ETFs as Alternative to 60/40 Portfolio Amid Market Turmoil

Investors are turning to defined outcome ETFs to mitigate market downturns. Since its inception in 2018, the defined outcome ETF market has grown to over $60 billion and is expected to expand to $650 billion by 2030. The product has become an alternative to the standard 60/40 portfolio and is increasingly used by younger generations of advisors and their clients. Despite its complexity, nearly 90% of advisors do not currently use defined outcome ETFs.

Newark, N.J., June 13, 2024 — PGIM, the $1.34 trillion global investment management business of Prudential Financial, Inc. (NYSE: PRU), has launched two new ETFs designed to offer investors exposure to the U.S. large-cap equity market with a focus on defined outcome strategies. The PGIM Laddered Fund of Buffer 12 ETF (BUFP) and the PGIM Laddered Fund of Buffer 20 ETF (PBFR) were introduced on the Cboe BZX, each with a 0.50% net expense ratio, making them the lowest-cost funds of their kind in the market [1].

These new ETFs are part of PGIM's suite of outcome-oriented solutions, aiming to provide investors with a way to navigate market volatility. BUFP and PBFR are "funds of funds," investing in a laddered portfolio of PGIM's Underlying Buffer ETFs. BUFP targets an equal-weight investment in each of the 12 PGIM U.S. Large-Cap Buffer 12 ETFs, while PBFR targets an equal-weight investment in each of the 12 PGIM U.S. Large-Cap Buffer 20 ETFs. Both funds rebalance back to an equal weight on a quarterly basis [1].

The Underlying Buffer ETFs provide limited protection against a decline in the U.S. large-cap equity market, with an upside cap on capital appreciation. However, the new ETFs themselves do not provide a stated buffer against losses. Instead, they aim to generate capital appreciation by providing investors with U.S. large-cap equity market exposure through a diversified portfolio [1].

The launch of BUFP and PBFR follows the accelerated rollout of the 12% and 20% Buffer ETFs, offering investors a robust suite of defined outcome solutions. Stuart Parker, president and CEO of PGIM Investments, stated, "Laddered buffer ETFs are one of the fastest-growing segments of an already accelerating defined outcome ETF market — but flexibility and accessibility is critical in this space. We've seen strong client demand for both the underlying buffer ETFs as well as single-ticker solutions that can provide efficient exposure to this style of investing while reducing some of the operational load of investing in the individual monthly vintages" [1].

Linda Gibson, CEO of PGIM Quantitative Solutions, added, "We are excited to be working alongside PGIM Investments to bring these new products to market and offer investors the ability to choose between individual monthly 12% and 20% buffer ETFs, or a one-ticker solution" [1].

Investors should be aware of the risks associated with these ETFs, including Underlying ETF and SPY risks, exposure to FLEX Options, and potential limitations in the buffer provided by the Underlying Buffer ETFs. As actively managed ETFs, BUFP and PBFR are subject to risks such as ETF shares trading risk, authorized participant concentration risk, and market risks [1].

These new ETFs represent a significant addition to the defined outcome ETF market, which has seen substantial growth since its inception in 2018. With over $60 billion in assets under management and expected to reach $650 billion by 2030, defined outcome ETFs are becoming increasingly popular among younger generations of advisors and their clients [1].

References:
[1] https://www.pgim.com/us/en/institutional/about-us/newsroom/press-releases/pgim-expands-etf-lineup-to-include-two-laddered-funds-buffer-etfs