CBOE Vest Financial is pitching among US investors the CBOE Vest S&P 500 Buffer Protect Strategy Fund (BUIGX), its first mutual fund designed to provide investors with index-based buffer protection.

The fund which tracks the CBOE S&P 500 Buffer Protect Index Balanced Series (SPRO), provides 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% 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 (pictured), 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, according to Neamtz. 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," said Neamtz. "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."

According to Neamtz, the consideration of the wrapper around the product is usually a function of the market place, and the demand in the market place, which is why the firm has deployed the CBOE Vest index series via a mutual fund as opposed to a structured note. "In the US, mutual funds have the largest asset pool and although there are pros and cons with any wrapper, this wrapper provides advantages around better transparency, regulatory oversight, segregation of assets, exchange traded portfolio holdings and daily liquidity, among others," said Neamtz. "A different wrapper can be more suitable in a different marketplace or for a different set of investors."

Neamtz pointed that structured notes are very ingrained in Europe and can be appropriate in certain situations such as when used to provide tactical exposure to a particular reference asset with a certain payout that may not be easily replicated by listed options; or when investors are looking for higher yields that come from taking on more credit risks, said Neamtz.

"In contrast, this specific mutual fund provides a more perpetual exposure to the specific strategy in a more robust wrapper with daily liquidity, transparency, segregation of assets, exchange traded portfolio holdings - all of which allow it to be an ongoing core investment in portfolios," said Neamtz, adding that the firm's goal is "to provide access to a diverse set of target outcome investments to a diverse set of investors in a diverse set of delivery wrappers".

CBOE Vest will continue to build its offering its range of target outcome investment strategies "launching more products and making additional fillings", according to Neamtz.

"These products will span protection, income, enhanced growth and outperformance outcomes," said Neamtz. "We are committed to launching the SUIT (Structured Unit Investment Trust) range of products soon."

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