BlackRock Launches Two New Buffer Solutions on the S&P 500

The ETF landscape is being enriched by two new interesting proposals for investors looking to balance exposure to the US stock market with downside protection. Through the iShares brand, BlackRock is indeed bringing to Europe a category of products that has been relatively uncommon on the Old Continent until now: buffer ETFs.

What are Buffer ETFs and How Do They Work?

Buffer ETFs are instruments that combine exposure to a reference index – in this case, the S&P 500 – with protection against losses within a predetermined range, in exchange for a limit on potential gains. Unlike traditional ETFs, these products use derivatives (options and swaps) to shape the risk/return profile.

The mechanism is intuitive: the ETF protects against the market’s initial declines (the “buffer”), but in return imposes a maximum ceiling on gains (the “cap”). Here are the two products now available:

iShares US Large Cap Deep Buffer UCITS ETF (ISIN: IE000EOFR2K5)

• Ticker: USDB

• Benchmark: S&P 500 Index

• Reference Period: 3 months

• Buffer: Protection between -5% and -20%

iShares US Large Cap Max Buffer Sep UCITS ETF (ISIN: IE000ON9GR24)

• Ticker: MAXS

• Benchmark: S&P 500 Index

• Reference Period: 12 months (September-September)

• Buffer: Approximately 100% protection

Comparison of the Two Solutions

The Operating Mechanism

Both ETFs use total return swaps to replicate the performance of the S&P 500 and options to implement the buffer and the cap. In the case of the Deep Buffer ETF (USDB), the fund “sells” part of the upside potential while simultaneously purchasing protection for the initial declines. For the Max Buffer ETF (MAXS), the cost of the near-total protection is financed by giving up a larger portion of the potential gains.

The cap, or maximum gain limit, is determined at the start of each period and varies based on market conditions, particularly the implied volatility of options.

Considerations for the Investor

Crucial Timing
Entry timing and holding duration are fundamental. These ETFs are designed to deliver the stated payoff only if held for the entire reference period. Those who buy after the period has already started or sell before the expiration may achieve results very different from expectations.

Costs and Opportunities
With expense ratios around 0.50%, these products have a higher cost than a traditional S&P 500 ETF, but are cheaper than many actively managed funds with similar protection strategies.

Ideal Contexts
These instruments are particularly interesting in:

• Phases of high market volatility

• Periods of macroeconomic uncertainty

• Conservative allocations within diversified portfolios

Final Perspectives
The arrival of these buffer ETFs in the European market represents a significant expansion of the offering for investors, who can now access sophisticated risk management strategies with the operational simplicity of an ETF.

However, it is essential to fully understand their functioning: they are not “capital protected” products in an absolute sense, but rather instruments that offer limited protection within a specific range.