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You are already a step ahead.
If you've been allocating to buffer funds, you already understand the most important thing in portfolio construction: avoiding deep losses is what drives long-term compounding. A 30% drawdown demands a 43% recovery just to get back to zero. Skip the drawdown and you get to start the next bull market from a higher base. Advisors who built buffer allocations into client portfolios recognized that.
The question is whether a buffer fund is the right way to get that protection?
Is a buffer the right way to protect against losses?
A buffer fund is an options package. The fund holds market exposure, buys a put spread to protect against a defined band of losses, and sells call options to pay for that put spread. A "12% buffer" for example gives you protection between 0% and roughly -12% on the downside, and might cap your upside at somewhere around 13.0%, over a one-year outcome period.
That structure creates four distinct zones of performance.
In the buffer zone, where the market returns somewhere between 0% and -12%, the buffer is doing exactly what it was designed to do. Your client is protected.
Between zero and the cap is where the buffer fund earns its keep in up markets. If the market returns 5%, your client gets 5%. If it returns 10%, they get 10%. Performance tracks the market one-for-one, minus the fund expense. This is the participation zone — it works exactly like owning the index, up to a point.
Above the cap is where the cost shows up. If the market returns 20%, your client gets 13.5%. If it returns 40%, your client still gets 13.5%. The sold calls have a fixed strike, and once the market moves past it, your client stops participating entirely. In a year like we just had, that's not a minor haircut. That's half the return left on the table or more.
Below the buffer is where the math gets uncomfortable. Once the market falls past the buffer threshold, say beyond -12%, the protection is fully exhausted. From that point on, your client loses dollar-for-dollar with the market, just like an unprotected portfolio. The protection worked for the first 12 points and then disappeared, which is exactly when your client needed it most, as those more significant losses require ever more significant gains in order to recover. Outside the buffer and participation zone, your client is either capped or unprotected.
What is Brandywine Doing Differently?
The entire buffer fund industry is built on an assumption that nobody questions: that the only way to pay for downside protection is to give up your upside. Buy puts, sell calls, accept the cap. Every buffer fund on the market accepts this as a given.
It's not.
At Brandywine, we employ an innovation called “Risk Replacement” to pay for the puts with an uncorrelated return stream. Our funds hold the same market exposure and the same put protection as a buffer fund, but instead of selling calls to cover the cost, we allocate to a basket of proprietary trading strategies we've developed over 40 years. These strategies are uncorrelated to equity markets, which means they generate return independently of whether stocks go up, down, or sideways. That return aims to pay for the puts.
The implications of that single change are significant. Your client keeps full exposure to the upside because there are no sold calls creating a ceiling, while maintaining downside protection that extends below the lower range of the buffer zone.
12% Buffer vs. Brandywine Large Cap
We modeled expected performance across 18 market return buckets, everything from a 45% crash to a 40% surge, using rolling one-year returns and actual strategy data going back to 1991.
At the +40% bucket, Brandywine is ahead by 27.2%. Across the full distribution, Brandywine wins 16 out of 18 buckets. The only two where the buffer comes out ahead sit in that narrow protection band between 0% and roughly -12%, the one zone the buffer was specifically designed for. Even there, the biggest buffer advantage in any single bucket is 2.6%.
The tradeoff is 2.6% outperformance in the buffer's zone versus 27.2% underperformance in the strongest market.
"Sure, but that is why buffers are only a piece of my portfolio"
Exactly. Buffers are designed to protect within their specific band, which is why most advisors use them as one component alongside passive or active index exposure. By combining an allocation to a buffer along with a benchmarked fund, you get targeted protection in that narrow range while staying close to the benchmark overall.
If that's how your portfolio is structured, you're thinking about this the right way. So let's explore it. How does that same chart look for a more standard 70% benchmark / 30% buffer split?
70% Russell 1000 & 30% Buffer vs. 100% Brandywine Large Cap
This comparison matters because it reflects what most advisors are actually running, some blend of index exposure and buffer protection. Brandywine matches or beats the blend in all 18 out of 18 return buckets.
