Buffer ETFs Explained
Buffer ETFs enable investors to participate in the market’s upside while tempering its downside risks. Watch this video to learn how buffer ETFs work, their rol
Defined Outcome Solutions Boost Confidence in Equity Investing
Jun 16, 2025
PGIM Quantitative Solutions’ Devang Gambhirwala shares how buffer ETFs can help balance upside potential with downside protection in uncertain markets.
So far in 2025, market activity hasn’t convinced many investors to move idle assets into equities. This year’s surge in volatility has likely added to their hesitation. However, equities remain essential for long-term growth, and avoiding them can be costly.
Volatility cuts both ways—avoiding equities to prevent losses also means missing out on gains during market upswings. Still, concerns like high valuations, declining earnings, interest rate uncertainty, and geopolitical tensions weigh on investors’ minds.
Buffer ETFs, a defined outcome solution, help balance growth and risk. They let investors capture market gains up to a limit while reducing losses, offering a smoother equity investing experience with narrower potential outcomes.
BALANCING GROWTH AND PROTECTION
Despite cautious sentiment, equity exposure remains crucial, especially for long-term financial goals. An aging investor demographic faces persistent inflation and longer lifespans, requiring larger nest eggs to sustain retirement. As retirement nears, the focus shifts to capital preservation while remaining invested for growth. Buffer ETFs provide a way to stay engaged in the market with builtin downside protection, making them particularly appealing for investors seeking to prioritize security without sacrificing growth. By combining growth potential with downside protection, they can help accomplish a range of objectives, from re-entering the equity market to enhancing portfolio resilience.
FROM CASH TO CONFIDENCE
Rising cash allocations have been a popular defensive move amid macroeconomic uncertainty and high equity-bond correlations. However, with interest rates stabilizing or expected to decline, cash returns are falling. While maintaining cash reserves is wise, overreliance can hinder long-term growth. Defined outcome strategies offer a powerful bridge, allowing investors to transition excess cash into equities with confidence.
High buffer levels also complement traditional bond allocations, balancing return potential with downside protection.
RESILIENT SOLUTIONS FOR UNCERTAIN MARKETS
Stocks have delivered an average annual return of 10.4% over the past 30 years, making them a cornerstone of investment portfolios. However, they can be volatile. Earlier this year, the S&P 500 briefly entered a bear market, dropping over 20% before quickly rebounding and erasing losses within days.
HIGH CURRENT VALUATIONS, STRONG HISTORICAL RETURNS
Sources: Bloomberg, Morningstar Direct. Data from 1/1/1995 to 5/31/2025. Past performance does not guarantee future results.
These swings, while unsettling, highlight the market’s resilience and the importance of staying invested to benefit from long-term compounding. With markets again at historically high valuations, many investors worry about potential sell-offs. Those who move to cash during downturns risk missing the recovery and growth opportunities.
Devang Gambhirwala
Portfolio Manager of PGIM Quantitative Solutions
As economic conditions remain uncertain, volatility is likely to persist. Tools like buffer ETFs offer a smart way to balance upside potential with downside protection, helping investors manage risks while staying positioned for growth.
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