Have an Upside Cap
FALSE. The defined outcome category started with buffer ETFs that had a downside buffer paired with an upside cap, usually somewhere between 8% to 15%. But TrueShares pioneered the first uncapped buffer ETF when we launched our Structured Outcome ETF series in 2020. The series includes a suite of 12 annual investment periods, staggered monthly. The downside buffer seeks to shield against the first 10% of losses in U.S. Large Cap Equities (before fees and expenses) over a 12-month outcome period, while the upside potential is uncapped and targets over 80% participation rate.
Myth #2: Investors Can Wait for the Market to Recover
FALSE. It is true that over the long term, equity markets tend to be positive. At the same time, we know that returns don’t occur in a smooth, linear fashion. And we also understand that losses in down years require proportionally greater returns in order to recover. For example, a 10% loss requires an 11.11% positive return to get back to break even. But if you were able to, with a buffer ETF, eliminate the 10% loss in exchange for earning 8% when the market recovers up 11%, the portfolio would fully realize that 8% instead of just being back to break even without a buffer ETF. In that case, while you may not have participated fully in the 11% positive return, a buffer ETF offers the potential to end up with a better overall return.
Additionally, while equity markets tend to be positive over the long term, not every investor has a long time horizon to play with. Retirees or investors with shorter-term needs might not be able to wait years or decades for a significant market downturn to recover. It took 14 years for the Nasdaq-100 to recover from the dot-com crash.
Myth #3: Buffer ETFs are Too Complicated1
FALSE. Buffer ETFs are handled by experienced fund managers with deep knowledge of how to build and manage a complex options strategy. The ETF itself is pretty straightforward. All an advisor or investor needs to consider is the downside protection buffer and known upside potential over a set period of time. After all, an advisor or investor doesn’t need to know about the logistics of bond trading to add them to an investment portfolio. They just need to consider the risk profile and potential yield. They can make their portfolio decisions from there.
Myth #4: Buffer ETFs are Inaccessible1
FALSE. For an actively managed, sophisticated investment strategy, buffer ETFs are reasonably priced, especially compared to mutual funds. While greater than broad index funds, buffer ETFs can be a cost effective tool for investors seeking active management and the expertise that comes with it. In an ETF wrapper, these buffered products have daily liquidity and full-position transparency, providing a cost-effective, tax-efficient, and accessible means of implementing structured strategies traditionally available through more complex instruments.
Myth #5: Buffer ETFs are Manual and Need to Be Actively Managed by the Investor
FALSE. Buffer ETFs are designed around an intended outcome, such as a desire for more or less downside buffer or capped or uncapped upside potential. Once selected and added to a portfolio in the desired allocation, Buffer ETFs can be a set-it-and-forget-it strategy for the investor. There are also single-ticker solutions like TrueShares Seasonality Laddered Buffered ETF (ONEZ) that make the process even more hands off.
Read the Structure Outcome FAQs to learn more about TrueShares buffer ETFs
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