How to Beat Election Jitters: Buffer ETFs | ETF Trends

Election uncertainty is keeping many investors on the sidelines as they wait for the “all clear” signal. The problem with this approach is that it burdens the average investor with correctly timing the market on when to get back in, which is a feat that even few professionals can pull off let alone consistently.

Responding to this all-too-common dilemma, TrueMark Investments, a provider of actively-managed ETFs, is launched the TrueShares Structured Outcome November ETF (NVMZ) on Monday, which is the 5th fund in its series of Structured Outcome 2.0 ETFs.

NVMZ is sub-advised by SpiderRock Advisors, a Chicago-based asset management firm specializing in option overlay strategies. The fund seeks to provide investors with structured outcome exposure to the S&P 500 Price Index. TrueMark believes its structured outcome ETF suite is the first of its kind to offer built-in downside buffers with uncapped upside participation.

NVMZ’s structure allows for the potential of an asymmetric return profile. The fund seeks to provide investors with returns (before fees and expenses) that track the S&P 500 Price Index, while seeking to provide a buffer of 8-12% on that index’s losses over the fund’s one-year investment period. In practice, the fund adviser will target the buffer at 10% of index declines over the investment period following the first day of trading while also allowing for uncapped upside participation. NVMZ’s expense ratio is 0.79%.

ETF Trends caught up with Michael Loukas, CEO and Principal of TrueMark Investments, to discuss markets and its newest fund.

What is the challenge with attempting to time the market around the election?

It’s extremely difficult to time the market in any circumstance; and the investment world carries the scars of many that have tried and failed miserably.  An election year takes that challenge up a level, and 2020 seems to have raised it even a notch above that.  With the White House and Senate up for grabs, and the pandemic still lurking in the background, the lack of visibility and increased volatility are very tall obstacles to navigate.

What about today’s unique market environment makes it ripe for structured-outcome ETFs?

The combination of increased volatility and low-yields creates a dilemma for most investors.  Structured Outcome ETFs are uniquely versatile in that they allow larger allocations to the growth potential of equities without assuming the full volatility profile, letting investors put cash to work in an effort to compensate for low yields.  This is of particular importance to investors that utilize asset allocation or risk parity models in portfolio construction.

What are the difficulties that buy-and-hold and retirees have in common?

Most investors are managing their portfolio according to a goal, whether it be long-term or near-term.  Yet current market conditions can profoundly affect the path to that goal.  Conditions such as high volatility and low-yields can not only wreak havoc on portfolio models, they can also lead to sleepless nights.  When that volatility hits and emotions run high, avoiding market losses while still participating in market gains is easier said than done, particularly for those that are risk-averse yet still need growth.  Accomplishing both of these goals is vital to maximizing long-term, compounded returns.  Buy-and-hold investors and retirees both need to minimize drawdowns (bad volatility) and harness major upward moves (good volatility).

Use Case: How does NVMZ help with minimizing drawdown risk during an otherwise uncertain period?

NVMZ targets a 10% downside mitigation or buffer over the course of the twelve month investment period.  A very useful tool that allows investors to augment risk-parity or asset allocation models, in which yields are not pulling the intended amount of weight, by increasing equity allocations without disrupting the portfolio’s risk profile.  Additionally, NVMZ offers a 81%-83% upside capture, without a cap, during the same twelve month period.  Historically, volatility driven declines have proven the ability to recover, as we’ve seen since the March 2020 lows.  Therefore, NVMZ creates a scenario in which an investor can minimize a portion of their drawdown risk and capture a meaningful amount of any significant upside moves.  Given that equity returns tend to be non-linear, or “lumpy”, addressing both sides of the volatility spectrum effectively with one ETF such as NVMZ can make it an extremely useful portfolio tool.

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