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Structured Outcome ETFs & How They Work
For retirees and risk-averse investors, structured outcome ETFs seek to offer risk management as part of a conservative investment strategy. The theory behind a structured outcome ETF is to provide access to the S&P 500 while limiting both downside losses and upside gains in the market, with particular benefit lying in the mitigation of losses.
This type of ETF can be complicated and each fund manager approaches it somewhat differently. Like many other structured outcome ETFs on the market, TrueShares' seeks to buffer against the first 10% of losses when the market has a downturn, over a defined outcome period. TrueShares Structured Outcome ETFs are designed to seek to achieve the investment strategy for investments made on the Initial Investment Day and held until the last day of the Investment Period. TrueShares differs from its competitors in its exposure during market upturns, which are only reduced to about 70-78% of the gains observed by the S&P 500, while others are capped. Because structured outcomes are admittedly complicated, it's important for us to explain how this works so that investors better understand what, exactly, they're investing in.
The TrueShares Structured Outcome ETF is executed through a series of buying and selling stock options at predetermined prices. First, the fund sells what's called a "put option", which gives a counterparty the right to sell stock to the fund at a predetermined price for a premium. Put option prices are set below the current market price, so the fund loses less than they would otherwise when prices decline. Meanwhile, the fund buys what's called a "call option", which gives the fund the right to buy stocks from a counterparty at a predetermined price at a later date. Call options are typically set at current market value, so the fund gains by buying at the low pre-determined price and selling at the higher market price when prices increase.
The combined outcome of selling puts and buying calls is very similar to just buying stocks, but not identical. For puts, stock prices would have to decrease by a lot (roughly 10%) for the investment to become unprofitable because of the premium it receives for selling the put option. Selling puts therefore allows for the 10% loss buffer. However, the more stock prices decrease, the more profits decrease. Counterparties lose in this scenario, so their only incentive to agree to sell at a below-market price is to do so for a lower premium.
This is where buying calls in a way that limits growth comes in. With lower premiums for the puts comes less cash with which the fund can buy calls. Therefore, the fund is limited to buying fewer call options. Fewer calls means fewer stocks, so the fund benefits proportionally less than it would be able to if it didn't sell puts for those lower premiums. The upside gains for the TrueShares Structured Outcome ETF is unique compared to similar ETFs on the market in that it is not limited by a set cap in gains. It is more so limited by its slightly reduced purchasing power, disallowing it from fully participating in the market.
Compared to other structured outcome funds, TrueShares' Structured Outcome ETFs can have a greater upside return potential and are capable of performing well in market upswings because of an uncapped structure. We believe this is appealing to those most interested in managing risk, like retirees and risk-averse investors.
Learn more about TrueShares Structured Outcome ETFs at www.truesharesetfs.com/products.
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©2025, TrueShares, ©2025 TrueMark Investments, LLC. (“TrueMark”).
Before investing, carefully consider the TrueShares ETFs investment objectives, risks, charges and expenses. Specific information about TrueShares is contained in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.www.true-shares.com. Read the prospectus carefully before you invest.
An investment in TrueShares is subject to numerous risks, including possible loss of principal. The ETFs are 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 (Large Cap; Mid Cap, Small Cap Stock); Market Risk; New Fund Risk: The Fund is a recently organized, non-diversified management investment company with no operating history. As a result, prospective investors have no track record or history on which to base their investment decision. Additionally, the Adviser has not previously managed a registered fund, which may increase the risks of investing in the Fund.
Depositary Receipts Risk. American Depositary Receipts (“ADRs”) have risks similar to those of foreign securities (political and economic conditions, changes in the exchange rates, etc.) and entitle the holder to all dividends and capital gains that are paid out on the underlying foreign shares.
Individual investors should contact their financial advisor or broker dealer representative for more information on TrueShares ETFs.
Investment Products and Services are: NOT FDIC INSURED / MAY LOSE VALUE / NO BANK GUARANTEE.
All registered investment companies, including TrueShares, are obliged to distribute portfolio gains to shareholders at year-end regardless of performance. Trading in TrueShares ETFs will also generate tax consequences and transaction expenses. The information provided is not intended to be tax advice. Tax consequences of dividend distributions may vary by individual taxpayer.
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