TRUESHARES

Uncapped Matters: Making the Most of the Market’s Best

The TrueShares Structured Outcome ETF series utilizes a protective buffer strategy that buffers against the first 8-12% (with the advisor targeting 10%) of losses on the S&P 500 Price Index while providing investors with positive returns that track those of the Index. The intent of the ETFs in the series is to provide uncapped market upside participation with a measure of downside risk mitigation.

Most other buffer strategy products in the marketplace place a cap on the maximum amount of gains an investor can achieve along the Index. This cap usually falls around 15%, but can vary. The TrueShares Structured Outcome ETF Series, however, places no maximum cap on the gains an investor can achieve. This upside participation has significant impacts on an investor’s long-term earnings.

In a capped buffer ETF with a 15% cap, an investor gains the first full 15% of the market gains alongside the Index. Since 19571, the S&P 500 has gained between 0% and 15% annually 17 times. In that same period of time, the S&P 500 has gained more than 15% annually 32 times. Within those years of high return (>15%), the average return was 25.55%.

A capped buffer ETF means an investor misses out on the really good years in the 20, 30 and 40% return range while an uncapped buffered ETF provides gains far beyond the modest 15% to capture nearly all of the upside potential. And because both capped and uncapped buffered ETF investors have a similar downside buffer, the primary loss differential between the two is on the upside. Historically speaking, a large upside is far more common than a modest one.

History also suggests that “the market’s worst days tend to be followed by its best days.”2 An uncapped buffered ETF allows investors to rebound much stronger after a loss. If a loss exceeds a 10% buffer, an uncapped investor has an opportunity to make up for it on an upside swing exceeding 15%. 

Investors who get spooked by downturns and pull out of the market also tend to miss the market’s best days in the oftentimes quick and unpredictable rebound. If we look at how the S&P 500 performed over the last 30 years3, we see an 8% average annual return. Investors who missed the 10 best days over the last 30 years only gained 5.26%3. Missing the 30 best days dropped gains to a mere 1.86% while missing the 50 best days yielded negative returns of -0.86%3. By lowering the cap on potential gains, an investor lowers their average returns over time. That’s why uncapped buffer ETFs matter.

  1. https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
  2. https://www.cnbc.com/2022/03/09/you-may-miss-the-markets-best-days-if-you-sell-amid-high-volatility.html
  3. https://www.cnbc.com/2024/03/07/why-bailing-on-the-stock-market-is-likely-a-losers-game-cfp-says.html