BlackRock Moves Into Growing Buffer ETF Field
Market for funds that limit gains and declines has surged to $23 billion.
BlackRock Inc., the world’s biggest exchange-traded fund issuer, is preparing to offer a pair of funds that seek to limit losses for investors, so-called buffer ETFs that are among the fastest-growing corners of the industry.
The iShares issuer this week filed a prospectus with the Securities and Exchange Commission to offer the BlackRock Large Cap Moderate Buffer ETF and the BlackRock Large Cap Deep Buffer ETF.
The Moderate buffer fund seeks to “provide downside protection against approximately the first 5% of Underlying ETF losses over each calendar quarter,” while the Deep buffer fund seeks to protect against losses between approximately 5% and 20% each quarter.
The funds feature a trade-off for the downside protection by also limiting potential gains. Funds use options to limit losses.
Buffer ETFs, also known as defined outcome funds, have surged in popularity since Innovator ETFs introduced them four years ago, and now include $23.2 billion in assets in 163 funds, according to etf.com data.
The largest is the $909.6 billion FT Cboe Vest Fund of Buffer ETF (BUFR), and in the last trailing year, the best-performing was the Innovator International Developed Power Buffer ETF - January (IJAN), at 6.63%.
The funds may be BlackRock’s first buffer product, Bloomberg ETF analyst Eric Balchunas tweeted. He also said that the plan is “intriguing,” since the firm probably saw other firms’ offerings bringing in new assets and “wanted a piece of the action.”
New York-based BlackRock’s iShares has $2.27 trillion in assets under management, about one-third of the entire U.S. ETF industry. It manages 384 ETFs.
The funds will track the iShares Core S&P 500 ETF (IVV), which has $301.1 billion in assets under management. It’s gained 7.4% this year while shedding $3.58 billion in assets over the past 30 days.
The most recently launched buffer ETF is the FT Cboe Vest U.S. Equity Moderate Buffer ETF - March (GMAR) on March 20. It’s gained 2.3%.
While the filing didn’t list the funds’ expense ratio, buffer ETFs are higher than most, ranging around .81%, while the average iShares fund is .31%.
BlackRock declined to comment.
Contact Ron Day at [email protected] or follow him on Twitter at @RonDayETF
