A closer look at how buffer strategies reshape risk, behavior, and the modern portfolio.
In 2016, Vest gave the world its first Buffer Fund.
That moment didn’t just mark a product launch; it was the beginning of a paradigm shift—a new way of thinking about how investors manage risk, pursue growth, and remain committed to long-term goals through market turbulence. It was a response to the foundational limits of traditional portfolio construction: the lack of clear, predictable outcomes in an increasingly unpredictable world.
After that fateful moment in 2016 when Vest—fresh out of Y Combinator—launched that first Buffer Fund, several more buffer funds have followed in its wake. Today Morningstar has a special category named for over a hundred buffer funds totaling more than $62B in value (Morningstar, March 31, 2025).
Recently, critiques of buffer funds have emerged. Notably from AQR in a piece titled Rebuffed. We welcome the conversation. Innovation is not always liked. It is the same reason why taxis don’t like Uber, hotels don’t like Airbnb, and cinemas don’t like Netflix. Healthy debate moves the industry forward. But as the firm that created and built this category and continues to lead it, we believe it’s essential to clarify what buffer strategies are built to do and why they matter now more than ever.
I. Confronting the Critics
Critics continue to ask the wrong question: “Do buffer funds outperform the market?”
But there’s a better question—the one advisors and investors actually care about: "Do buffer funds deliver on their outcomes, enhance diversification, and support clearer goal achievement?" The answer is, “Yes.”
Because that’s what matters.
The Trouble with Comparing Apples to Options
AQR’s argument relies on a backward-looking analysis: that options-based strategies, particularly buffer funds, underperformed the S&P 500 Index and failed to offer sufficient protection compared to beta-adjusted portfolios of equities and Treasury bills.
But this misinterprets the purpose of buffer funds entirely.
Buffer strategies were never designed to outperform equities in bull markets. Buffer funds were engineered to reshape the investor experience—to deliver pre-defined outcomes and more risk/return certainty in uncertain environments. And our Buffer funds have done exactly what they promised to do.
Mismatched Dataset
The analysis from AQR draws on a dataset of 99 funds from Morningstar’s “Equity Hedged,” “Defined Outcome,” and “Derivative Income” categories with returns available from January 1, 2020, to January 31, 2025” (AQR, Morningstar). This group is skewed toward early-stage buffer strategies, many having launched amid 2020 market chaos, and fails to reflect the breadth, depth, and sophistication of today’s opportunity set.
Furthermore, some had narrower buffers (e.g., 10%), limiting their effectiveness in severe declines. Others weren’t buffer funds at all. Derivative Income funds, for example, use covered-call strategies for yield, not protection. Including these in the same sample distorts any conclusions. It’s incomplete, outdated, misleading, and extremely narrow at best—and dishonest at worst.
Reexamining Traditional Risk Metrics for Non-Traditional Funds
The critique also relies on static, linear metrics like beta and absolute drawdown to evaluate inherently nonlinear, options-based strategies. These metrics ignore the reality that beta fluctuates, and volatility is not constant—it completely misses the point.
For too long, risk has been defined by statistical metrics like standard deviation. But, as Dr. Joanne Hill, co-author of our foundational white paper The Case for Target Outcome Investing, put it: “Investors don’t fear volatility; they fear loss” (Vest Financial, LLC. The Case for Target Outcome Investing. August 2017).
In practice, that means clients aren’t asking about a 12% standard deviation—they’re wondering if they can retire on time, afford a child's education, or weather a downturn without compromising their plans. Buffer strategies reframe the conversation around risk—not as volatility, but as the potential for loss of capital. They directly address these questions with structured protection—typically against the first 10–20% of equity market losses—paired with capped upside potential. This protection isn’t theoretical. It’s an engineered outcome supported by contractual certainty.
II. Buffer Benefits
Unlike traditional portfolios that rely on historical metrics like correlations between different asset classes, geographic regions, sectors, factors, etc. to hold true and offer some semblance of protection in ever-changing markets, buffer strategies offer forward-looking certainty—defined at the point of investment. A buffer strategy can clearly and transparently communicate investment parameters that clients crave, such as upside return potential, downside protection levels of an investor’s choosing, time remaining in an outcome period, and how a fund will react in changing market conditions.
Diversifying When Traditional Diversification Fails
Perhaps most importantly, buffer strategies strengthen portfolios when traditional diversification fails.
In recent years, investors have grappled with unprecedented monetary policy taking rates from extreme lows to highs at unprecedented pace, lowering fixed income return potential, increasing interest rate risk, and doing little to support their equity positions. This was especially true in 2022 when equities and bonds fell together, each posting double-digit losses. This wasn’t a one-time anomaly. As Cboe observed, “The equity-bond correlation has flipped positive. Bonds no longer hedge equities the way they used to. Outcome ETFs offer a direct, contract-based alternative.”
That shift can persist for decades.
Figure 1: Stock/Bond Correlations Turn Back Positive
Source: Morningstar Direct from February 28, 1946 to December 31, 2024. Bonds are represented by the IA SBBI US LT GOVT Index. Equities are represented by the S&P 500 TR USD (1936) Index. Window shift is monthly.
