JD Gardner, CFA, CMT, Founder and Chief Investment Officer of Aptus Capital Advisors, joined Keith Black, Managing Director of RIA Channel, to discuss why buffer ETFs can offer better hedging characteristics than fixed-income allocations.
There has been significant innovation in ETFs, adding buffer and defined outcome strategies to the tax-efficient wrapper. These ETFs allow investors to reduce fixed-income exposure and increase equity risk exposure, potentially boosting future wealth.
Gardner states that investors holding onto the belief that bonds offer positive returns and protection may be hurting long term return potential. Investors should move beyond the idea that aggressive investors should own more stocks and conservative investors should own more bonds. Owners of bonds may find it difficult to maintain purchasing power.
Gardner recommends allocating funds to buffer ETFs from an investor’s fixed-income allocation. Buffer ETFs linked to an equity index have capped upside returns and defined outcomes in down markets.
Launching buffer ETFs was a logical next step, as the Aptus ETF lineup has long focused on options-based strategies. Options hedges can be expensive, but the downside correlation is known. The correlation between equity and fixed income returns varies, making the hedging characteristics of fixed income unknown during equity market declines. Adding options hedges to a portfolio allows investors to confidently increase their equity allocation.
The defined outcome ETF space is nearing $100 billion in AUM, with projections of $600 billion or more over the next several years. As the market expands, exposures will likely evolve beyond core S&P 500 exposure to more niche index exposures. Ideally, new entrants into the buffer ETF space will have a track record of managing options-based funds.
WEBCAST – Lower Cost + Higher Caps = Better Buffer ETFs
Asset allocation is shown to drive as much as 90% of investment outcomes. We look forward to sharing our views on how low-cost buffered ETFs can immediately help clients:
- Own more stocks
- Own less bonds
- Keep risk neutral
Buffered ETFs are part of a growing use of options-based funds by advisors. Join us on Feb 5 to see our unique way of putting fund fee savings to work for better outcomes.
Accepted for 1 CFP® / IWI / CFA CE Credit