Mischa Frankl-Duval
speaker
36 appearances
1 recordings
1 series
first heard May 2020
last heard May 2020
Mischa Frankl-Duval’s voice in public audio — every appearance, attributed to the second.
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Appearances
What can happen if over the set period, the market drops below the level of buffer?
Investors can be exposed to losses, but they should still be buffered against the first set proportion as advertised.
So effectively, these buffer funds use a suite of options to track an underlying index or ETF.
And they ensure that if they are held to maturity, investors are protected against a certain amount of downside.
So there are a range of products and they offer different levels of downside protection.
Some offer 9, 10 or 15% against initial losses and some offer a greater degree.
The buffer products don't actually track directly on top of the underlying.
But what can happen if over the set period the market drops below the level of buffer?
Investors can be exposed to losses, but they should still be buffered against the first set proportion as advertised.
It's possible, yes.
Absolutely.
So the trade-off is that in exchange for this sort of defined outcome, in exchange for this downside buffer, you also cap your gains at a certain level.
And typically, the higher, the more extreme the level of buffer, the lower the cap as well.
So in exchange for the protection you get, you do give up some other benefits.
And most notable is probably the lack of dividends, because in the case of some of these ETFs, they follow the S&P 500 price index.
So that's not the total return index.
And the dividends that you would receive if you held other types of tracker funds don't apply to you.
So these funds typically invest in the majority or all of their assets in options that track a liquid underlying.
Normally, it can be the S&P 500, it can be an S&P 500 ETF, or it can be the Russell 2000, the NASDAQ, that kind of thing.
So the ETF that's pulled in the most this year is one issued by First Trust and managed by SIBO Vest, which has pulled in about $425 million so far this year.
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