FT Vest Launches New ETF with Buffered Strategy for U.S. Equity Investors

The new ETF aims to enhance returns while offering a buffer against significant losses in the S&P 500.

October 22, 2024

FT Vest Introduces Buffered U.S. Equity ETF

FT Vest has introduced its latest investment product, the FT Vest U.S. Equity Enhance & Moderate Buffer ETF (XOCT), targeting U.S. equity investors seeking both growth and downside protection. According to the fund’s summary prospectus, the ETF is designed to deliver enhanced returns on the SPDR® S&P 500® ETF Trust, capped at 9.68%, while protecting investors from the first 15% of losses during a specified outcome period.

This innovative product offers investors exposure to the large-cap U.S. equity market through a buffer strategy, potentially mitigating the impact of market volatility. The ETF’s structure is particularly suited for those seeking to limit downside risk while still capturing upside performance within a defined range.

A Focus on Enhanced Returns with Protection

The XOCT ETF operates by leveraging a two-fold enhancement on the positive price movements of the SPDR® S&P 500® ETF Trust. This means that for every positive movement in the S&P 500, the ETF seeks to provide approximately twice the return, up to the cap of 9.68%. However, should the market experience losses, the fund aims to shield investors from the first 15% of those losses, offering a layer of protection during turbulent market conditions.

The buffer strategy is structured around specific outcome periods, typically a year, where the ETF's performance is tied to the market within set parameters. Investors who hold the ETF throughout the entire outcome period stand to benefit most from this strategy, as the cap and buffer apply specifically to those who stay invested for the full duration.

Understanding the Risks and Costs

Like all investment products, the FT Vest U.S. Equity Enhance & Moderate Buffer ETF comes with certain risks. The prospectus highlights that while the buffer provides a level of protection against downturns, it is not a guarantee against all losses. Investors still face exposure beyond the buffered range, and returns are capped, meaning that in highly bullish markets, gains beyond the cap will not be realized.

Additionally, the fund includes operational expenses, which reduce overall returns. As with many ETFs, these costs are borne by the investors, though FT Vest has structured the ETF to be cost-competitive within its category.