Uncapped Buffered ETFs: Balancing Upside Potential with Downside Protection

Understanding Buffered ETFs

• 💡 Buffered ETFs are designed to offer downside protection while potentially limiting upside gains, a trade-off that has drawn criticism.
• 🎯 The core debate revolves around whether the limited upside potential is a worthwhile sacrifice for downside protection.

The Innovation of Uncapped Buffered ETFs

• 🚀 TrueShares ETFs pioneered uncapped buffered ETFs with the belief that capturing significant right-tail market events is crucial for long-term compounded returns.
• 🔑 These funds mechanically use a traditional buffer but set an upside participation rate with no limit.
• 📈 This structure aims to maintain the growth characteristics of equities while still providing a buffer against losses.

Performance and Market Testing

• 📊 In one example, an uncapped buffered product returned close to 31% when the S&P 500 was up 39%, while many capped peers were in the teens.
• ⚠️ Historically, the S&P 500 has returned over 17% about a third of the time (34%), with an average return of around 26% in those periods.
• ⏳ This highlights that chunky up-years occur frequently enough to be a significant factor in long-term investment strategies.
• 📉 The period around April was identified as a major test for the buffered ETF space, providing valuable lessons for product development.