18 January 2024: Wealth Product Ideas

ETF Ideas – Positioning for Correction

US stocks and bonds have rallied strongly in Nov-Dec as markets priced in a more dovish Fed policy outlook and interest rate cuts in 2023.
However, the sharp rally has left stocks/bonds in overbought territory and vulnerable to a correction or consolidation in the near term.
Investors may consider buffered ETFs like iShares Large Cap Moderate Buffer ETF (IVVM) and iShares Large Cap Deep Buffer ETF (IVVB) to help cushion against the downside.
These ETFs hold S&P 500 ETFs (IVV) but also incorporate built-in options strategies to provide an explicit downside buffer.
This buffer can help offset some losses if the expected consolidation plays out. The buffer re-sets each quarter.
The opportunity is buffer ETFs can defend in a correction while still participating somewhat in further upside. However, these ETFs limit maximum gains.

iShares Large Cap Buffer ETFs

1. Product Overview

Seeks to track the iShares Core S&P 500 ETF (IVV) while providing downside buffer protection against the first 5-20% of losses each quarter.
Uses FLEX options to establish the downside buffer and upside cap each quarter. The buffer range is reset every 3 months.
Offers convenient, liquid access to a defensive equity strategy that aims to participate in upside while limiting drawdowns.
Expense ratio of 0.50%. Holdings are dominated by FLEX call and put options on IVV.

2. Key Benefits

Outcome-oriented approach targets downside protection while allowing some equity upside participation.
Can help mitigate volatility and smooth out returns compared to straight equity exposure.
Downside buffer may help investors remain invested during volatile markets and avoid realizing losses.
Can be used as part of an alternatives allocation to diversify traditional stock/bond exposure.
Offers transparency and intraday liquidity compared to more complex buffered fund structures.

3. Ideal Investors

Investors seeking equity exposure with defined downside risk management.
Investors constructing alternatives portfolios or more defensive equity allocations.
Long-term investors looking for enhanced risk-adjusted returns.

iShares Large Cap Buffer ETFs – Investment/ Portfolio Holdings

FLEX Options – The fund invests in customized index call and put options contracts to generate the downside protection buffer and upside cap.
IVV Holdings – The options derive their value from the iShares Core S&P 500 ETF (IVV), so the fund has a small allocation to IVV shares as its reference asset.
Cash/Cash Equivalents – The remainder of the portfolio is invested in cash, cash collateral, and short-term fixed income like Treasury bills for liquidity and to support the options strategies.

Summary

Majority is FLEX index options that create the buffer and cap.
Small portion invested directly in IVV as the reference asset.
Remaining amount in cash and short-term bonds for liquidity.
This structure allows the fund to maintain S&P 500 exposure via IVV, while using the options to tactically add downside risk management. The cash supports the options implementation.

Fund Name (Ticker)	iShares Large Cap Moderate Buffer ETF (IVVM)
Description	iShares Large Cap Moderate Buffer ETF seeks to track the share price return of the iShares Core S&P 500 ETF (the “Underlying ETF”) up to an approximate upside limit, while seeking to provide downside protection against approximately the first 5% of Underlying ETF losses over each calendar quarter.
Asset Class	Large-cap Equity
30-Day Average Volume (as of 17 Jan 2024)	1,703.0
Net Assets of Fund (as of 16 Jan 2024)	US$31,894,510
12-Month Trailing Yield	N/A
P/E Ratio (as of 17 Jan 2024)	26.522
P/B Ratio (as of 17 Jan 2024)	4.570
Management Fees (Annual)	0.50%

Top 10 Holdings

(as of 12 January 2024)

(Source: Bloomberg)

Fund Name (Ticker)	iShares Large Cap Deep Buffer ETF (IVVB)
Description	iShares Large Cap Deep Buffer ETF seeks to track the share price return of the iShares Core S&P 500 ETF (the “Underlying ETF”) up to an approximate upside limit, while seeking to provide downside protection against approximately 5-20% of Underlying ETF losses over each calendar quarter.
Asset Class	Large-cap Equity
30-Day Average Volume (as of 17 Jan 2024)	6990
Net Assets of Fund (as of 16 Jan)	US$35,329,678
12-Month Trailing Yield	N/A
P/E Ratio (as of 17 Jan 2024)	26.522
P/B Ratio (as of 17 Jan 2024)	4.570
Management Fees (Annual)	0.50%

Top 10 Holdings

(as of 12 January 2024)

(Source: Bloomberg)