The largest buffer funds track the returns of major stock indexes like the S&P 500, capping gains over a one- or two-year span, while also promising to shield against losses if the index slumps.

In order to reap the full protection and potential upside, investors typically need to participate in the fund from the very beginning. After the fund’s outcome period ends, they can redeem their shares or roll them into the next cycle.

The “first way to improve our returns is to cut down on the amount of fees that we’re paying,” Ford said.

Assets in buffer ETFs have surged since Innovator launched its first such fund in 2018. Other money managers including BlackRock Inc., Fidelity Investments and Allianz SE have since debuted their own offerings.

Yet skeptics have argued that the funds may not be able to produce the same level of returns should the Federal Reserve continue to lower interest rates.

UConn is keeping exposure to two long-only equity managers, Ford said, as he continues to see the potential for outsized returns from stock picking.

“They’re the ones who are going to pick the best single names and we’ll take over responsibility for hedging,” he said. “What we found is that a lot of hedge funds have less upside and they can be good at dampening volatility, but we’re paying enormous fees to get lower return.”

UConn’s endowment returned 12.1% in the most recent fiscal year ended June 30, compared to a 13.5% gain for the Innovator U.S. Equity Power Buffer ETF, the manager’s largest such product.

“Hedge funds 25 or 30 years ago, they could do something, they could deliver something that was unique because there weren’t a ton of them,” Ford said. “Today you’ve got a number of funds that are more dependent on data and or leverage than they are on actually finding uncorrelated opportunities.”

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