BlackRock Dives into the Buffer ETF Arena with Two Innovative Offerings
Expanding into a Rapidly Growing Sector, BlackRock Aims to Limit Investor Downside While Capping Potential Gains
BlackRock, the world's largest exchange-traded fund (ETF) issuer, is expanding into the rapidly growing buffer ETF market by launching two new funds. These buffer ETFs aim to minimize investors' downside while also capping their potential gains. This move comes as the buffer ETF industry has seen exponential growth in recent years, with assets under management surpassing $20 billion.
The two new funds, the BlackRock Large Cap Moderate Buffer ETF and the BlackRock Large Cap Deep Buffer ETF, will track the returns of the $305 billion iShares Core S&P 500 ETF (ticker IVV). They will use options to attempt to limit fluctuations in investor returns, according to a filing with the Securities and Exchange Commission.
Buffer ETFs, also known as defined outcome funds, have gained popularity as investors seek safety amid market turmoil caused by the Covid-19 pandemic and subsequent inflation. Innovator ETFs introduced the first buffer ETF in 2018, and since then, the industry has grown to encompass $23.2 billion in assets across 163 funds, according to data from etf.com.
BlackRock's entrance into the buffer ETF market is an attempt to capitalize on this growing demand. Bloomberg Intelligence ETF analyst James Seyffart said, "The growth has been tremendous, proving there is demand." Seyffart noted that BlackRock's clients and advisors are likely requesting these products or using competitor offerings.
The largest buffer ETF currently available is the $909.6 billion FT Cboe Vest Fund of Buffer ETF (BUFR), while the best-performing in the past year has been the Innovator International Developed Power Buffer ETF - January (IJAN), with a return of 6.63%.
New York-based BlackRock's iShares has $2.27 trillion in assets under management, comprising approximately one-third of the entire U.S. ETF industry. BlackRock manages 384 ETFs, and these new offerings will likely compete with existing buffer ETFs by undercutting fees, according to Nate Geraci, president of the advisory firm ETF Store.
"BlackRock likely views buffer ETFs as low hanging fruit and simply too juicy of an opportunity to pass up," Geraci said. "I would expect BlackRock to significantly undercut existing buffer ETFs on fees and put meaningful marketing muscle behind this effort."
The BlackRock Large Cap Moderate Buffer ETF aims to protect investors from about the first 5% of the S&P 500 ETF's losses per quarter. In contrast, the BlackRock Large Cap Deep Buffer ETF seeks to cushion against losses between 5% to 20% over each calendar quarter. The fees and tickers for the new funds have not yet been disclosed in the filing.