There is no market environment where the 70/30 blend is expected to produce a better outcome
"When risk mitigation funds such as buffer and defined outcome funds were introduced, they were the only fund option that proactive advisors and investors had to maintain market exposure with downside protection. With Brandywine’s innovation of ‘Risk Replacement’ that is no longer the case. Those same advisors and investors can now replace those funds with Brandywine’s Risk Replacement Funds to provide investors with both reduced risk and increased returns."
About Brandywine Asset Management
Founded in 1982, Brandywine Asset Management has a long history of investment research, innovation and trading. This includes Brandywine’s development of Return Driver based investing in the 1990s, which was described in Michael Dever’s best-selling book Jackass Investing: Don’t do it. Profit from it., and Risk Replacement, which serves as the basis for the Brandywine Enhanced Strategies. Over the past four decades, some of the world’s largest investors, including money center banks, corporate pension plans, hedge funds and large family offices have entrusted their money to Brandywine.
Footnotes & Disclaimers
Performance Data. "Strategy Performance" for Brandywine Large Cap includes performance that has been independently verified by Alpha Performance Verification Services for the period January 2013 through June 2023, plus the actual performance of the Brandywine Large Cap strategy as reported beginning in July 2023. "Since Inception" starts in January 2013. Performance prior to July 2023, although verified, is considered hypothetical.
Expected Performance Charts. The expected performance comparison charts in this article use rolling 1-year returns based on historical and actual trading data since 1991. The Russell 1000 uses published index returns. The buffer fund is modeled from its upside cap (+13.5%) and downside buffer (-12.0%) parameters, with a -0.5% annual expense. Brandywine Large Cap reflects the strategy's actual performance during market periods that fell within each return bucket from January 2013 onward, and hypothetical performance for the period 1991 through December 2012. The hypothetical performance for 1991 through 2012 was used to construct the expected return profile of Brandywine Large Cap across the 18 market return buckets shown.
Strategy Construction. The Brandywine Large Cap strategy combines significant exposure to the Russell 1000 and related equity indexes, which may be obtained through the purchase of individual equities, mutual funds, ETFs or futures, with Brandywine's Risk Replacement methodology. This includes the performance of the strategy's put option protection, which assumes the quarterly purchase of one-year put options covering a portion of the account value, and an investment in Brandywine's Return Driver Diversifier.(1) Performance for the strategy throughout the verified and actual period is reduced for fees and expenses.
Return Driver Diversifier. The actual performance of Brandywine's Return Driver Diversifier during the verified period is based on the actual trading performance of Brandywine's futures trading programs from January 2013 through June 2018 and June 2020 through February 2023, and actual trading beginning in May 2023. The tested performance includes the periods July 2018 through May 2020, and March through April 2023. All performance is based on the performance of an initial $10,000 investment, with dividends and other earnings reinvested and based on monthly settlement prices for all investments in the strategy.
Material Risks. The effect of material market or economic conditions on the strategy's performance may result in performance that varies from that of its benchmark index. The use of put protection may result in the strategy losing less when the benchmark index falls, and in periods of strong benchmark index performance the strategy may underperform if the performance of the Return Driver Diversifier does not offset the losses incurred by the put protection. Potential investors are encouraged to contact Brandywine with any questions related to the performance of the strategy in order to better understand how the risks and limitations may affect investment decisions to the extent they may not be reflected in the actual and hypothetical performance shown.
(1) A "Return Driver" is the primary underlying condition that drives the price of a market. The "Return Driver Diversifier" is a portfolio comprised of numerous Return Drivers trading across dozens of uncorrelated markets. As espoused by modern portfolio theory, this enables the creation of a lower risk portfolio used to pay for the cost of the strategy's put protection and is a primary element of Brandywine's innovation of Risk Replacement.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. THERE IS THE RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THIS STRATEGY. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
