Autocallables are gaining in popularity. You may be hearing them calling your name. As an equity-linked, structured financial instrument with certain characteristics of a bond, autocallable notes are designed to provide periodic income payments and the return of principal assuming certain conditions are met for the underlying reference index. You might be asking yourself, is this something I can access, too?

Traditionally, investors could only access autocallable notes by purchasing them directly through a broker. Today, a new avenue exists: investors can gain diversified exposure to portfolios of these autocallable notes through ETFs. Two such ETFs are the TrueShares S&P Autocallable Income ETFs (PAYH & PAYM), which offer potential efficiencies and advantages over single autocallable notes or other types of portfolios of notes.

While all investments have risks, direct ownership of autocallable notes come with certain drawbacks such as single issuer credit and concentration risk, lack of liquidity, reinvestment risk and tax inefficiency. Plus, manually managing a portfolio of autocallables can come with operational headaches, with the investor constantly monitoring dozens of underlying assets and dealing with continuous reinvestment, significant administrative hurdles, and upfront costs and investment barriers. These drawbacks can be potentially mitigated by investing in an ETF of autocallables instead.

An autocallable ETF offers diversification by mixing notes with varying structural details, like different maturities, different barrier levels, and different coupon yields. The ETF structure takes the potentially choppy income from single autocallables and aims to turn it into steady cash flow by buying multiple notes at different times, ensuring a system of staggered dates. This combination creates a blended potential risk-reward profile that seeks to optimize the portfolio for varying market outcomes.

An ETF structured specifically to hold and manage a portfolio of autocallables, like TrueShares S&P Autocallable Income ETFs (PAYH & PAYM), transforms what would be a labor-intensive process into much simpler, single-ticker solutions. With PAYH and PAYM, the investor benefits from having active, professional portfolio management that automates the call-and-reinvest cycle and therefore aims to eliminate reinvestment risk.

These Funds aim to generate high monthly income while reducing downside risk of autocallables as well as automating the management process, lowering reinvestment risk, maximizing diversification*, and offering the liquidity and tax efficiency of an exchange-traded product. 

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To learn more about PAYH and PAYM, visit https://www.true-shares.com/autocallable-income-etfs 

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Fund Disclosures

The Funds use complex structured strategies that can lose value and may not be suitable for all investors.

*Diversification does not eliminate the risk of experiencing investment losses.

The funds are distributed by Paralel Distributors LLC. Paralel is not affiliated with TrueMark Investments, LLC.

The investment objective of TrueShares S&P Autocallable High Income ETF (the “Fund”) is to generate high monthly income while reducing downside risk. The investment objective of TrueShares S&P Autocallable Defensive Income ETF (the “Fund”) is to generate moderate monthly income while reducing downside risk.

These products employ a complex investment strategy involving derivatives and structured-product like payout profiles and may not be suitable for all investors. The tax treatment of derivatives and structured-outcome strategies may be complex. Investors should consult a tax advisor regarding their individual circumstances.

The funds seek high income, but predictable income is not a guarantee and actual income may decline in certain market conditions. A decline in the index or failure to meet certain performance thresholds may reduce or eliminate monthly income. There is no assurance that the Funds’ investment strategy, including their use of derivatives, contingent downside features, or income-generation techniques, will be successful. The strategy may not achieve its objectives, may not perform as expected in different market environments, and could result in investment losses.

The funds are new with no operating history.

An investment in TrueShares S&P Hedged Structured Income High ETF and TrueShares S&P Hedged Structured Income Moderate ETF is subject to numerous risks, including possible loss of principal. The ETF is subject to the following principal risks: Authorized Participants, Market Makers, and Liquidity Providers Concentration Risk associated with ETFs; Equity Market Risk; Management Risk; Market Capitalization Risk; Market Risk; New Fund Risk. A full description of risks is in the prospectus.

TrueShares S&P Autocallable High Income ETF and TrueShares S&P Autocallable Defensive Income ETF is also subject to the following risks:

• Coupon payment risk: Coupon payment risk refers to the danger that the issuer of a bond may default on its interest payments (credit risk) or that the investor will not be able to reinvest those payments at a favorable rate (reinvestment risk). This risk is present with any fixed-income security that makes regular coupon payments.
• Autocall barrier risk: Autocall barrier risk is the possibility of losing money on an autocallable financial product because the underlying asset’s value falls below a specified barrier level.
• Maturity barrier risk: If the Underlying Reference Index falls below the Maturity Barrier at the maturity of an Autocall in the Portfolio, that portion of the Portfolio will be fully exposed to the negative performance of the Underlying Reference Index from its initial level. This conditional protection creates a binary outcome that can result in sudden, significant losses if barriers are breached.
• Derivatives and swap counterparty risk: Counterparty risk is the risk that one party in a derivative contract, such as an interest rate or currency swap, will default on its obligations. This means the other party could face a financial loss because the defaulting counterparty fails to make a required payment. The risk is particularly high for over-the-counter (OTC) derivatives like swaps, which are negotiated directly between two parties and are not traded on an exchange.
• Reference index risk: a reference index risk is the risk that an asset’s return will deviate from a benchmark index, or the risk associated with instruments like index options, which are used for trading and hedging against index movements.
• Equity market risk: Equity market risk is the possibility of losing money in stock investments due to fluctuations in the overall stock market. This risk stems from factors like economic conditions, geopolitical events, and industry trends that cause market-wide price changes, affecting both individual stocks and entire portfolios.
• FLEX options risk: The Fund may invest in FLEX Options issued and guaranteed for settlement by the OCC. The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts. Additionally, FLEX Options may be illiquid, and in such cases, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices. As the options the Fund invests in derive their performance from the S&P 500 Price Index, the Fund is subject to the equity market risk associated with the index. The ETF’s portfolio is more volatile than broad market averages.