Buffer funds have become popular in recent years.
Cliff Asness and his colleagues from AQR Capital Management recently published
a review of buffer funds in
The Journal of Portfolio Management.
Key Findings• Buffer funds, options-based strategies that aim to limit downside risk while capping upside,
often underperform their reference assets in both returns and risk-adjusted terms,
despite being marketed as investor-friendly solutions to equity volatility.
• The promised downside protection is inconsistent in practice—realized losses frequently exceed what
investors might expect based on option payoff diagrams, especially outside narrowly defined periods.
• Simple alternatives like mixing equities with cash generally outperform buffer funds on average
and even in drawdowns, raising questions about whether these products truly serve investor goals
or just cater to behavioral preferences.
https://www.aqr.com/-/media/AQR/Documents/Insights/Journal-Article/JPM-Rebuffed-An-Empirical-Review-of-Buffer-Funds.pdf
