First Trust has announced the launch of the First Trust Cboe Vest U.S. Equity Moderate Buffer UCITS ETF – August “GAUG” or “the Fund” on the London Stock Exchange. The Fund is designed to help investors maintain a pre-determined level of 15 per cent downside protection, while also taking advantage of the growth of the S&P 500, up to a predefined cap.
GAUG is the first in First Trust’s upcoming suite of Target Outcome ETFs in UCITS format; globally the First Trust Target Outcome product line has amassed more than USD11.1 billion in total net assets as of 30 June, 2023. Actively managed, GAUG seeks to provide investors with returns that match the price return of the S&P 500, up to a predetermined upside cap, while providing a buffer against potential losses.
The Fund’s outcome period runs for approximately one year, ending in August 2024. At the end of the outcome period, the cap and buffer are reset to prevailing market conditions. The Fund has a perpetual structure and may be held indefinitely, providing investors a potential buy and hold investment opportunity.
The Fund is managed by First Trust Advisors L.P. and sub-advised by Cboe Vest Financial LLC (“Cboe Vest”) using a “Target Outcome Strategy” or pre-determined target investment outcome. Cboe Vest is the creator of Target Outcome Investments and manager of the longest running buffer strategy fund. The Fund will invest substantially all of its assets in FLexible EXchange Options (“FLEX Options”) on the S&P 500. FLEX Options are customisable exchange-traded option contracts guaranteed for settlement by the Options Clearing Corporation.
The firm writes that the fund offers a way to gain access to outcome-based investing, specifically to protect against a level of downside risk while allowing growth to a maximum cap, whilst eliminating bank credit risk in a convenient, flexible investment vehicle.
Derek Fulton, CEO at First Trust Global Portfolios, says: “Demand for buffer ETFs has increased as investment professionals seek new tools to navigate the equity market uncertainty. We are excited to bring this long-standing and successful Target Outcome risk management strategy to our European clients, who are looking for a more certain outcome.
Although increased market volatility can make it difficult for investors to maintain discipline, exposure to equities may be necessary for achieving long-term goals. Target Outcome ETFs have grown in popularity among investment professionals because they are effective tools for loss protection, which can help investors stay invested.”
Jeff Chang, Cboe Vest President, says: ““Today’s launch of GAUG satisfies a demand from European investors looking to add a level of protection to their equity exposure while participating in some of the potential growth opportunities that equities provide.”
The Fund is aimed at wealth managers, discretionary fund managers, advisers, and institutional investors, with a total expense ratio of 0.85 per cent and base currency of USD.
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