On Monday, Rosemont, IL-based asset manager TrueMark Investments launched the TrueShares Structured Outcome (May) ETF (MAYZ), the eleventh ETF in the True-Shares structured outcome product suite. MAYZ 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.
MAYZ’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. MAYZ’s expense ratio is 0.79%.
“There is no lack of well thought out opinions regarding what lies ahead for the markets. But I think we can be reasonably sure that they won’t all be correct,” said Michael Loukas, CEO at TrueMark Investments, the Advisor to TrueShares. “Rates, inflation, tax hikes, valuations, earnings and lest we forget, the pandemic, are all factors that will create tremendous uncertainty in the coming years. Our structured outcome ETFs were created for investors who understand the importance of maintaining exposure to equities but are also keenly aware of the volatility rollercoaster that sometimes must be endured to reap gains over the long-term.”
Protective Buffers
With respect to using the downside buffers for protection, as explained by Loukas: “There are a myriad of reasons for investors to pursue volatility management strategies, or as we like to occasionally refer to it, ‘intelligent equity exposure.’ Whether it be the uncertainty of a pandemic, economic policy, the need for growth in the face of a low-yield environment, or an understanding of the non-linear nature of equity returns and the detrimental effect of withdrawals amid downturns. Simply put, a built-in downside buffer can be a valuable risk-management tool. However, MAYZ, like each installment of the TrueShares Structured Outcome Series, is designed to help address both types of volatility, downside, and upside. Thus the combination of a downside buffer with an uncapped upside participation rate.”
In detailing what TrueShares hopes to achieve initially, Loukas continued: “MAYZ is a versatile portfolio tool that can help advisors and investors maintain equity exposure in a high volatility, low-yield environment without completely disrupting their risk tolerances. We’ve certainly seen an equity rotation surface early in 2021, but there has been little indication of an end to volatility nor the bull market that surprised many back in 2020. For many investors, the need for equity exposure will persist. And while the market has continued to achieve periodic new highs, the ride has not been smooth. The TrueShares Structured Outcome ETFs represent a rational approach to intelligent equity participation while still accounting for the general unpredictability of the market.”
Loukas went on to explain that: “MAYZ is designed to help lessen the tactical burden by providing investors a single-ticker solution that can both help protect their capital from sharp declines and still offer the potential to rack up gains as the resilient bull market climbs to higher and higher ground. We accomplish this by pairing an uncapped upside structure with a protective downside buffer to create a practical tool for investors committed to harnessing the markets’ inherent positive return bias over time.”
MAYZ is the eleventh monthly series in the True-Shares Structured Outcome ETF suite. Each fund will roll into a new investment position 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.
Holding Exposure in the Face of a Pullback
“Often time (sic), the biggest challenge with investing in a bull market is simply holding onto your exposure in the face of the occasional pullback,” said Eric Metz, fund portfolio manager, and Chief Investment Officer at SpiderRock Advisors. “Our lineup of structured outcome ETFs is built with this in mind, and we’re excited to offer investors another instrument for their toolbox that enables capital appreciation without having to sacrifice their capital preservation objectives.”
Loukas adds: “At the end of each twelve-month investment period, the underlying options position is rolled or reset to optimize the downside buffer and upside participation rate relative to the market’s position at that point in time. The process is intended to allow investors to pursue a long-term investment strategy while simplifying the moving parts involved in the approach. Most investors have a time-horizon extending out beyond one year. An annual re-optimization of the underlying position can help an investor maintain a measure of volatility management throughout the life of their equity investment time horizon. The annual buffer adjustment coupled with the uncapped upside participation rate feature should prove invaluable in helping a portfolio digest the long-term ebb and flow of the equity market.”
Finally, in terms of MAYZ’s long-term advantages, Loukas notes: “If you’ve interacted with TrueShares, or tuned into one of our webinars, you’ve likely heard us pound the table on the importance of addressing both sides of the volatility spectrum. It’s usually fairly easy to help investors understand the favorable concept of mitigating downside volatility using buffers. However, many investors tend to gloss over the detrimental effect of missing out on significant upside volatility.”
“In layman’s terms, avoiding a chunk of a down market is obviously important to long-term returns, but if it comes at the expense of missing out on big upside moves, like the bull market which emerged during the pandemic lockdowns, it can also cause irreparable damage to the long-term, compounded return potential of a portfolio. Designed to help offset ‘bad volatility’ (downside) yet still capture a significant amount of ‘good volatility’ (upside), we believe MAYZ represents an essential tool for those seeking long-term, intelligent equity exposure.”