Capturing the Markets

Buffered Equity Strategies in 2020

When we launched our TrueShares Structured Outcome ETFs earlier this year, this represented an innovation in buffered strategy ETFs. Specifically, our strategy was designed for investors who were seeking more upside participation potential than was available in capped strategies.

As 2020 has provided plenty of market swings since we launched this ETF series, we now have a few months of data that allows us to see how the strategies have performed in both up and down markets. We’ll explore that performance here on both on a standalone basis as well as looking how we’ve performed vs capped structures. Let’s start with exploring up market performance first.

Upside Capture

Our first TrueShares Structured Outcome ETF listed on the Cboe BZX exchange on July 1st this year. Its structure provided an initial 10% downside buffer1 and is expected to capture 82-84% of the upside of S&P 500’s performance.2 After launch, the market experienced a steady rise until September 2. You can see the chart for JULZ and SPY (iShares S&P 500 Index ETF) below. That chart shows an 11.66% return for JULZ and a 15.19% return for SPY (representing a 77% participation rate).3,4 That means that investors in JULZ were already capturing 92% of their expected outcome even though the structure still had 10 months left! That offers many opportunities for investors to lock in gains, adjust buffer levels, or simply go to cash. Let’s compare this to a Capped Structure.

One of the leaders in the Structured Outcome space is Innovator Funds. The original provider of defined outcome ETFs, they utilize a capped strategy approach with their funds. Their July Buffered S&P 500 ETF was BJUL and it delivered an initial 9% buffer with a 17.1% cap on upside performance for the latest investment period. They reset their structure on June 30, 2020 and faced the same market conditions. How did the capped structure perform over this period? You can see in the chart above. Adding that one day3 means that the S&P 500 returned 16.00% from 06/30/20 to 09/02/20. Over that same period BJUL returned 7.29%.3,4 So, while the capped structure will provide 1:1 performance with the S&P 500 up to the stated cap, it only does that at the end of the investment period, so June 30, 2021 in this case. In the meantime, the capped structure only provided 46% of the upside capture, meaning that investors in that product will have to wait until the end of the period to realize most of their gains, assuming the market did not pull back, which it did.

Buffered Strategy 101

So why do the intra-period returns for buffered strategies not match the market 1:1 for capped strategies or mirror expected participation rate perfectly for uncapped strategies? It’s related to the fact that both strategies utilize long- and short-option positions to create the market exposure. For the capped strategy, the cap structure tends to weigh down the upside returns more heavily, especially the further away the fund is from the end of the investment period. The uncapped strategy is less restricted by its option positions, so the expectation is that it should track the underlying market more closely during the investment period.

Turning our focus to downside performance, the structure of the capped and uncapped portfolios should provide similar buffering on the first 10% of losses of the reference index/ETF. These structures faced a more challenging environment in September. The September TrueShares Structured Outcome ETF (SEPZ) listed and started its investment period on September 1st, delivering an initial 10% downside buffer1 while providing an 87-89% upside participation rate in the S&P 500.2 After launch, the S&P 500 immediately sold off to September 23, 2020. You can see the chart for SEPZ and SPY over those 3 weeks above. SEPZ sold off with the market but buffered a small portion of the loss. The S&P was down -8.50% and SEPZ was down -5.91%.3,4 That means that the structure offset 30% of the underlying losses even though the ETF still had over 11 months to go in its current investment period. It is important to note that if the market were to end at the level on 9/23/20, investors should expect the fund to have a return of 0% (gross of fees).

Looking at the capped structure, you see a similar outcome. Innovator’s September Buffered S&P 500 ETF (BSEP) provides a 9% buffer and a 17.90% cap on gains. You can see that funds returns from its 08/31/20 structure reset to 09/23/20 in the right chart above. Over that period, the S&P was down -7.64% and BSEP was down -5.37%.3,4 That shows the cap structure removed 30% of the underlying losses even though there was still over 11 months to go in the investment period.

This shows that these two structures both provide a similar buffering experience over the first 10% of losses. Beyond -10% the structures’ return profile differ, but we do not have a real-world example of that to demonstrate to date.


Both the Capped and Uncapped Structures offer buffered exposure to the S&P 500. When focusing on the upside participation potential, it is our belief that the lumpy nature of the historical returns of the S&P 500 (with return “peaks” and “valleys”) make it more beneficial to own the TrueShares Uncapped structure as it is more likely to deliver expected returns on the upside early in the investment process lending flexibility to investors.


1. In the event an investor purchases Shares after the date on which the options were entered into or sells Shares prior to the expiration of the options, the buffer that the Fund seeks to provide may not be available and there may be limited to no upside potential. The Fund does not provide principal protection and an investor may experience significant losses on its investment, including the loss of its entire investment.

2. Estimated upside market participation rate represents the relative exposure of the fund’s call options to participate (gross of fees) in the potential upside movement of the S&P 500 Price Index. This will be determined by the relative price of call and put options at the start of the investment period (12-month period). There is no guarantee that the fund will be successful in providing these outcomes or objectives in any period.

3. Investment period start dates differ for TrueShares and Innovator products shown. As a result, the measurement periods shown above show a one-day difference at the beginning of the period. For TrueShares, the fund’s investment return shown is based on the closing market value on the first day of the investment period to the closing price on the last day of the period shown.

4. Source: Bloomberg, as of 11/6/2020. Performance data quoted above represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed or sold in the secondary market, may be worth more or less than the original cost. Any performance shown is cumulative performance. Index performance does not represent True-Shares fund performance. It is not possible to invest directly in an index. All performance figures assume reinvestment of dividend and capital gains at net asset value; actual returns may differ.