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Almost four years in, and despite countless challenges, the bull market is still going, pushing investors toward a familiar dilemma: try to capture equity gains as the market continues to rise, or take action to protect against a potential pullback, possibly giving up some of those returns? This balancing act has driven investors to look to a lesser-known corner of the exchange-traded fund (ETF) space—buffered ETFs, which aim to limit downside losses while still providing exposure to at least some upside.

Buffered ETFs have surged as an alternative to a traditional 60/40 approach to portfolio construction. These ETFs use options strategies to pre-set a certain level of downside protection over a specified period of time. While investors will have to make determinations as to whether buffered ETFs are an ideal fit based on their own risk tolerance levels, the Innovator U.S. Equity Power Buffer ETF – July (BATS: PJUL), the Innovator U.S. Equity Buffer ETF – September (BATS: BSEP), and the Innovator Nasdaq-100 10 Buffer ETF (BATS: QBUF) provide three different entry points to the space and a variety of options in terms of level of protection and potential for upside.

PJUL Is a Buffered ETF Stalwart With High Levels of Protection

PJUL is one of the oldest buffered ETFs, having launched in 2018, and is also one of the largest. It has managed assets of about $1.3 billion. The fund aims to track the return of the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), representing the broader S&P 500 Index, while protecting against the first 15% of losses. Investors should note that the fund's starting cap (before its annual fee of 0.79%) is 13.98%, which is about 1% above the current year-to-date (YTD) return of the S&P.

While there are buffered funds providing more robust protection, PJUL strikes a healthy balance between protecting against returns and capping potential gains in a way that still allows investors to capture solid growth in the market.

This makes it an excellent choice for investors looking for some protection but unwilling to give up too much of their potential returns in exchange. However, investors should note that the fund's pre-determined outcome period runs from July 1 through June 30; those buying in after July 1 may not realize the fund's intended outcome.

Unless an investor is willing to wait until July 2027 to buy in, they should be wary of potential deviation if they do not follow the defined outcome period.

BSEP Takes on More Risk

BSEP functions similarly to BJUL in many ways: it also tracks the SPY and uses options to cap both potential upside and downside. An important distinction here, however, is that BSEP has a slightly higher risk level. This fund protects against the first 9% of losses, less than BJUL. In exchange, BSEP has a modestly higher upside cap of 15.35% before annual fees (which are the same as for BJUL).

The trade-off may not seem worthwhile—BSEP gives up 6% of loss protection in exchange for less than 1.5% of added gain potential. This could be part of the reason why this fund's asset base is only around $216 million, a fraction of BJUL's. However, because BSEP's defined outcome period runs from Sept. 1 to Aug. 31 of each year, investors considering buffered ETFs over the summer have the opportunity to buy in and hold shares of BSEP throughout the full outcome period without having to wait until next year.

QBUF Trades SPY for Nasdaq Exposure

Tech stocks have driven much of the broader market rally, and QBUF takes a buffered approach to the tech-centric Nasdaq-100 Index. By tracking the return of the Invesco QQQ Trust (NASDAQ: QQQ), QBUF is positioned to see gains when many of the biggest tech stocks trading in the U.S. head upward.

The fund distinguishes itself from both of the others above not only in this focus, but also in its structure. Rather than setting a defined outcome period of a full year, QBUF resets for each new three-month period. This allows investors more opportunities throughout the year to buy in without their investments potentially skewing from QBUF's pre-set outcomes.

For each of those periods, the fund provides fairly solid downside protection of 10%, which helps cover not only a potential significant collapse in tech names but also some of the near-term volatility in the space.

The issue for investors, however, may be QBUF's limited upside potential, as the fund caps gains at 5.97% before its 0.79% annual fee. This makes QBUF a target for investors interested in tech but only willing to make a cautious bet.

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