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First Trust launches ETF alternative to structured products


FT Portfolios Canada (First Trust Canada) has launched the hedged units of the First Trust Cboe Vest US Equity Buffer ETF – August. 

The fund, which is sub-advised by Cboe Vest Financial (Cboe Vest) uses a “target outcome strategy” or pre-determined investment outcome to seek returns (before fees, expenses and taxes) that match the price return of the SPDR S&P 500 ETF Trust (SPY), up to a pre-determined upside cap, while buffering against potential losses.

To achieve its objectives, the fund uses FLexible EXchange Options (FLEX Options) that reference the price return of the underlying ETF. FLEX Options are equity or index option contracts that trade on an exchange, but provide investors with the ability to customise key contract terms like exercise prices, styles and expiration dates. As the fund will invest in FLEX Options which are traded in US dollars, the fund will, in respect of its hedged units, generally seek to hedge substantially all of its US dollar currency exposure back to the Canadian dollar. The fund seeks to shield investors from the first 10 per cent of losses (before fees, expenses and taxes), based on the value of the underlying ETF at the time the fund enters into the FLEX Options on the first day of a defined period known as the target outcome period. However, the fund can be held indefinitely as terms will reset at the end of each outcome period and the cap and buffer for each subsequent target outcome period will likely differ from the initial outcome period. The cap for the initial target outcome period has been set at 13.18 per cent.

“Our goal at First Trust Canada is to provide high-quality, innovative tools for investment advisors. We believe this ETF will be effective for those seeking equity-like upside potential for their clients, with a level of downside protection,” says Karl Cheong, CFA, Head of Distribution at First Trust Canada. The fund seeks to limit the uncertainty of equity market exposure over a defined target outcome period by combining a buffer of protection with upside growth potential, to the predetermined cap levels.

“Investors want to reduce their exposure to downside risk in equities, while retaining the opportunity for meaningful upside returns. We are delighted to work with First Trust Canada to offer an ETF which provides a 10 per cent buffer on US Large Cap Equities, providing an opportunity for upside potential while shielding against a level of losses,” says Karan Sood, CEO of Cboe Vest.

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