Prudential's PGIM Joins BlackRock in Lowering ‘Buffer' ETF Costs

The firm has filed to launch 24 buffer ETFs with a 0.50% expense ratio.

PGIM, the asset-management business of Prudential Financial, has filed to launch 24 “buffer" exchange-traded funds that match the 0.50% expense ratio of BlackRock’s buffer launches earlier this year. 

The filings, which were made on Sept. 22, are for two series of defined-outcome ETFs, also known as buffer ETFs. This type of fund follows the performance of an index over a defined period and uses options to offset some of the losses, up to a point, at the expense of having a cap on gains.  

PGIM’s filings are for ETFs that track the S&P 500 over a one-year period and offer protection from either the first 12 points or 20 points of losses. The two series of funds PGIM filed for each have 12 different ETFs, each one starting its one-year period in a different month, so that investors don’t have to wait a year to purchase one. 

The potential new funds are very similar to existing buffer ETFs from competitors such as Innovator Capital Management or First Trust ETFs, except in terms of price. While the Innovator U.S. Equity Power Buffer ETF series has an expense ratio of 0.79% and First Trust’s Cboe Vest U.S. Equity Buffer ETF series costs 0.85%, PGIMs new ETFs would cost just 0.50%.  

“PGIM likely jumped into buffer ETFs because it’s a growing market with an opportunity to significantly undercut prices of current leaders,” said Bryan Armour, director of passive strategies research for North America at Morningstar.  

ETFs Match BlackRock, iShares

While BlackRock’s iShares Large Cap Moderate Buffer ETF (IVVM) and iShares Large Cap Deep Buffer (IVVB) funds also have a 0.50% expense ratio, they reset each quarter, whereas most buffer ETFs reset each year, meaning that PGIM’s filings would be a more direct competitor to existing buffer funds. 

Buffer ETFs are very similar to another product offered by PGIM and other insurance companies, the registered index-linked annuity, or RILA, which offers similar upside and downside protection based on a stock index’s returns.  

This is another area where ETFs are a fast-growing competitor to a traditional financial product. In 2022 RILA sales, a similar metric to ETF flows, rose by 6% year-over-year, according to trade association LIMRA. Buffer ETFs net inflows increased by over 200% in 2022 year-over-year according to data from Morningstar.

While the total dollar value growth and the total assets in RILAs are still much higher than that in defined-outcome ETFs, the rate at which buffer ETF inflows are growing means that it may not stay that way over the long term.