Investors may want to consider buffer ETFs to hedge against recent market volatility.
Bruce Bond, chief executive of Innovator ETFs, sees the opportunity for buffer exchange-traded funds to provide some protection against market downturns.
“This (strategy) is suitable for a group of people who are interested in entering the market but don’t want to take on the full market risk,” Bond told reporters. CNBC’s “ETF Edge” Wednesday.
Innovators ETF is a monthly issue buffer ETF. Their August ETF has the ticker symbol PAUG and offers 15% downside protection.
“If someone wants to invest in the S&P 500, they can invest directly,” Bond said. “They have 15% protection on the downside and 12.8% chance on the upside.”
Bond recommends investors hold these ETFs until the end of the year because the funds are structured around one-year options in the portfolio.
“By the end of the year, those options will be fully valued, and then we’ll reset it for the next year,” Bond said. “Next August, they’ll be fully valued, and then we’ll reset it for one year. ”
Mark Higgins of Index Fund Advisors is skeptical of strategies such as buffered ETFs that allow investors to hedge against volatility.
“My concern is that a lot of investors are creating a very expensive solution to what is ultimately a simple problem,” said Index Fund Advisors’ senior vice president in the same segment. “They need to be more attuned to the normal fluctuations in the market. “
Higgins believes there are cheaper solutions to the market’s uncertainty – the cheapest being to look at your portfolio less often and talk to your adviser before making any big moves out of surprise or fear .
“I think a conscientious financial advisor can provide peace of mind,” Higgins said.
