Finance

What to know before investing in buffer ETFs

Published

10 months ago

August 18, 2024

Business Finance News

Investors may want to consider buffer ETFs to hedge the recent market volatility.

Bruce Bond, CEO of Innovator ETFs, sees an opportunity in buffer exchange-traded funds to offer some protection from the market’s downside.

“This [strategy] fits a group of people that are interested in getting exposure to the market, but not taking the full risk of the market,” Bond told CNBC’s “ETF Edge” on Wednesday.

Innovator ETFs issue monthly buffer ETFs. Their August ETF is under the ticker PAUG and offers 15% downside protection.

“If someone wants to invest in the S&P 500, they can get right in and do that,” Bond said. “They have 15% protection on the downside, and they have 12.8% opportunity on the upside.”

Bond recommends investors hold these ETFs until the end of the year, as the funds are constructed around one-year options within the portfolio.

“At the end of the year, the options are fully valued, and then we reset it for a following year,” Bond said. “Next August, they would fully value, then we would reset it for another year.”

Index Fund Advisors’ Mark Higgins expressed his skepticism of strategies like buffer ETFs that allow investors to hedge volatility.

“My concern would be a lot of investors are creating a very expensive solution for what is ultimately a simple problem,” the senior vice president at Index Fund Advisors said in the same segment. “They need to be more comfortable with the normal volatility of markets.”

Higgins believes there are cheaper solutions to navigate uncertainty in the markets — the cheapest being not looking at your portfolio too often and talking with your advisor before making any drastic moves out of surprise or fear.

“I think financial advisors that are doing their job can provide the calm,” Higgins said.

Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

2 days ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

2 days ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”