Buffer ETFs Do Their Job, But Are They Worth It?

Buffer ETFs are performing as advertised this year, offering a measure of downside protection for investors during what’s been a rocky year for markets.

The Innovator Equity Defined Protection ETF – 1 Yr Jan (ZJAN) is a case in point. 

The fund, which launched at the start of 2025, promised investors full downside protection over the calendar year, with the potential for gains of up to 7.5% if the market went up. That trade-off appealed to some conservative investors looking to stay invested in equities without taking on full market risk.

ZJAN Does Its Job

So far, the strategy has worked. ZJAN is down just 1.3% since its Jan. 2 launch, compared to a 10% drop for the SPDR S&P 500 ETF Trust (SPY). If markets continue to fall, ZJAN could decline a bit further. But assuming an investor holds the ETF through the end of the outcome period—Dec. 31—any losses should be fully offset by the built-in protection (aside from the fund’s 0.79% annual fee).

Innovator launched the ETF industry’s first 100% downside-protected buffer ETF in July 2023. That fund, which has a two-year outcome period ending in July 2025, is up 10.6% since its debut. That lags the 18.8% gain in SPY over the same time frame, but those returns have come with significantly lower volatility.

Are Buffer ETFs Worth It?

Still, some investors question the need for these products. After fees, ZJAN’s maximum return of 6.7% isn’t much higher than the 4.2% yield currently available on 12-month Treasury bills—returns that come with no risk. And while the return on T-bills is guaranteed, ZJAN’s capped return is only realized if the market ends the year in positive territory.

Even so, buffer ETFs remain popular. In most years, stocks go up, and these funds offer a way to capture some of that upside while muting potential downside.

Some buffer ETFs also offer higher upside caps for those willing to take on a bit more risk. The Innovator U.S. Equity Buffer ETF – January (BJAN), for example, has a 2025 outcome period with a starting upside cap of 15.5% and a 9% downside buffer. That trade-off may appeal to investors who want to stay in the market but are looking for some protection against moderate losses.

As it stands, BJAN is down 7.2% year to date. If the S&P 500 finished the year around current levels, the fund would deliver a modest loss, just shy of 2%, thanks to the built-in buffer. But like all buffer ETFs, the strategy only works as designed if held for the entire outcome period.