As Market Volatility Rises, Goldman Sachs Launches a Suite of Downside Protection ETFs

Goldman Sachs Asset Management has entered the growing market for buffer exchange-traded funds (ETFs) as concerns about stock market volatility increase.

‍

On Tuesday, the firm introduced the Goldman Sachs U.S. Large Cap Buffer 3 ETF (GBXC), the third in a series of buffer funds launched in recent months. Each fund resets quarterly, giving investors a new option every month. This latest fund follows the GS U.S. Large Cap Buffer 1 ETF (GBXA), which launched in January, and the GS U.S. Large Cap Buffer 2 ETF (GBXB), introduced in February.

‍

FundTickerLaunch MonthGS U.S. Large Cap Buffer 1 ETFGBXAJanuaryGS U.S. Large Cap Buffer 2 ETFGBXBFebruaryGS U.S. Large Cap Buffer 3 ETFGBXCMarch

‍

Buffer funds fall under a broader category known as defined outcome products, which have attracted significant investor interest in recent years. These funds use derivatives, often in the form of equity-linked notes, to trade some potential market gains for downside protection.

‍

Goldman’s new buffer funds offer protection against market losses ranging from 5% to 15%, based on the performance of the SPDR Portfolio S&P 500 ETF (SPLG). In return for this protection, the funds cap potential gains between 5% and 7%.

‍

According to Brendan McCarthy, Global Head of ETF Distribution at Goldman Sachs Asset Management, the 5% to 15% range represents a “sweet spot” for investors. He explained that many clients are willing to tolerate small losses but want protection from larger declines.

‍

A distinguishing feature of Goldman’s buffer funds is their quarterly reset, while most competitors reset annually. Additionally, these funds offer an extra layer of protection—if the market drops by approximately 25%, the total losses are capped at around 15%. This added buffer provides further downside protection beyond the initial 5-15% range.

‍

How Buffer Funds Work

Buffer funds are designed to be purchased at or near their reset date and held throughout the entire outcome period. However, the fund’s value may fluctuate during the period due to changing options prices. Investors may see losses during this time, but as long as they hold the fund through the reset date, they will receive the specified protection and return parameters.

‍

Stuart Chaussee, a registered investment advisor in Beverly Hills, California, frequently uses buffer ETFs from various issuers. He emphasized that while the funds’ values may drop temporarily, the protections will apply if investors hold them until the next reset.

‍

Over time, the impact of buffer funds can compound. For example, if the market falls sharply during one quarter but recovers the next, the buffer fund benefits from the higher starting point during the rebound.

‍

“These are meant to help you sink less deeply and recover faster,” said Oliver Bunn, Portfolio Manager and Global Head of the Quantitative Investment Strategies Alternatives team at Goldman Sachs Asset Management.

However, the opposite is also true—if the market steadily rises and exceeds the upside cap, the buffer fund’s long-term returns will lag behind the broader market.

‍

Competition and Fees

Goldman Sachs faces competition from other major players in the buffer ETF space, including Innovator, First Trust, and Allianz. The Goldman buffer funds charge a 0.50% management fee, which is lower than many comparable products in the market.

‍

Timing and Market Environment

Launching an ETF is a complex process that takes months, making it difficult to time product releases with specific market conditions. However, Goldman’s buffer ETFs are arriving during a period of increased market uncertainty, which may drive investor interest.

‍

On Monday, the S&P 500 dropped 1.76%, marking its worst session since December. The index is currently 4.84% below its all-time high, increasing concerns about further market declines.

‍

Chaussee noted that clients often inquire about buffer funds when market volatility increases. With rising uncertainty and high stock valuations, investors are more likely to seek downside protection.

‍

“As uncertainty grows and stocks remain expensive, having some protection on becomes increasingly appealing,” Chaussee said.

‍