Buffer Madness

An investor has published a detailed rebuttal to criticism of an earlier piece arguing that options-based strategies—including defined outcome funds and buffered ETFs—fail to deliver superior returns or downside protection compared to passive equities combined with cash. The original analysis examined three Morningstar categories (Derivative Income, Defined Outcome, and Options Trading - Equity Hedged) as a group; the new piece addresses six main criticisms by breaking down performance by category and extending data through April 30. The core finding remains unchanged: 86% of options-based funds underperformed a simple equity-plus-cash combination over 5+ years, and 70% suffered both lower returns AND worse peak-to-trough drawdowns. The investor theorizes that despite lacking compelling data or economic rationale, these strategies retain devoted followers due to a placebo effect—investors perceive protection or enhanced returns that the historical record does not support. The rebuttal systematically addresses category-level performance to test whether one weak performer skewed the original conclusion, using updated data to strengthen the empirical case against the strategy class.