Defined outcome, also known as buffer, ETFs are undisputed success stories. Designed to deliver true downside protection while addressing some of the risks of covered call ETFs, there were 420 defined outcome ETFs with a combined $78 billion in assets under management at the end of 2025.
The latter figure has increased this year, highlighting advisors’ and clients’ affinity for these funds. Broadly speaking, that faith appears to have been rewarded. While buffer ETFs aren’t foolproof products (nothing is), they do mitigate some of the risks of covered call ETFs while, again broadly speaking, delivering upon their state objectives.
Consider the findings in Morningstar’s Mind the Gap study, which per usual addresses myriad topics, including a fresh look at the performances of defined outcome ETFs.
“Maybe the most eye-opening finding—apart from crypto ETF investors’ poor results—was how successful investors in buffer ETFs were in capturing their total returns: Over the three-year period ended Dec. 31, 2025, their average dollar earned slightly more than the ETFs gained in aggregate, suggesting they deftly timed their transactions,” notes the research firm’s Jeffrey Ptak. “Moreover, they out-earned the ETFs by an even larger extent over the five years ended Dec. 31, 2025.”
Timing Mattered
One of the drawbacks of buffered ETFs – and this isn’t a risk of covered call ETFs – is that timing matters. Said another way, if defined outcome ETF A is has as timeline of January 2027 to December 2030, clients are likely to harness the best results by buying the ETF as early as possible and holding it up to its expiration date.
“What explains the extent of investors’ success? It appears to boil down to two factors. First, flows clustered around the month in which the outcome period began and ended,” adds Ptak. “(Buffer ETFs target a return within a designated outcome period. As such, they’re designed to be bought at the start of the outcome period and held to the end of it.) This made the demand pattern more like buy-and-hold than other investment types where flows might be more irregular or episodic.”
Those time constraints aren’t necessarily bugs of buffer ETFs, but they sure are features and it’s one advisors can’t afford to gloss over. It’s also one reason why inflows into buffered ETFs are largely concentrated in the specified month and almost non-existent over the other 11 months.
Autocallable ETFs, such as the Calamos Autocallable Income ETF (CAIE), aren’t time-constrained like that and they accomplish many of the same objectives, including damping risks of covered call ETFs, as do defined outcome funds.
Mind the Cap
If there’s one thing advisors must do when discussing defined outcome ETFs with clients it’s to remind them that these funds have trade-offs. The big one is that in exchange for downside protection, there’s upside sacrifice (also a risk with covered call ETFs).
As Ptak notes, as of last month, the average buffer ETF caps returns by 13% over its come period. So if that fund is linked to the S&P 500 and that index returns 10% of the fund’s outcome period, the fund itself will likely rise by just 8.7%. That’s an inevitability that cannot be ignored. Still, defined outcome ETFs have largely done what they’re supposed to do, but it’s on advisors to understand “terms and conditions.”
“Encouragingly, buffer ETFs appear to have worked as advertised, delivering on the terms that define the outcome range,” concludes Ptak. “What’s more, investors have utilized them in the intended way, capturing the ETFs’ full total returns and then some by adhering to the outcome periods and maybe thanks to a dollop of luck as well.”
