Following my July 22, 2025 article “Financial Fairy Tales: Buffered, Overlay and Defined Outcome Funds,” the team at ABR Dynamic Funds shared their July 2024 analysis of these increasingly popular investment vehicles. Their research perfectly illustrates a fundamental Wall Street truth: the more complex a product appears, the more investors should scrutinize what they’re actually buying—and what they’re paying for it.
The “100% Protection” Promise
Consider a recent product launch that caught investors’ attention: S&P 500 exposure with complete downside protection and a 9.81% cap on gains over one year. At first glance, this sounds like the holy grail of investing—upside potential with none of the risk.
But as ABR Dynamic Funds demonstrated, this “can’t lose” proposition isn’t quite what it seems.
Unwrapping the “Boomer Candy”
ABR’s team used the term “Boomer Candy” (coined by The Wall Street Journal) for these zero-downside strategies, and their analysis reveals exactly what investors are purchasing. For every $100 invested, here’s the reality:
The Simple Recipe:
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$95 invested in Treasury bills (earning the risk-free rate of ~5%)
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$5 invested in an S&P 500 call spread (specifically, a 100/110 call spread)
After one year, before fees, this combination yields $100-$110, depending on S&P 500 performance. The T-bills guarantee your principal back, while the call spread means limited upside participation.
The catch? You could easily construct this strategy yourself for a fraction of the cost.
Five Hidden Drawbacks You Need to Know
1. You Can Still Lose Money
Despite marketing claims of “100% protection,” breaking even means losing money when risk-free rates are 5%. You’re effectively paying $5 for an option that could expire worthless, making your “protected” $100 return worth $95 in opportunity cost terms.
2. The Fee Structure Is Extraordinary
Assuming a typical 70 basis point annual fee:
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You pay 70bp on $95 worth of T-bills (available elsewhere for nearly free);
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This means you’re paying an effective 12%+ fee on the $5 option component to get to 70bps on the $100 investment;
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With only 0.25 beta to the S&P 500, you’re paying 2.80% for every 1.0 unit of S&P 500 exposure.
Compare this to free S&P 500 exposure through funds like Fidelity’s ZERO Large Cap Index Fund.
3. Diversification Is an Illusion
Despite bond-like return caps, these products maintain high correlation to the S&P 500. You’re not buying alternative exposure—you’re buying expensive, limited equity exposure that moves with your existing portfolio.
4. Massive Opportunity Cost
Since 1990, this strategy would have delivered approximately 4.1% annualized returns versus 10.5% for the S&P 500. That’s a 6.4 percentage point annual drag on performance.
5. Timing Flexibility Is Overrated
Even with perfect five-year investment horizons, ABR’s research struggled to find scenarios where these products delivered compelling risk-adjusted returns.
The Psychology Trap
The behavioral aspect may be the most insidious. These products exploit myopic loss aversion—our tendency to fear short-term losses more than we value long-term gains. Once invested, several psychological factors work against you:
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Market crashes make the protection seem invaluable, encouraging rollovers.
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Market gains fuel fears that a downturn is “due,” keeping you trapped.
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Media headlines constantly provide new reasons for concern.
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Product sponsors host webinars reinforcing these fears.
The S&P 500 spends nearly half its time within 5% of all-time highs, yet historically delivers the same forward returns from these levels as any other starting point. Timing the market using these products is a fool’s errand.
The Bottom Line: DIY for Pennies on the Dollar
Wall Street’s structured products represent financial engineering at its most profitable—for Wall Street. These “innovative” solutions are simply repackaged combinations of basic building blocks (bonds and options) that any investor can access directly.
Before swallowing any more “Boomer Candy,” ask yourself:
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Do I understand what I’m actually buying?
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Could I construct this myself for less?
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Am I paying premium fees for basic market exposure?
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What’s the real opportunity cost of this “protection”?
The wrapper may look appealing, but the ingredients are neither exotic nor worth the premium price. Your portfolio and long-term wealth deserve better than expensive candy masquerading as a sophisticated investment strategy.
#Hidden #Costs #Buffered #Funds