It’s an exchange-traded fund designed to prevent your portfolio from hitting a significant low – but it can require a degree of complexity.
The idea: Combines short-term leveraged games including hedged funding and risk reversal strategies to help investors customize their own defensive strategies similar to accident insurance.
However, it can come with an unintended price. According to Ben Slavin of BNY Mellon, issuers and advisors can struggle to keep up with constant product change and growth.
“The toolkit has expanded a lot over the past few years and it will continue to grow,” the company’s head of global ETFs told CNBC.ETF Edge“last week”. That said, negation is actually trying to parse all these different products. Really understand what you own and explain it to investors or even advisors who are having a hard time keeping up with the nuances between these products. “
Liquidity providers and asset services could also struggle with product expansion, he added.
However, it can still benefit investors with a low risk appetite.
Andrew McOrmond, managing director at WallachBeth Capital, joined Slavin on “ETF Edge” to explain how investors can hold defensive, risk-averse positions using leveraged products. trap.
Play the game with leverage
Covered calls provide protection for customers looking to minimize losses, McOrmond said. These short-term leverages serve to better determine outcomes, but in turn, investors can miss out on profits.
“If you sell the option and the market goes against you, you’ll be protected – but you’ll only fall [potential]”, he explains, noting that covered calls are “the only option” for risk-averse customers because hedging is complicated for the individual.
McOrmond sees the latest market rallies as a good opportunity to “hedge”. In July, Nasdaq 12% increase and S&P 500 increased by more than 8%.
Striker cushion
The First Trust Cboe Vest Fund by Buffer ETFsunder the ticker symbol BUFR, which is designed to increase capital costs and limit downside risk for investors, according to financial consulting firm.
“The name is perfect,” McOrmond said of the Cboe Vest Foundation. “You are padded on both sides.”
Defensive strategies use ladders to preserve capital and options collars to “buffer” the investment to minimize the losses an investor may experience.
Slavin also recommends buffer ETFs, citing interest and activity in the space.
The First Trust Cboe Vest Fund by Buffer ETFs up more than 5% this month.
Disclosure:: Neither Andrew McOrmond nor Ben Slavin has ownership of First Trust Cboe Vest Fund of Buffer ETFs products.
