For better or worse, the top ETF product for 2026 may be the buffered ETF. At a very general level, a buffered ETF, is one that provides downside protection versus some referenced index. That is, there is a buffer on the losses associated with the ETF. However, in exchange for this protection, the investor wil give-up some of the upside. The market has grown from approximately $5 billion in 2020 to a $90 billion AUM as of the end of 2025.
This type of protection can be achieved by managing the portfolio. There is a cost with having the ETF provide you protection, yet there always seems to be a need for these products. First, the mechanism for offering this protection is systematic and removes emotion from any allocation decision. Second, the timing of the protection is well-defined. Yet the payoff structure is complex and comprises multiple option positions. There are parts of the distribution that are protected or buffered, parts that are exposed to risk, and an upside portion that is capped. The folks at Alpha Architect provide a good overview of the problem.
Realize that if you want protection from downside risk, there is no free lunch. If you move to cash, you lose the upside. If you buy derivatives, there is a cost. If you allocate to alternatives, you are at the mercy of their return profile. Choose your protection wisely.
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