McLean, Virginia, September 7, 2016 — CBOE Vest Financial, an investment manager focused on target outcome investment strategies, on August 25 launched the CBOE Vest S&P 500 Buffer Protect Strategy Fund (BUIGX), the first mutual fund designed to provide investors with index-based buffer protection.
The fund is designed to track the CBOE® S&P 500® Buffer Protect Index Balanced Series (SPRO), providing a risk-managed investment that seeks to protect against some downside losses in the S&P 500 Index, while still participating in potential upside.
The buffer-protection strategy seeks to shield investors from the first 10 percent of a decline in their investment, in exchange for giving up some upside. “We believe that the fund will appeal to investors who want to participate in the broad market but are concerned about risks,” said Steve Neamtz, Senior Managing Director at CBOE Vest Financial. “Our fund is expected to deliver a level of downside protection while still allowing investors to participate in gains, offering a clearly defined risk profile relative to the broad market.”
Although buffer protection strategies have been recognized as useful risk-management tools in the past, the fund is the first index-based mutual fund to make such a strategy available.
Buffer protection also offers advantages to investors by potentially allowing them to avoid the pitfalls of market timing. “This allows investors to stay invested in the broad equity markets during a market downturn, with a ‘safety net’ for that first 10 percent of losses,” Neamtz said. “It may help give investors the confidence to stay in the market rather than wait on the sidelines for things to improve.”
Built to mitigate volatility and help drawdown-sensitive investors stay invested, the Buffer Protect Strategy Fund invests in a series of 12 monthly rolling “tranches” of a “Buffer Protect” option strategy. Each tranche seeks to target, before fees and expenses, returns or losses on the price performance of the S&P 500 Index from the third Wednesday of that month to the third Wednesday of the same month the following year (the “tranche holding period”). In return for the strategy’s 10 percent downside protection, each tranche will provide gains on the index up to a capped level.
The Buffer Protect Strategy Fund’s approach to protective investing is unique when compared with other funds aimed at lowering investors’ risk profiles, in particular low beta or low volatility funds. The fund “uses options with contractual levels of certainty against some losses,” Neamtz added.
“We’re extremely excited to be bringing this product to market because of the multitude of uses it offers for client portfolios,” Neamtz continued. “Investors have been really challenged by the flaws inherent in market timing. We believe this product can serve as a cornerstone tool for advisors and clients to utilize as a core holding, with a definable level of protection and opportunity.”
About CBOE Vest
Through its two lines of business (asset management and technology licensing), CBOE Vest is dedicated to serving investment advisor and brokerage firms by bringing wider access to innovative target outcome Investment strategies. CBOE Vest’s products provide investors with targeted outcomes and a level of predictability unattainable with most other investments. Services available include managed accounts solutions and mutual funds for financial advisors and technology solutions for brokerage firms.
Investors should consider the investment objectives, potential risks, management fees and charges and expenses carefully before investing. This and other information is contained in the Fund’s prospectus, which may be obtained by calling (855) 979-6060. Please read the prospectus carefully before investing. Distributed by First Dominion Capital Corp., Richmond, VA. Member FINRA.
Derivative Securities Risk: The Fund may invest in derivative securities. These are financial instruments that derive their performance from the performance of an underlying asset or index. FLEX Options Risk: The Fund expects to utilize FLEX Options issued and guaranteed for settlement by the OCC. Equity Risk. The SPRO Index provides an investor exposure to the equity securities markets. Exchange-Traded Funds Risk. The Fund may invest in FLEX Options that reference an exchange traded fund (“ETF”) that seeks to track the S&P 500 Index. Fixed-Income Securities Risk. The Fund may invest in fixed-income (debt) securities, which are generally subject to the following risks: Credit Risk. The financial condition of an issuer of a fixed-income security may cause the issuer to default. Interest Rate Risk. An increase in interest rates typically causes a decrease in the value of fixed income securities in which the Fund may invest. Indexed Securities and Derivatives Risk. If a security or derivative is linked to the performance of an index, it may be subject to the risks associated with changes in that index. Market Events Risk. Turbulence in the financial markets and reduced liquidity in equity, credit and fixed-income markets may negatively affect issuers worldwide, which could have an adverse effect on the Fund. Non-Diversification Risk. The Fund is non-diversified. The performance of a non-diversified fund may be more volatile than the performance of a diversified fund. Options Risk. The price of an option, which is a function of interest rates, volatility, dividends, the exercise price, S&P 500 Index changes, and other market factors, may change rapidly over time. Leveraging Risk: The use of leverage, such as that embedded in options, could magnify the Fund’s gains or losses. The return of each monthly tranche or loss is subject to a capped upside and partial downside protection. Passive Investment Risk. The Reference Asset is not actively managed and attempts to track the performance of an unmanaged index of securities. Tracking Error. Exchange traded funds face index correlation risk which is the risk that the performance of an exchange traded fund will vary from the actual performance of the target index, known as “tracking error”. Securities Lending Risk. The Reference Asset may engage in securities lending. Fees and Expenses. Unlike the S&P 500 Index, the Reference Asset will reflect transaction costs and fees that will reduce its price performance relative to the S&P 500 Index. Discount. Shares of exchange-traded funds tend to trade at a discount from their net asset value. Credit risk is the risk an issuer, guarantor or counterparty of a security in the Fund is unable or unwilling to meet its obligation on the security. Liquidity risk is the risk that the value of a FLEX Option will fall in value if trading in the FLEX Option is limited or absent. Management Risk. The skill and judgment of the Adviser in selecting investments will play a significant role in the Fund’s ability to achieve its investment objective. New Fund Risk. The Fund is recently formed. Tracking Error Risk. The Fund’s return may not match or achieve a high degree of correlation with the return of the SPRO Index due to, among other things, fees and expenses paid by the Fund that are not reflected in the SPRO Index. Tax Risk. The Fund expects to comply with the requirements of the Internal Revenue Code and other laws so that it will be taxed as a “regulated Investment company”; however, the federal income tax treatment of certain aspects of the proposed operations of the Fund are not entirely clear.