Aug 6 (Reuters) - The spike in stock market volatility

may be good news for at least one group of asset managers: those

rolling out "buffer" exchange-traded funds (ETFs) that offer

investors the chance to swap some stock market upside for

downside protection.

Over the last three years, assets invested in these products

have soared to $41 billion or more from less than $10 billion.

They have seen inflows in recent days as well, as investors seek

shelter from a rout in global stocks and other risky assets.

Average weekly net inflows into this category have jumped to

$283 billion since the beginning of July from an average of $160

million throughout the first six months of the year, according

to Morningstar data. In the week ended Aug. 2, net inflows

jumped to $360 million from $166 million in the previous week.

The S&P 500 index has dropped around 5% so far this

month, in a rout fueled by U.S. economic worries and the unwind

of a global carry trade that has also hammered stocks from Japan

to Europe.

"Our inflows last week were probably five or six times what

we would see in a typical week," said Graham Day, chief

investment officer at Innovator ETFs, which launched the first

buffer ETF six years ago.

Buffer ETFs typically use options to put a floor on how much

an investor can lose while also eliminating the potential for

unlimited gains. Investors - or often, their financial advisors

- are drawn to variants of these products as a way to resist the

temptation to abandon stocks when markets get frothy.

The downside, of course, is that while the ETFs can absorb

market hits during periods of volatility, like the recent plunge

in stocks, investors could lose out on upside if they hold them

for the long term, said Zachary Evens, manager research analyst

at Morningstar.

"The risk is that they're sold to investors who don't need

them, because they have a long-term time horizon," Evens said.

"There are no free lunches in investing."

Even before the cracks began to appear in this year's bull

market, the buffer ETF universe was growing rapidly. So far in

2024, 76 new products that fall into this category have made

their debut, offering anywhere from 9% to 100% downside

protection on an array of indexes. That is more than the 66

rolled out during all of 2023 and brings the current total to

297.

The most recent twist is the arrival on the scene of a

variant of buffer ETFs that their issuers prefer to refer to as

"capital protected" funds, offering 100% downside cushions and

less upside potential.

"This is where we think the opportunity lies," said Matt

Kaufman, head of ETFs at Calamos Investments, which rolled out

its first products of this kind earlier this year. "This selloff

is the first real life test for these products, and so far they

are doing exactly what we thought they would."