We are certainly not advocating for investors to throw away diversification and ignore the potential benefits of combining different asset classes and investment styles together within a portfolio. We believe the opposite, but humbly suggest that one of the pieces of a traditional, well-diversified portfolio is missing—defined outcome funds. Defined outcome funds can help investors build better portfolios for the long-term.
Behavioral Resilience
But perhaps the most underappreciated benefit of buffer strategies is not found in performance metrics—it is in behavioral resilience.
When investors know their downside is reduced—say by more than 10%—they are more likely to stay the course during turbulent markets. That psychological cushion has a ripple effect: it helps investors avoid panic selling, remain committed to their long-term plan, and ultimately improve outcomes.
As described by Daniel Kahneman and Amos Tversky’s Prospect Theory in 1979, losses have a 2.5x larger impact on an investor's preference than gains. As competent financial advisors will tell you, their greatest responsibility is not picking stocks or timing the markets like an analyst at a hedge fund, but rather keeping their clients invested. More often than not, the real threat to long-term wealth isn’t market volatility, but emotional decision-making. Buffer strategies can help clients avoid impulse reactions, panic selling or trend chasing so that advisors can act as a steady hand, protecting investors from their own worst instincts and keeping them on track toward their financial goals.
III. Category Creators—and Category Leaders
Vest is underpinned by one core belief: investors deserve more certainty—delivered with precision and purpose.
Vest was born out of Y Combinator—the world’s top startup accelerator, and the launch pad for industry disruptors like Airbnb, Stripe, Reddit and Coinbase. In that environment, we listened carefully to what investors and financial advisors wanted and reimagined structured derivatives for the modern portfolio. We built a technology-powered self-managed platform and partnered with Cboe to create the industry's first buffer indexes—laying the foundation for the new category of investments.
From the start, our goal has been to build a better way to invest—one grounded in clarity, precision, transparency, and real-world dependability. That meant moving away from just looking at abstract statistical metrics and instead moving toward engineered strategies that deliver specific, defined outcomes. Not hypothetical diversification in hopes of protection. Actual protection that investors could see in real time.
This endeavor began as a way to provide broader access to sophisticated, structured derivatives that institutions have used for decades and has led to the evolution of a whole new standard. Today, Vest manages over $43B in assets—including $36.7B AUM and $6.6B in non-discretionary AUA—across 250+ products (as of December 31, 2024).
We pioneered Target Outcome Investments® — a new framework that replaces abstract models with engineered solutions. A framework that champions the augmentation of correlation-based diversified portfolios with contract-based certainty. We have built platforms, designed indexes, written white papers, and designed advisor experiences that make outcome-based investing simple, scalable and reliable. Vest didn’t just launch the first buffer fund—we built the intellectual and technological infrastructure that defines the category today.
IV. The Future is Outcome-Focused
Buffer strategies aren’t a gimmick. They’re a novel financial tool. A structural innovation. A behavioral advantage. A modern solution for the new era of portfolio construction that started here at Vest in 2012.
Today, buffer funds have grown into a $62B+ category (Morningstar, March 31, 2025). They are no longer a niche innovation, but a mainstream investment tool used by advisors looking to construct portfolios that are resilient to volatility and aligned with client expectations.
The market has responded. The average advisor using outcome ETFs now allocates 13% of client portfolios to these strategies—proof that they’ve moved from niche to core. (Source: “Outcome ETFs: A Powerful Tool for a Changing World”, BlackRock 2024). And you don’t have to take our word for it, BlackRock recently noted:
- Defined outcome ETF AUM has grown 20x since 2019,
- BlackRock projects the space will reach $650B by 2030,
- The average advisor allocating to these solutions commits 13% of client portfolios.
Figure 2: BlackRock Sees Outcome-ETF Assets Tripling by 2030. Growth to be spurred by advisor adoption and changing market dynamics
Source: BlackRock. Note: 2026, 2028 and 2030 are projections.
As BlackRock CIO Eric Metz put it: “One of the ways to drive home the value of outcome ETFs is to consider a systematic core allocation to them in your portfolio as a buy-and-hold strategy.”
We couldn’t agree more. At Vest, we don’t just design products—we support financial advisors with tools, analytics, and education needed to make outcome-based investing accessible and impactful. We help professionals integrate these strategies into long-term financial plans.
V. Conclusion
This didn’t happen by accident. Target Outcome Strategies® solve a problem that advisors and investors feel acutely — and Vest has led the category from the start. We’ll continue to do what we’ve done since 2012: engineer clarity, deliver outcomes, and define the future of investing.
Disclosures
Options strategies involve risk and are not suitable for all investors. The protection intended by a strategy is not guaranteed and it is possible to lose more than the targeted buffer. The opinions and forecasts expressed may not actually come to pass. This information is as of the date provided, and is subject to change at any time, based on market and other conditions. All content has been provided for informational or educational purposes only. Target Outcome Investments® and Target Buffer Strategies® are registered trademarks of Vest Financial. Investment advisory services are provided by Vest Financial LLC, a SEC registered investment adviser. This communication does not constitute an offer to sell or the solicitation of an offer to buy any security. By providing this information, Vest is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code, or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and exercising independent judgment to determine whether investments are appropriate for their clients.
