CBOE Vest, the US investment manager focused on target outcome investment strategies, is marketing among US retail investors the CBOE Vest S&P 500 Enhanced Growth Strategy Fund (ENGIX), a fund designed to track the CBOE S&P 500 Enhanced Growth Index Balanced Series (SPEN).

Conventional strategies that aim to deliver enhanced upside performance typically accomplish this through leverage. However, such approaches leave investors exposed to enhanced losses as well, according to Steve Neamtz (pictured), senior managing director at CBOE Vest. By using options, the 'enhanced growth strategy employed by the fund' seeks to deliver 2x upside performance on the S&P 500 up to a variable cap, without additional leverage on the downside.

"Enhanced growth strategies are proving quite popular with investors, especially in 'the new normal' of lower-than-expected global economic growth and muted appreciation of asset prices," said Neamtz. "Offering the possibility of enhanced returns in exchange for limited outsized returns offers a potentially viable alternative for growth in today's growth challenged environment."

According to Neamtz, data shows that when the S&P 500 experiences growth, more often than not, it's between 0% and 20%: over the past 16 years, S&P 500 price returns over a rolling 12-month period have been between 0% to +20% roughly 58% of the time.

"The goal with [our] investments is to bring a higher level of certainty around returns," said Neamtz. "An alternative way to think about it is that through use of derivatives, we can emphasize or eliminate parts of the distributions of returns to create outcomes which can better match the needs of a select set of investors."

Designed to enhance growth while keeping losses in line with the market and limiting returns to be below a cap, the fund invests in a series of 12 monthly rolling "tranches" of an "enhanced growth" strategy, according to Neamtz. Each tranche seeks to target, before fees and expenses, returns or losses that are a function of the price performance of the S&P500 Index from the third Wednesday of that month to the third Wednesday of the same month the following year,

Over the tranche holding period if the S&P500 Index appreciates, the tranche seeks to provide a total return that increases by twice the percentage increase of the S&P500 Index, up to a maximum return that is determined at the start of the tranche holding period; and if the S&P500 Index decreases, the tranche seeks to provide a total return loss that is equal to the percentage loss on the S&P 500 Index.

The buffer protection fund eliminates part of the downside distribution for conservative investors," said Neamtz. "The premium income focused fund replaces large parts of the distribution with moderate fixed periodic payments for income hungry investors. And this new fund enhances parts of the upside distribution for growth focused investors."

According to Neamtz, with the launch of this and more funds in the future, CBOE Vest is "striving to create a more complete solution set for investors". "The new growth-oriented fund complements our earlier offerings around protection and income," said Neamtz, adding that most predictions for global economic growth and asset price appreciation are low and one way to achieve growth is to leverage part of the positive returns.

From an underlying perspective, while the primary interest has been in the US domestic equities, the firm is also working on products for the international equity markets too, said Neamtz.

ENGIX is the third mutual fund launched by CBOE Vest, following the August launch of the CBOE Vest S&P500 Buffer Protect Strategy Fund (BUIGX) and the October launch of the CBOE Vest S&P 500 Buffer Protect Strategy Fund (BUIGX), a fund tracking the CBOE S&P 500 Buffer Protect Index Balanced Series (SPRO), a "buffer-protection strategy" seeking to shield investors from the first 10% of a decline in their investment, in exchange for giving up some upside.

While CBOE Vest's solutions are developed for a broader set of investors, there has been keen interest from distributors of structured notes, according to Neamtz. "A reason for the interest is the concerns raised by the DOL fiduciary rule around sale of notes in retirement accounts and a search for a replacement vehicle," said Neamtz. "In response, we have developed versions of these payoffs that can be offered to buyers on a monthly basis to mirror the monthly calendar offering period of notes. We are in active talks with distributors to build such and additional solutions for their evolving needs."

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