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Using Structured Outcome for 2023 Volatility
The market has already seen ups and downs this year. The banking crisis in March1, which included the collapse of Silicon Valley Bank and Signature Bank among others, unexpectedly shocked the market. But while this string of bank failures dropped the S&P 500 to its lowest point since the start of the year, it remained surprisingly resilient coming out of March.
The fact that the S&P 500 didn’t drop below its December low in the first quarter of 2023, would have historically indicated a bullish market for the rest of the year2. That pattern is bolstered slightly by the currently low unemployment rate, hovering around 3.6%2. Nevertheless, the threat of a recession
looms. The Federal Reserve Bank of New York recession model predicts a 54.5% chance of a recession sometime in the next year2.
Now that the market has somewhat recovered from the banking crisis in March, inflation and interest rates remain the major concerns. While interest rates are lowering, expecting to reach 5% in May, it is unclear whether or not the Federal Reserve will raise them again or freeze their campaign2. Inflation is also well below its high of 9.1% in June of last year, but at around 5%, inflation is well above the 2% target2.
The question for investors therefore remains: How do we beat inflation, preserve our capital in the event of a recession, but still capture bullish conditions if the market remains strong?
The only way to stand a chance at beating inflation is to participate in the equity market3, but volatility and recession concerns make that path too risky for many investors. Fixed income does a good job of preserving capital, but is unlikely to keep pace with inflation. This is where buffer ETFs can come in to form a happy medium for this year’s unpredictable market conditions.
Most buffer ETFs are structured to protect investors from a percentage of the downside, typically 10-20%, while capping upside earnings somewhere around 10%. Buffer ETFs therefore tend to offer more predictable returns and introduce risk mitigation into a broader portfolio3. They’re typically used to de-risk equity exposure, supplement or replace fixed income (especially in an inflationary market), and ease cash-holders back into the market3.
While most buffer ETFs provide a two-sided buffer geared toward capital preservation, TrueShares takes a unique approach. The TrueShares Structured Outcome ETF aims for 10% downside protection without limiting the upside in a capped structure. If the market continues to make gains throughout the remainder of the year, TrueShares Structured Outcome ETF will allow investors to participate on the upside potential. If the market is hit with more shocks or even a recession, the TrueShare Structured Outcome ETFs are designed to protect against a 10% downturn. If inflation remains moderate, the ETF product suite stands a good chance at keeping pace with or even beating inflation.
So to answer the above question: the TrueShares Structured Outcome product suite can set investors up to react to inflation, preserve capital, and capture a bullish market by incorporating into a diversified and actively managed portfolio.
- https://www.wsj.com/articles/bank-collapse-crisis-timeline-724f6458
- https://www.forbes.com/advisor/investing/stock-market-outlook-and-forecast/
- https://www.etftrends.com/johan-grahn-using-buffer-etfs-for-2023/
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