The question
A buffer fund says it limits my losses; a hedged fund, that it falls less than stocks. Did they, and what did I give up?
The idea
- These funds make a specific promise, usually less downside. Two kinds:A buffer fund names an outcome period, often a year. Over it, the fund absorbs the first part of an index's fall (the buffer, such as 10%) and pays the index's rise up to a ceiling (the cap).A hedged-equity fund holds stocks plus protection, usually options (contracts that pay off if prices fall past a set level), aiming to fall less than the market. It is one kind of alternative: a fund built to behave unlike plain stocks and bonds.
- Judge them in three steps:Name the promise exactly.Test it on its own window.Price it: what did the protection cost in return?
- ETFIQ's Promise check does steps 1 and 2, reading Delivered, Partly or Missed. Step 3 is yours.
Worked example
Two windows, each the fund's own. (Examples, not picks.)
FOCT, a buffer fund. Outcome period Oct 20, 2025 to Oct 16, 2026. Buffer: the first 10% of a fall. Cap: 15.09%, before the fee.
- SPY rose 14.88%, under the cap, so the promise was the full rise less the fee.
- Fee 0.85% a year, charged for the days in the period: 14.88 less that fee ≈ 14.04% promised.
- FOCT returned 14.11%. Gap: 14.11 − 14.04 = +0.07 points.
- The check allows half a point for rounding and costs. Delivered.
The market rose, so the buffer was never used. "Delivered" proves the upside only.
HELO, a hedged-equity fund. The 52 weeks to Nov 10, 2026; the S&P 500 fell in 26.
- In those weeks HELO moved 56.8% as much as the S&P 500: its down-week capture.
- A hedged-equity fund delivers at 80% or less; Partly up to 100%. Delivered. (ACIO, at 81.5%, reads Partly.)
Now the price. Over Nov 10, 2025 to Nov 10, 2026:
- HELO returned +4.8%, SPY +11.2%.
- On $10,000: about $480 against $1,120. Protection cost about $600 in a rising year.
Delivered is not the same as cheap. Whether $600 was worth 43% less of the falls is your call.
The common mistake
"Delivered means a good investment." One stated promise held over one window. FOCT trailed SPY's rise by 0.77 points by design, and its buffer was never tested.
A second mistake: "Not measured" means failed. Only 55 of 524 buffer funds had a finished period to test, leaving 84.6% of buffer assets not measured. A blank is a missing test, not a miss.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. A buffer fund's period ended with its index up 6%, under the cap. The promise was that rise less a 0.8% fee. The fund returned 4.2%. Delivered needs a gap no worse than −0.5 points; Partly, no worse than −1.5. What does the check read?Answer: B. Partly. the promise was 6 − 0.8 = 5.2%; 4.2 − 5.2 = −1.0, between −0.5 and −1.5. Not A: −1.0 is worse than −0.5.2. A hedged-equity fund moved 70% as much as the S&P 500 in its down weeks and returned 3% while the S&P 500 returned 12%. What is the fair summary?Answer: D. It kept its promise, and the protection cost about 9 points that year. 70% is inside the 80% line; 12 − 3 = 9 points is the price. Not A: the promise was to fall less.3. A buffer fund shows "Not measured" because its first outcome period has not finished. What can you conclude?Answer: A. Nothing yet: the test has no finished window to read. the promise covers a full period, so nothing is testable until one ends. Not B: a missing test is not a failed one.
Takeaways
- Name the promise, and test it only on its own window.
- Price the protection: compare returns with the market over the same year.
- Delivered is not a verdict on value, and not measured is not a miss.