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- Title
Evaluating Target Performance for Downside Buffer ETFs.
- Authors
Hill, Joanne M.
- Abstract
Access to tools for managing equity risk expanded five years ago with the introduction of Target/Defined Outcome Buffer ETFs, which have evolved from the zero-cost, put spread collar strategies employed by institutional investors since the 1990s. These ETFs use options to combine index or ETF exposure with limited downside risk for a buffer range using put spreads financed by the sale of a call that sets an upside cap. This article examines how well Buffer ETF managers have delivered on their promise to provide a specific return for a given price level of the underlying asset at the end of an investment horizon (Target Outcome Period). Using a Target Performance Benchmark based on ETF terms set at the start of this period, we evaluate a large sample of Buffer ETFs from four different issuers across a set of equity market conditions. Historically, the tracking of returns relative to this benchmark has averaged very close to 0%, with a standard deviation of less than 0.20% for both Standard Buffer ETFs (buffer ranges ending in -15% or less) and Deep/Ultra Buffer ETFs (buffer ranges ending in -20% through -35%).
- Publication
Journal of Beta Investment Strategies, 2023, Vol 14, Issue 4, p6
- ISSN
2771-6511
- Publication type
Academic Journal
- DOI
10.3905/jbis.2023.1.049