PGIM Investments has introduced three innovative strategies to expand its suite of defined outcome ETFs.
Stuart Parker, President and CEO of PGIM Investments.
The new offerings include the PGIM S&P 500 Max Buffer ETF series, the PGIM Nasdaq-100 Buffer 12 ETF series, and the PGIM Laddered Nasdaq-100 Buffer 12 ETF (PBQQ US).
These ETFs are sub-advised by PGIM Quantitative Solutions, PGIM’s quantitative equity and multi-asset investment specialist.
Each fund features a competitive expense ratio of 0.50%, positioning them among the most cost-effective buffer ETFs currently available.
Defined outcome investing is a strategy that tailors the risk-return profile of an asset or index to specific protection and return levels over a defined period, delivering a more controlled investment experience.
These ETFs achieve their defined outcome objectives by utilizing Flexible Exchange (FLEX) Options, which are customizable, exchange-traded contracts guaranteed for settlement by the Options Clearing Corporation.
The strategy typically provides downside protection in exchange for capping potential upside returns. These caps are set at the start of the outcome period based on prevailing market conditions. At the end of the outcome period, the ETFs do not expire but rebalance and reset, offering new buffers and upside caps for subsequent periods, again determined by market conditions.
The PGIM S&P 500 Max Buffer ETF series aims to replicate the returns of the SPDR S&P 500 ETF Trust over a one-year outcome period while maximizing downside protection against losses and maintaining an upside cap of no less than 3%. This series will include 12 ETFs, each listed monthly on the Cboe BZX Exchange.
The PGIM Nasdaq-100 Buffer 12 ETF series is designed to track the Invesco QQQ Trust over a one-year outcome period while providing a 12% downside buffer (before fees and expenses) against losses in QQQ. This series consists of four ETFs listed quarterly on the Nasdaq.
The PGIM Laddered Nasdaq-100 Buffer 12 ETF (PBQQ US) offers a diversified approach by equally allocating assets across the four quarterly Nasdaq-100 Buffer 12 ETFs. This structure reduces timing risk, enabling investors to enter at any point during the year while benefiting from staggered outcome periods.
Stuart Parker, President and CEO of PGIM Investments, highlighted the growing demand for defined outcome solutions, stating, “Investors are increasingly looking for strategies that provide upside market exposure with downside protection. The expansion of our buffered ETF suite solidifies our position as a market leader, delivering comprehensive solutions aligned with investor needs.”
While defined outcome ETFs offer compelling features, investors should be aware of two key dynamics. Due to the time value of options, these ETFs may exhibit lower beta than traditional index-tracking ETFs, potentially underperforming their reference asset in rising markets. Additionally, the protection and caps are specific to the outcome period. Investors who enter mid-period may be exposed to downside risk if the reference asset has appreciated since the outcome period’s start. PGIM addresses these concerns through full daily disclosures, providing transparency on metrics such as remaining cap and buffer levels, downside protection thresholds, and days left in the outcome period.