BlackRock is launching its first “buffer” exchange-traded funds, which are designed to give investors some downside protection in the U.S. stock market as well as potential gains with a cap.
The iShares Large Cap Moderate Buffer ETF
IVVM,
and iShares Large Cap Deep Buffer ETF
IVVB,
can help investors “stay invested during times of market volatility,” Rachel Aguirre, head of U.S. iShares product at BlackRock, said by phone. The new ETFs are expected to begin trading on Friday, according to the firm.
“Market volatility and uncertainty continue to be a top concern on so many investors’ minds,” said Aguirre. “Investors are still holding a massive amount of cash just sitting on the sidelines,” she said, with more than $940 billion flooding into “cash products in the last year alone.”
The iShares buffer ETFs use options to seek to track the iShares Core S&P 500 ETF’s
IVV,
share price return up to a cap, while mitigating declines with a buffer against its losses within target ranges, according to a statement from BlackRock.
The iShares Large Cap Moderate Buffer ETF seeks to protect against the first 5% of quarterly losses, and the iShares Large Cap Deep Buffer ETF provides quarterly downside protection against losses ranging from 5%-20%, the statement shows.
The funds use options-based strategies that historically were “very difficult for your everyday investor to access,” as they were limited to “really expensive products or operationally complex structures,” according to Aguirre. BlackRock’s new ETFs, which provide “institutional-quality risk management,” reset quarterly rather than annually as seen with other similar offerings, she said.
“They’re specifically designed with the buy-and-hold investor in mind,” said Aguirre.
“The key difference here is we keep resetting at prevailing market” levels, she said. With a product that resets on an annual basis, “you might blow through that 5% protection pretty quickly and be without any level of protection for the remainder of the year.”
The U.S. stock market has rallied in 2023, including during the second quarter.
The S&P 500, an index of U.S. large-cap equities, is up 7% this quarter through Thursday, according to FactSet data. That’s after rising 7% during the first three months of 2023.
Investors who are retired, or nearing retirement, might consider using iShares buffer ETFs as they provide “a more defensive position” while still offering “growth opportunity,” Aguirre said.
So far this year, the S&P 500
SPX,
has climbed 14.5% through Thursday, according to FactSet data. Last year the index tumbled 19.4% as the Federal Reserve aggressively raised interest rates to fight high inflation, marking its worst year since the financial crisis of 2008.
Read: Here’s where BlackRock sees investment opportunities in ‘new macro regime’
Some investors sitting on the sidelines face a “dilemma” as trying to time the market may prevent them from achieving their financial goals, said Aguirre.
The iShares Large Cap Moderate Buffer ETF and iShares Large Cap Deep Buffer ETF each have an expense ratio of 0.50%.
BlackRock’s iShares business has $3.2 trillion of assets under management globally, including $2.3 trillion in the U.S., according to a spokesperson for the giant asset manager. The firm’s statement shows the new buffer funds are among its “outcome-oriented” offerings, which include its BuyWrite fixed-income ETFs that use an options strategy.
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