Insights
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The What, Why, and How of Buffered ETFs
2023 was a banner year for the S&P 500 and finished Q1 of this year up nearly 10% YTD. But this rebound followed a year with the fourth worst returns in the index’s history in 2022. While the market is currently holding strong as interest rates remain steady, uncertainty and the chance of volatility remain. Many investors may still feel a need to hang onto their risk aversion this year, especially as we wade through an election year and wait to see if and when the Federal Reserve follows through on its promise to cut rates.
But risk aversion doesn’t have to come without upside potential, thanks to Structured Outcome ETFs. Buffered ETFs typically protect investors from the first 10-20% of downside. Others, such as TrueShares Structured Outcome product suite, allow for the potential of upside gains, which we believe can make quite a difference to total return. TrueShares’ Structured Outcome ETFs aim for a 10% downside buffer and take a unique approach in allowing gains on the upside with a participation rate for each ticker in the series. It’s that participation rate that we feel can make Structured Outcome ETFs a game-changer for long-term returns.
The purpose of a structured outcome ETF is to try and help mitigate risk with the downside buffer and allow for upside gains with a participation rate. It can be a solid option for a diversified portfolio, particularly for investors with risk aversion, like retirees. Prior to retirement, people are in the business of accumulating wealth that they can live on once they stop working. Naturally, retirement sees a decline in savings as they live out their glorious non-working years. We believe that a great time to invest in a Structure Outcome ETF may be during the transition period between preparing to retire and easing into retirement.
For extra precautions, many more investors are holding cash instead of equity. But an investor can make room for a Structured Outcome ETF in their portfolio by repositioning a modest amount of cash, fixed income, or existing equity allocation to increase the potential upside while maintaining risk levels. Our Structured Outcome ETFs can also fit into a portfolio by repositioning riskier equity exposure. These strategies can help diversify a portfolio, which can make it more resilient.
We believe that investors of traditional ETFs might make investment decisions they later regret when their portfolio starts to see volatility. A dip in the market might push investors to sell low and force them to buy high later. In our opinion, Structured Outcome ETFs employ a "buffer protect" strategy to manage downside risk, which may instill confidence when one might otherwise be tempted to pull out of the market. The upside potential can provide a unique opportunity for risk averse investors to not miss out on the upside when the market is going strong. Our Structured Outcome ETFs can help accommodate both up and down markets, in an unpredictable world.
- https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
- https://journal.haloinvesting.com/the-financial-advisors-guide-to-buffered-etfs/
The Funds have characteristics unlike many other traditional investment products and may not be suitable for all investors.
The Funds 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. Investors purchasing shares in the fund after its investment period has begun or selling share prior to the end of the investment period, may experience very different results than the fund’s stated investment objective.
Investors may experience losses beyond the targeted buffer levels. The Fund does not provide principal protection and an investor may experience significant losses on its investment, including the loss of its entire investment.
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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.
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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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