BlackRock launched a new iShares Max Buffer ETF on Thursday after seeing increased interest in ETFs offering investors a buffer strategy to counter a stormy market environment. The new iShares Large Cap Max Buffer Dec ETF (DMAX, trading on the CBOE) seeks to provide up to 100% downside protection and a capped upside of 7.9% for the full one-year hedge period, net of fees, according to BlackRock.
The new ETF joins the company’s MAXJ and SMAX ETFs, which launched last year and raised $260 million in combined AUM.
Over the past five years or so, BlackRock said it has seen option ETFs grow from $5 billion in January 2019 to more than a $160 billion assets under management (AUM) last month, as a growing number of investors sought differentiated outcomes, combined with the liquidity, low fees, transparency and tax efficiency provided by an ETF wrapper.
“We think education is critical because option ETFs are not ‘one-size fit all’ and have differing investment objectives based on the strategy,” BlackRock said.
“We’ve seen significant interest” in buffer ETFs as industry AUM grew from $200 million in 2018 to almost $50 billion as of Dec. 31, BlackRock said, citing Morningstar data.
“In today’s turbulent market, Max Buffer ETFs are an important tool for mitigating risk while participating in market growth,” according to Robert Hum, Managing Director, U.S. Head of Factor & Outcome ETFs at BlackRock.
“In today’s turbulent market, Max Buffer ETFs are an important tool for mitigating risk while participating in market growth.”
Robert Hum, Managing Director, U.S. Head of Factor & Outcome ETFs at BlackRock
“With up to 100% downside protection, they offer a unique opportunity for investors to re-enter the market confidently,” Hum said.
He added, “The launch of DMAX further enhances this offering by adding the most affordable option with the highest upside cap within the category, giving investors more ways to safeguard their investments against market volatility.”
During the past couple of weeks, buffer ETFs were tested with significant volatility and the VIX climbed more than 90% since MAXJ launched July 1, BlackRock said.
“When the VIX spiked in August 2024, bringing [iShares Core S&P 500 ETF] IVV down 4.93% since the start of the outcome period, MAXJ was down only 0.07%,” according to BlackRock.
The firm explained, “These products are delivering a way for investors to step out of cash in their portfolios, providing access to equity growth up to a return cap, while protecting against market drawdowns.”
The firm pointed out that the initial buffer and caps for any buffer ETF is for the pre-determined hedge period (Jan. 2 to Dec. 31, 2025, for DMAX), the company said. Therefore, “Entry points will play an important role in a client’s experience.” For that reason, iShares offers a buffer comparison tool designed to help investors understand the current option payoffs of the firm’s ETFs on a daily basis, BlackRock said.
The firm predicted, “At a certain point, as rates go lower, max buffer ETFs will become relatively less attractive.”
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.
