Evaluating Defined Outcome Buffer Strategies

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This article evaluates the performance features of buffer fund strategies packaged in mutual funds and ETFs. These popular strategies are the modern version of put spread collars, which institutional investors have used since the 1990s to reduce equity exposure in a structured manner. Using rules-based indexes representing laddered S&P 500 buffer strategy benchmarks with almost ten years of return history, we assess their performance and risk relative to S&P 500 and 60%/40% Equity/Fixed Income portfolio proxies. Because of the asymmetric return patterns of buffer fund strategies, we argue that their risk measurement should be based on downside volatility metrics. We use the 2022–2024 period of significant drawdown and recovery in equity and bond markets to illustrate the return benefits of buffer fund strategies versus 60/40 equity/fixed income and equity-plus-cash alternatives. This analysis highlights that managing downside risk with buffer strategies has demonstrated benefits relative to traditional asset allocation approaches, particularly amid the uncertainty surrounding equity and fixed-income correlations.