First Trust has announced the launch of its newest ETF, the FT CBoe Vest Fund of Nasdaq-100 Buffer ETFs (BUFQ ), a fund that utilizes a ladder approach to invest in four buffer ETFs within the tech-heavy Nasdaq, offering exposure to large-cap tech while seeking to provide a measure of protection against loss.
“Risk management is at the forefront of investors’ minds this year as volatility has surged. We believe this ETF may be an effective tool for investment professionals seeking to maintain an allocation to some of the most innovative companies in the world, while providing some level of downside protection on the underlying ETF holdings,” said Ryan Issakainen, CFA, senior vice president, ETF strategist at First Trust, in the press release.
During normal market conditions, the fund will invest all of its assets into four different buffer ETFs as it seeks to provide returns that match the Invesco QQQ Trust (QQQ ) up to a predetermined cap and provide a buffer against the first 10% of losses by QQQ over a one-year period.
The four FT Cboe Vest Nasdaq-100 Buffer ETFs invested in have different target outcome expiration dates, thereby providing the fund with exposure to a buffer ETF that will be resetting its cap and buffer within the current quarter at all times, per the prospectus. Each underlying ETF invests in flexible exchange options (FLEX Options) on QQQ in order to provide a target outcome strategy based on the price return of QQQ over a 12-month period that begins in the month the ETF is named.
“Today’s launch of BUFQ satisfies a demand from investors seeking a risk-diversified way to participate in some of the upside of tech-heavy QQQ stock holdings, with a level of protection against losses,” said Karen Sood, CEO of Cboe Vest and co-portfolio manager of BUFQ, in the press release.
BUFQ does not pursue a targeted outcome strategy or have a stated buffer against losses itself but instead has its buffer provided by the ETFs it invests in. The ladder approach offers diversification potential across time periods, allowing BUFQ to capture any increase in the value of QQQ while providing downside protection for a portion of the portfolio at any given time.
“There has been a steady increase in demand for risk-diversified buffer investments since 2016, when we introduced a laddered portfolio of buffer strategies in a registered investment company. We are pleased to have yet another risk-diversified buffer ETF available for investors,” said Sood.
The fund also equal weights the four ETFs invested in on a quarterly basis as each ETF resets and has an expense ratio of 1.10%.
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