First Trust Launches US Equity Buffer UCITS ETF

First Trust has expanded its Target Outcome Investments range with the launch of the First Trust Vest U.S. Equity Moderate Buffer UCITS ETF – May (GMAY). This new ETF is designed to provide investors with exposure to the S&P 500, while limiting both upside and downside risks through the use of derivatives.

Key Features of GMAY

• Exposure: Provides exposure to the S&P 500 index.
• Upside Cap: 13.59% (12.75% net after fees).
• Downside Protection: 15% buffer against losses.
• Listing: Available on the London Stock Exchange.
• Outcome Period: Approximately one year, ending in May 2025, with caps and buffers reset to current market conditions at the end of each period.
• Structure: Perpetual, allowing for indefinite holding.

Investment Strategy

GMAY is part of the Target Outcome Investments range and follows a strategy to mitigate losses while enabling participation in potential gains up to a predefined cap. The fund is actively managed by First Trust Advisors and sub-advised by Vest Financial, employing a Target Outcome Strategy.

Use of Derivatives

The fund invests primarily in flexible exchange options (FLEX options) on the S&P 500. These are customisable exchange-traded option contracts that are guaranteed for settlement by the Options Clearing Corporation. This use of derivatives is crucial to achieving the desired outcome of limiting both upside and downside risks.

Market Context and Target Audience

Buffer ETFs, such as GMAY, are designed for equity investors who seek to manage risk without completely sacrificing the potential for growth. They are particularly appealing in volatile markets where investors are concerned about significant losses but still want to benefit from market upswings.

Target Outcome Investments Range

GMAY is the fourth product in First Trust’s Target Outcome Investments range, which has seen significant growth, exceeding $19.65 billion in assets under management as of March 2024. This range includes various ETFs that offer different levels of protection and participation in market gains, catering to diverse investor needs and risk appetites.

Mitigating downside risk remains a top concern for many investors, which helps explain the growing popularity of buffered ETFs.

The launch of GMAY continues to show our commitment to offering European investors innovative solutions to navigating today’s market.

Rupert Haddon, managing director at First Trust Global Portfolios