TrueMark debuts S&P 500 structured outcome ETFs

Jul 2nd, 2020 | By | Category: Alternatives / Multi-Asset

Illinois-based asset manager TrueMark Investments has introduced a suite of S&P 500 structured outcome ETFs with the launch of the TrueShares Structured Outcome (July) ETF (JULZ US) on Cboe BZX Exchange.

Mike Loukas, CEO of TrueMark Investments

Michael Loukas, CEO of TrueMark Investments.

JULZ is sub-advised by SpiderRock Advisors, a Chicago-based asset management firm specializing in option overlay strategies.

Structured outcome ETFs target a specific return profile with an allowance for a certain level of risk at a particular point in time.

The strategy has been a hot-spot for ETF launches recently with Innovator Capital, First Trust, and most recently, Allianz Investment Management introducing similar funds under ‘defined outcome’, ‘target outcome’, or ‘buffered outcome’ product labels.

These firms have all launched ETFs that provide exposure to the S&P 500 Index while shielding investors from a pre-determined level of losses over a one-year outcome period.

In terms of the new TrueMark offering, JULZ will protect against an initial 8-12% drop in the S&P 500.

The funds achieve their structured outcome profiles by investing in traditional as well as FLexible EXchange (FLEX) options. FLEX options are customizable exchange-traded option contracts guaranteed for settlement by the Options Clearing Corporation.

Typically, the downside protection within each structured outcome ETF comes at the expense of a cap on the potential upside over the outcome period. The cap for each fund is set at the beginning of the outcome period and is dependent upon market conditions at that time.

TrueMark is offering a slightly different twist on the structured outcome theme, however, as the fund does not cap upside performance but rather reduces participation in appreciating markets.

The strategy allows investors to stay invested in the market, potentially outperforming traditional structured outcome ETFs if the S&P 500 rises above those funds’ cap threshold. In contrast, if the S&P 500 appreciates but remains below the cap threshold, JULZ is likely to underperform its rivals. A comparison of these two pay-off profiles is illustrated below:

TrueShares Structured Outcome ETFs

Source: TrueMark Investments.

JULZ is the first of what is planned to be a suite of 12 structured outcome ETFs with outcome periods starting in each month of the year. The fund comes with an expense ratio of 0.79% which matches the cost of Innovator’s offering.

Structured outcome ETFs offered by Allianz and First Trust come with expense ratios of 0.74% and 0.85% respectively.

Michael Loukas, CEO at TrueMark Investments, commented, “Recent volatility surrounding the pandemic-driven economic shutdown has served as a stark example of why structured outcome ETFs are being developed for investor portfolios. In times like these, we’re reminded that market returns aren’t sequential, they’re lumpy, which is why JULZ’s built-in downside buffer can be such a game-changer.

“The potential to help smooth out the valleys may help investors, particularly those that are concerned about the impact of market declines on their equity investments, to stay in the stock market long enough to take advantage of any subsequent peaks that are so vital to long-term returns.”

Eric Metz, Chief Investment Officer at SpiderRock Advisors, added, “At a time of heightened market uncertainty when the potential benefits of structured outcomes are more obvious, we are thrilled to be partnering with TrueMark Investments as they bring their new line-up of ETFs to the market. We believe the ability to create an attractive risk-reward investment profile in a daily-traded, cost-effective vehicle should put these ETFs squarely at the forefront for investors looking to gain prudent large-cap, US equity exposure.”

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