PGIM, the global investment management business of Prudential Financial, has announced the launch of two separate laddered ETFs that will equally invest in two defined outcome ETF series the firm launched this year.

In January, the firm announced the launch of the PGIM U.S. Large-Cap Buffer 12 ETF series and the PGIM U.S. Large-Cap Buffer 20 ETF series. The 12 series will have a 12% buffer complemented with an almost 16% cap, while the other will have a 20% buffer with a slightly more than 12% cap. 

A defined outcome fund, or a buffer ETF, protects the initial investment against a certain percentage of loss. However, to accommodate that buffer it also has a cap that limits the amount of upside potential for the fund.

The original plan was to launch 12 funds in each series every month for the rest of the year. However, advisor demand forced the firm to launch all the products by June 2.

To capitalize on that success, this week PGIM launched the PGIM Laddered Fund of Buffer 12 ETF (BUFP) and the PGIM Laddered Fund of Buffer 20 ETF (PBFR). Traditionally, laddered funds allocate portions of the total investment across different assets with staggered maturity dates, reflecting the maturities of the options used in the buffering strategy.

In this instance, it involves investing in 12 separate buffer ETFs which each mature in their own respective month. The PGIM Laddered Fund of Buffer 12 ETF invests equally in all the funds in the PGIM U.S. Large-Cap Buffer 12 ETF series, and the same is true for the PGIM Laddered Fund of Buffer 20 ETF and the PGIM U.S. Large-Cap Buffer 20 ETF series, according to the firm.

The new ETFs are not defined outcome ETFs, nor are they actively managed, according to the firm. They simply have the 12 buffer ETFs allocated equally within them. 

Advisors were trying to take full advantage of the defined outcome ETFs but were only getting about six to eight of them within their portfolios, according to Matt Collins, head of ETFs and vice president at PGIM Investments. The ladder ETFs give them the opportunity to access all 12 funds through one product, he added. 

“From their perspective it’s slightly easier for them to collapse those positions into those equal-weight ladder ETFs and you get, generally speaking, the same dynamics that exist if you hold it individually,” he said in an interview. “You can tell that those users that know those buffer ETFs are starting to collapse them into those packaged products.”

There are several laddered products in the market currently, and interest in them is particularly hot right now. However, many are priced between 89 and 105 basis points, Collins said. PGIM’s two ETFs have a net expense ratio of 50 basis points.

“We felt like that there was a pretty unique opportunity to come in drastically lower than what’s out there currently,” he said.

The laddered ETFs serve advisors in two ways, according to Collins. First, they allow the advisor to move their more risk-averse clients up on the equity scale. Second, the laddered ETFs can help advisors take gains without giving up their upside.

The two ETFs are currently live and available through most independent broker-dealer platforms.