Reduce Retirement Risk with Buffered ETFs | ETF Trends

The upcoming presidential election is only exacerbating the uncertainty hanging over Wall Street and older investors in particular are caught in the cross hairs of today’s volatility. Their predicament is: What should an older investor do in today’s low-rate environment if they are still behind their growth goals but wary of taking on too much market risk before retirement?

Responding to that challenge, TrueMark Investments, a provider of actively-managed ETFs, launched the TrueShares Structured Outcome October ETF (OCTZ), which is the 4th fund in its series of Structured Outcome 2.0 ETFs.

The ETF 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, established by a stated market participation rate.1

OCTZ’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. Investor’s upside participation is measured by an estimated market upside participation rate that is determined once underlying portfolio holdings are established on the first day of trading. OCTZ’s expense ratio is 0.79%.

OCTZ is the fourth of twelve monthly series ETFs in the True-Shares Structured Outcome ETF suite. Each fund will roll over at the end of a year-long term, at which point the downside buffer and upside participation will reset based on current pricing for the options used by the strategy for each respective ETF.

Michael Loukas, CEO and Principal of TrueMark Investments, caught up with ETF Trends to discuss the challenges facing buy-and-hold investors in today’s low-rate environment.

What should an older investor do in today’s low-rate environment if they are still behind their growth goals but wary of taking on too much market risk before retirement?

This has become an extremely relevant question in 2020. The combination of equity volatility and an extremely low rate environment represents a huge challenge for older investors. Capturing the growth potential of equities is imperative, but it must be accompanied by the effective implementation of volatility management tools during portfolio construction. There are several ways to accomplish this, some of which are asset class specific and some that revolve around inverse correlations. Our preferred approach to managing core equity volatility is through the thoughtful incorporation of Structured Outcome ETFs which allow for large cap equity exposure with a downside “buffer”.

How can investors make the most of non-sequential market returns when nearing retirement?

It’s no secret that equity market returns are rarely sequential. In fact, they’re much more likely to be “lumpy” in nature. But you can’t expect to harness those gains unless you maintain consistent exposure to equities, particularly given that few investors have historically shown the ability to time the market. Regardless of the vehicle used to gain that equity participation, we advocate a goal of separating Good Volatility from Bad Volatility, which essentially means working to mitigate the downside moves while maintaining upside exposure. It is difficult to achieve full upside participation in this circumstance because downside mitigation isn’t frictionless, but even though an investors generally can’t “have their cake and eat it too”, the pursuit of strategies that can help generate this type of volatility profile can be extremely beneficial in helping a portfolio participate in those outsized upside moves when they arrive.

How do you minimize drawdown risk right before retirement?

Various volatility management techniques can be employed to minimize drawdown risk. Which of these approaches is most appropriate will depend upon the goals of a particular portfolio. Market neutral strategies can be very effective in portfolios requiring a minimal amount of growth. However, if an investor still needs growth as they enter retirement (which is a common occurrence in this type of market environment), a “softer” approach may be the best method to maintain a higher amount of equity exposure. Inversely correlated asset allocations, high dividend/low-volatility stocks, risk-parity models and certain options strategies such as Structured Outcome ETFs can be very useful tools in these scenarios.

What are the most popular use cases for Structured Outcome ETFs?

Structured Outcome ETFs are extremely versatile portfolio tools, one of their many potential benefits. In our experience, these funds are often used to shore up risk parity models that have eroded due to the current low-rate environment or to lower the volatility profile of core large-cap equity exposure. These ETFs can also just simply help volatility averse investors maintain their equity participation and avoid emotional investment decisions at the wrong times. We believe in the inherent positive return bias of U.S. large cap equities over the long-term.Our goal is to help investors capture as much of those non-sequential positive returns as possible while lowering the investment volatility profile by mitigating a portion of the downside exposure.

For more information about the OCTZ ETF, visit