Buffer ETFs Are Insurance You’re Better Off Without

If you want to own Treasuries but are worried that America’s unruly deficits or mounting foreign entanglements will push bond prices lower, exchange-traded funds have a product to sell you. It’s complicated and expensive, and the longer you own it, the worse off you’ll be. Yet its purveyors are confident you’ll love it.

Buffer ETFs have been a smashing success since their 2018 debut. They promise to insulate investors from some of the downside of an investment over a specific time in exchange for limited upside. Most of the $50 billion that’s flowed to the product, broadly categorized as defined outcome ETFs, is in funds linked to the S&P 500 Index. These are typically insulated from losses of up to 10% to 15% — the buffer — in exchange for a roughly similar cap on gains over a 12-month period. Recent concerns around Treasuries are motivating the industry to push bond buffers on investors, too.