The Standard & Poor's (S&P) 500, the representative stock index of the United States, has exceeded its all-time high for five consecutive trading days, creating a possibility that the revenue of investors in buffer-type exchange-traded funds (ETFs) may be limited.
A buffer-type ETF is a product that has a buffering mechanism to partially protect against losses up to a certain range compared to the benchmark. If the buffer is 10%, there will be no loss as long as the index does not fall more than 10% below the benchmark. However, buffer-type ETFs also have an upper cap on gains, meaning that even if the stock index significantly surpasses the benchmark, no excess revenue can be expected.
According to the financial investment industry on the 28th, the S&P 500 index in the United States closed at 6,388.64 on the 25th (local time). It rose by 25.29 points (0.4%) compared to the previous day, marking a record high for five consecutive trading days.
Investors in buffer-type ETFs based on the S&P 500 index are not smiling broadly. In the case of 'KODEX U.S. S&P 500 Buffer March Active', the first buffer-type ETF in Korea, the revenue upper limit is set at an S&P 500 index of 6,575. This means that even if the index rises more than 3% from its current level by the March 2026 maturity, the investment profit for buffer-type ETF investors may not increase.
Considering that the fee rate (0.39%) of buffer-type ETFs is higher than that of simple index tracking products, investors may feel more disappointed.
However, if the U.S. stock market turns downward, buffer-type ETFs may be relatively advantageous. In the case of KODEX U.S. S&P 500 Buffer March Active, when the stock market plunged due to the tariff shock from the Donald Trump administration, the decline was limited to 10.5% compared to the closing price on its listing date. This is in contrast to the over 15% drop of ETFs tracking the S&P 500 index.
Considering these characteristics of buffer-type ETFs, the timing of their launch should be monitored. Currently, there are two buffer-type ETFs trading in Korea: KODEX U.S. S&P 500 Buffer March Active and KODEX U.S. S&P 500 Buffer June Active. The range for the lower and upper caps of the buffer for KODEX U.S. S&P 500 Buffer March Active is 5,075–6,575, while for KODEX U.S. S&P 500 Buffer June Active, it is 5,350–7,000.
In simple terms, if it is believed that the U.S. stock market will continue its upward trend, KODEX U.S. S&P 500 Buffer June Active may be more favorable than KODEX U.S. S&P 500 Buffer March Active, which has little room left for the upward cap. Conversely, if a downward shift is expected, KODEX U.S. S&P 500 Buffer March Active, with a larger remaining buffer, would be better.
The exchange rate must also be considered, as the buffer-type ETFs do not protect against foreign exchange losses. If the exchange rate between the won and the U.S. dollar (won-dollar exchange rate) falls, investment revenue decreases regardless of the U.S. stock index.
When KODEX U.S. S&P 500 Buffer March Active was launched, the won-dollar exchange rate was in the 1,460 won range, but it is currently in the 1,380 won range. While the cumulative revenue of the U.S. dollar-based reference asset was 12.63% as of the 24th, the cumulative revenue of KODEX U.S. S&P 500 Buffer March Active is lower at 6.95%, influenced by the decline in the won-dollar exchange rate.
The possibility that the U.S. may demand a strengthening of the won (a decrease in the won-dollar exchange rate) poses a risk. Kwon Ah-min, a researcher at NH Investment & Securities, noted that "despite recent exchange rate volatility, the trend of a weaker dollar is expected to prevail in the second half of the year," adding that "given the inclusion of exchange rates in official negotiations between the U.S. and Korea, and considering the new Korean government's drive to revitalize the stock market, it is necessary to be cautious of a steep depreciation of the won."