An Inside Look at Buffer ETFs with Jeff Chang

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Aug 23, 2025

Join Jeff Chang from Vest Financial, where he crafts innovative investment strategies including popular buffer ETFs. He dives into how these ETFs offer downside protection while allowing upside participation, especially relevant after the challenges of 2022. Jeff discusses their mechanics, focusing on the first 10-15% of market drawdowns, and how behavioral finance plays a role in making hedging accessible. Discover the future of these strategies and their potential impact in the crypto space.

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ANECDOTE

Lehman Collapse Sparked Vest's Idea

Vest started after the Lehman collapse to remove issuer credit risk from structured products by putting hedges inside a fund.
Jeff Chang and his cofounder turned bank-hedged notes into option-based funds to give investors direct ownership of the hedge.

INSIGHT

Buffers Protect The Most Likely Drawdowns

Buffer ETFs protect the first X% of downside while capping upside to pay for that protection.
Protecting the first 10–15% captures the most frequent drawdowns and balances use of insurance premium vs. realized benefit.

ADVICE

Buy Protection At Market Highs

Buy buffers near market highs to protect gains rather than after large declines when protection is expensive or pointless.
Use resets to protect both your original capital and any gains made during the prior term.

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Defined outcome ETFs have exploded in popularity, offering investors a way to combine downside protection with upside participation. In this episode of Excess Returns, we sit down with Jeff Chang of Vest Financial to break down the mechanics of buffer ETFs, how they fit into portfolios, the critiques they face, and where this space is headed. Jeff shares the origin story of Vest, the innovations that made these strategies accessible and how Buffer ETFs work behind the scenes.

The origin of Vest and the impact of the Lehman collapse on product design
How buffer ETFs work and why they focus on the “first 10–15%” of drawdowns
The behavioral finance angle: making hedging simple and accessible
Why 2022 highlighted the weaknesses of traditional 60/40 portfolios
The mechanics of buffer ETFs: options structures and resets
Popular buffer levels and how investors are using them
Addressing critiques: costs, beta instability, and comparisons to cash or commodities
The scalability of these strategies and potential market impact
Behavioral vs. quantitative advantages of defined outcome funds
Future developments, including applications to crypto and higher-volatility assets
Jeff’s lessons on investing, risk management, and staying invested

00:00 – Introduction and the growth of defined outcome strategies
02:00 – The genesis of Vest Financial after Lehman’s collapse
09:00 – Explaining buffer ETFs in simple terms
14:00 – Who uses these strategies and why 2022 was a turning point
18:00 – Mechanics of resets and protection at market highs
22:00 – Range of buffers, caps, and investor demand
27:00 – The options structures behind buffer ETFs
30:00 – Liquidity, scalability, and market impact considerations
34:00 – How investors are using buffers in portfolios
38:00 – Tax efficiency inside the ETF wrapper
39:00 – Addressing critiques: cash, commodities, and costs
47:00 – Are these strategies more behavioral or quantitative?
48:30 – The future of buffer strategies and expansion into crypto
53:00 – Jeff’s contrarian investing belief
54:00 – The one lesson Jeff would teach every investor