First Trust launches structured, risk-controlled S&P 500 ETF in Canada

Sep 2nd, 2019 | By | Category: Alternatives / Multi-Asset

First Trust Portfolios Canada has launched a new actively managed ETF on Toronto Stock Exchange which aims to provide investors with structured, risk-controlled exposure to the US equity market.

Karl Cheong, Head of Distribution at First Trust Canada

Karl Cheong, Head of Distribution at First Trust Canada.

The First Trust Cboe Vest US Equity Buffer ETF – August (AUGB.F CN) offers access to the bellwether S&P 500 Index while protecting the fund against potential losses up to a predetermined amount.

The fund is sub-advised by U.S., Virginia-based financial advisory platform Cboe Vest Financial and gains its exposure by investing in FLexible EXchange Options (FLEX Options) on the SPDR S&P 500 ETF (SPY US).

FLEX Options are customizable exchange-traded option contracts guaranteed for settlement by the Options Clearing Corporation.

The FLEX Options are set such that the fund shields investors from the first 10% of losses over its initial ‘outcome period’ of approximately one year from August 2019.

The downside protection comes at the expense of a cap on the potential upside of the ETF over the one-year outcome period. The cap is set at the beginning of the outcome period and is dependent upon market conditions at that time – for the first outcome period until August 2020, the cap has been set at 13.18%.

The fund hedges currency exposure between the US and Canadian dollar and comes with an expense ratio of 0.85%.

Karl Cheong, Head of Distribution at First Trust Canada, commented, “Our goal at First Trust Canada is to provide high-quality, innovative tools for investment advisors. We believe this ETF will be effective for those seeking equity-like upside potential for their clients, with a level of downside protection.”

Karan Sood, CEO of Cboe Vest Financial, added, “Investors want to reduce their exposure to downside risk in equities, while retaining the opportunity for meaningful upside returns. We are delighted to work with First Trust Canada to offer an ETF which provides a 10% buffer on US Large Cap Equities, providing an opportunity for upside potential while shielding against a level of losses.”

The fund’s strategy is similar to that of a suite of ETFs introduced by Innovator Capital in the US, called ‘Buffer’ funds.

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