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Size of buffer ETF market has doubled since mid-2023

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New entrants chasing high-growth arena offer more exotic

structures

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Cathie Wood's ARK becomes latest entrant to file for a

buffer

By Suzanne McGee

NEW YORK, August 4 (Reuters) - Investors are piling into

financial products that offer them the chance to forgo some

potential gains in exchange for protection against a market

selloff, with the number of exchange-traded funds offering

variants on this concept doubling in number and size over the

last two years.

So far this year, some 30 of these so-called buffer funds

have made their debut in the U.S. as investors try to protect

recent gains from the risk that soaring valuations and ongoing

policy tumult will prompt a retreat.

That brings the total number to nearly 350, compared to 178

two years ago, according to data from Tidal Financial Group.

Each launch provides a new twist on the concept as more asset

managers battle to win a piece of a pie worth $70 billion today

and one that BlackRock ( BLK ) expects to hit $650 billion by

the end of the decade.

But the rapid growth and growing complexity of the new ETFs

are fueling anxiety among some analysts and market participants

that the asset management universe may be hitting "peak buffer",

a point at which products become too exotic and too focused on a

narrow market segment to be useful tools for most investors.

That, in turn, creates the prospect of investors putting money

into costly or unsuitable products.

"There are only so many ways to skin the cat, so every new

product becomes more niche," said Dave Nadig, an independent ETF

industry consultant. "The likelihood of any new product being

brought out now that an investor's portfolio really requires is

pretty small."

That is not stopping issuers from trying, however. Today,

investors can buy risk-protected bitcoin products, buffer their

exposure to Chinese Internet stocks, and own next-generation

"dual direction" buffer ETFs, designed not just to minimize

losses but to give investors capped gains in both rising and

falling markets.

Plain vanilla buffer ETFs offer investors a way to swap

part of their upside for some kind of cushion against losses on

a portfolio of stocks, most usually an index like the S&P 500

. The structure dates back to the 1980s, when it

underpinned structured notes that were then fast becoming part

of high-net worth investor portfolios.

Those still represent the lion's share of the market, with

pioneers First Trust and Innovator Capital Management accounting

for about 86% of buffer ETF assets and about 75% of inflows into

the space in the first seven months of 2025, according to data

provided by issuers and verified by Reuters.

But a filing in early July by a surprise new entrant into

the buffer field - ARK Investments, the technology asset

management firm founded by Cathie Wood - has prompted further

debate. ARK is seeking approval from U.S. regulators to launch a

suite of new buffer ETFs tied to its flagship ARK Innovation ETF

.

If they pass regulators' scrutiny, these would be the first

ETFs tied to an underlying actively managed fund rather than a

broad market index and shield investors from the first 50% of

any losses on ARK Innovation. In exchange, investors relinquish

the first 6% of any gain.

"It's a strange combination, to have a buffer alongside

the high-conviction ARK Innovation strategy," said Bryan Armour,

ETF analyst at Morningstar. "It's coming from the firm that was

a pioneer of risk-taking and stockpicking in the ETF space."

That strategy has produced uneven returns, with the ARKK ETF

generating a 152.8% return in 2020 but a 67% loss in 2022. So

far this year, the ETF is up 32.8%, compared to 6% for the S&P

500 index, but both it and ARK continue to lose assets.

ARK executives declined to comment on the details of the

filing, citing SEC restrictions during the post-filing "quiet

period."

ARK could launch the new buffer in early September, at which

point it will test investor appetite for more novel structures.

"My eyebrows are pretty much raised," said Kevin Warman, a

financial advisor with Investment Management Corp, in Mount

Pleasant, South Carolina. "But I'm not surprised that more

companies are jumping on the bandwagon."

Relative newcomers include Goldman Sachs Asset Management -

its first buffer ETF began trading in January - and BlackRock ( BLK ),

which rolled out its first offerings in mid-2023, more than four

years after Innovator and First Trust launched their own

offerings.

Asset managers insist that the market for buffers is nowhere

close to saturated yet, even as analysts and some financial

advisors are watching the flood of new offerings with wariness.

Still, Warman said he and his colleagues are struggling to

keep up with the details of each new product that launches.

"We want to make sure whichever of these we buy delivers on

a real need," he said.