Expanding your options for downside protection

1. Buffer ETFs can help investors and advisors mitigate risk by targeting a level of downside protection, in exchange for capping upside potential.
2. Advisors can choose a level of downside protection on the iShares Core S&P 500 ETF suitable for their clients – ranging from:
• Up to 100% downside protection over a one-year period
• First 5% downside protection every quarter
• Next 5-20% downside protection every quarter
3. iShares Buffer ETFs can be used strategically in portfolios to gain exposure to equities, and as a complement to their fixed income or alternatives. They can also be used as a tactical trade allowing advisors to pursue higher returns.

Financial advisors have been considering more ways to seek downside protection for 3 main reasons -

1. The portfolio problem:

As many investors experienced first-hand in 2022, simply diversifying across stocks and bonds may not provide enough risk mitigation against changing market conditions. But at the same time, sitting on the sidelines in cash or trying to time the markets can prevent investors from achieving their financial goals.

2. An attractive opportunity for targeted downside protection:

Advisors have more options today beyond structured notes or index-linked annuities to seek targeted downside protection. The rapid pace of innovation in the ETF industry has provided advisors an opportunity to utilize innovative strategies to seek such outcomes and move towards a recurring fee-based model for their appropriate clients.

3. A way to differentiate your practice and attract new clients:

By providing access to targeted protection ETFs, advisors are better able to manage client expectations, which promotes a healthier relationship with their clients. These strategies are also used as a prospecting tool in a world where clients seek an innovative strategy from their financial advisor.

By utilizing a combination of options, iShares Buffer ETFs seek to track the share price return of the underlying ETF, the iShares Core S&P 500 ETF (IVV), up to an approximate upside cap, while seeking to provide downside protection up to an approximate buffer against IVV losses for each applicable hedge period.

iShares offers 3 types of Buffer ETFs on IVV that seek the following:

1. Max Buffer: Up to 100% downside protection over a one-year period
2. Moderate Buffer: First 5% downside protection every quarter
3. Deep Buffer: Next 5-20% downside protection every quarter

A Strategic Allocation

These buy-and-hold ETFs are designed to be used in a long-term, strategic allocation within a portfolio. Where it fits within a portfolio depends on the investor’s overall risk tolerance and other holdings in the portfolio. We believe there are four primary ways that Buffer ETFs can be used in portfolios:

A tactical trade

Understanding the return caps that are set at the start of each buffer period allows advisors to provide attractive trade ideas to their clients.

For example, if investors with significant cash allocations have a view that interest rates are on a pathway to fall within the next year, they are able to seek a return on the iShares S&P 500 ETF up to 7.41% with the iShares Large Cap Max Buffer Sep ETF (for the next one-year starting October 1st, 2024), while being protected on losses for the period.¹

iShares Buffer ETFs enables investors to seek a new targeted level of protection in their portfolios with one common goal – to mitigate risk while seeking clearer outcomes.