‘Buffer’ ETFs Prove a Decent Bond Alternative in War-Hit Markets

Core Insights - Bonds are failing to provide the expected downside protection for equities, leading to a shift towards alternative investment vehicles like defined-outcome ETFs [1][3] - Defined-outcome ETFs, which use options to limit stock losses while capping gains, have gained traction among financial advisers and institutions, with significant asset growth since their inception [2][4] Group 1: Market Dynamics - The performance of bonds as a hedge against equity declines has been inconsistent, particularly highlighted during 2022 when rising interest rates caused simultaneous selloffs in both stocks and Treasuries [3] - The defined-outcome ETFs have shown resilience since the onset of the Iran war, with the FT Vest Laddered Buffer ETF experiencing a smaller decline of 1.4% in March compared to a 2.7% drop in the S&P 500 Index [2] Group 2: Growth of Defined-Outcome ETFs - The assets in defined-outcome ETFs have surged from $200 million in 2017 to $8.6 billion, driven by the search for reliable hedging options [4] - Institutions like the University of Connecticut's endowment have shifted their investment strategies, moving away from hedge funds to buffer ETFs for risk mitigation [5] Group 3: Trends in Bond ETFs - Interest in bond ETFs has decreased, with their share of total ETF assets falling to approximately 17% from a pandemic-era peak of 23% [6] - The number of new bond fund launches has dropped significantly, with only 13% of over 1,000 new ETFs in 2025 being bond funds, marking the lowest share in over 15 years [6]