For many income-focused investors, the conversation starts with yield. But experienced advisors know that yield alone doesn't tell the whole story. An income strategy should not only seek to generate attractive cash flow during favorable market conditions. It should also be designed to address what happens when markets become stagnant, volatile, or decline. That is especially important when evaluating autocallable strategies.

Understanding the Income Challenge

Autocallables generate income through a coupon mechanism tied to the performance of an underlying reference index. As long as the underlying index remains above a predetermined coupon threshold on scheduled observation dates, the note may continue paying coupons. The challenge occurs when markets decline.

If the underlying index falls below the coupon threshold, coupon payments can stop. For income-focused investors, the issue isn't simply market performance. The real concern is the interruption of cash flow itself. In other words, losing incomecan become just as important as managing price volatility.

Traditional Autocallables Can Be Static

Many traditional autocallables and laddered autocallable strategies are largely dependent on the terms established when each note is issued. Once a coupon barrier has been established, investors may have limited ability to benefit from changing market conditions. A note issued during one market environment can become less effective if markets experience a sustained drawdown. This creates a key question for advisors: Can the strategy adapt when conditions change?

The Importance of Protecting the Cash Flow Mechanism

One of the most overlooked aspects of autocallable investing is protecting the mechanism that produces income. Instead of focusing solely on total return or principal protection, advisors should also evaluate whether a strategy includes features designed to preserve coupon-paying potential during difficult markets. That is where the child tranche structure used within PAYH and PAYM becomes particularly relevant.

How the Child Tranche Mechanism Works

When market conditions deteriorate, portions of an existing position may be divided into child tranches that incorporate reset terms based on current market levels. These child tranches may include more favorable strike levels, lower coupon barriers, and reset structures reflecting prevailing market conditions.

The goal is simple: help preserve or restore the ability of portions of the portfolio to continue generating cash flow potential. Rather than remaining tied exclusively to the original market environment, the portfolio can adapt as conditions evolve.

Why Principal Protection Still Matters

Cash flow protection does not eliminate the need for downside risk management. Strong income generation can quickly become less meaningful if investors experience substantial principal losses. For this reason, PAYH and PAYM combine their dynamic autocallable framework with an always-on hedge overlay.

The Two-Layer Hedge

The hedge framework consists of two complementary components:

Tail-Risk Protection

A fixed allocation is dedicated to a tail-risk strategy designed to respond during severe market dislocations and extreme risk events.

Tactical Put Participation

A second layer dynamically adjusts put option exposure using momentum-based signals. As market conditions weaken, protection can increase systematically.

Together, the two layers seek to provide protection across a broader range of market environments than a static hedge approach.

Why This Matters for Advisors

Income strategies are often evaluated primarily by their headline distribution rates. But a more mportant question may be: What features exist to help support that income during challenging markets?

The combination of diversified autocallable exposure, child tranche cash flow protection, and a two-layer hedge designed to help protect cash flow and principal creates a framework that seeks to address both sides of the income equation: generating cash flow and helping preserve it when markets become difficult.

The Bottom Line

Many autocallable strategies focus on generating income. PAYH and PAYM are designed with an additional goal: helping protect the income mechanism itself. Through a unique child tranche structure that seeks to preserve coupon-paying potential and a dynamic two-layer hedge intended to manage downside risk, the funds offer a differentiated approach to autocallable ETF investing. For advisors building income-oriented portfolios, cash flow generation will always matter. But cashflow protection may be what ultimately determines the investor experience through a full market cycle.

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

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Put Option: A put option is a financial contract that gives thebuyer the right, but not the obligation, to sell an asset at a set price (the strike price) before a specific date (the expiration date).

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 ofTrueShares S&P Autocallable High Income ETF (the “Fund”) is to generate high monthly income while reducing downside risk. The investment objective ofTrueShares 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 StructuredIncome Moderate ETF is subject to numerous risks, including possible loss ofprincipal. The ETF is subject to the following principal risks: AuthorizedParticipants, Market Makers, and Liquidity Providers Concentration Riskassociated with ETFs; Equity Market Risk; Management Risk; MarketCapitalization 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.