Buffer ETFs help advisors move cash into equities

At a May panel hosted by Goldman Sachs Asset Management and Innovator ETFs, executives presented buffer exchange-traded funds as a tool for advisors to move cash into equities. The Innovator Defined Wealth Shield ETF (BALT) was offered as an example. BALT resets every quarter, provides a 20% buffer against S&P 500 losses for that period and sets an upside cap typically near 2.5%–3% for the quarter.

Panelists noted many investors are holding large cash balances while the S&P 500 trades near 7,500. They cited inflation and fixed-income limits: since the pandemic, uninvested cash has lost more than 25% of its purchasing power, and the starting yield on the Bloomberg U.S. Aggregate Bond Index implies expected annualized returns near 4.5%–4.75% over the next decade.

Speakers highlighted a diversification gap. Of the last 28 market corrections of 10% or more, rising interest rates triggered roughly half, a scenario in which bonds can fall alongside stocks rather than offset losses.

Tim Urbanowitz, chief investment strategist at Innovator ETFs, pointed out the 20% quarterly buffer in BALT has been breached only four quarters since 1950. He used 2022 as an example: when equities fell about 18% and bonds dropped roughly 13%, BALT finished the year up about 2.5%.

Alexandra Wilson-Elizondo, co-chief investment officer and co-head of multi-asset solutions at Goldman Sachs Asset Management, described faster market moves driven by index funds, algorithmic trading and higher retail activity. She said those changes make older portfolio responses less effective.

Panelists discussed the common near-retirement glide path that shifts a client from a 60/40 stock-to-bond mix toward about 30/70, saying it can reduce growth potential when clients may still need growth. They presented defined-outcome ETFs as one option that can allow equity exposure while setting a known downside limit.

The panel emphasized trade-offs: buffer ETFs cap upside in exchange for defined downside protection, and those protections apply only for each defined outcome period when the fund is active. Urbanowitz summarized the objective as: “It’s getting clients invested and keeping them invested.”