First Trust Adds Buffered Gold ETF

January 21, 2021

Today, First Trust has added two new ETFs that expand its lineup of defined outcome ETFs into new directions. The FT Cboe Vest Fund of Deep Buffer ETFs (BUFD) and FT Cboe Vest Gold Strategy Quarterly Buffer ETF (BGLD) both offer different angles on a strategy that offers downside protection in exchange for a cap on potential upside performance.

BUFD and BGLD come with expense ratios of 1.05% and 0.90%%, respectively. The funds list on Cboe Global Markets, the parent company of ETF.com.

BGLD will invest in flexible exchange options (FLEX) contracts on the SPDR Gold Trust (GLD) to achieve its goals. The fund will allow for a 5% loss but will then protect against the next 10% of losses up to 15%. Unlike other defined outcome ETFs, BGLD resets on a quarterly basis rather than annually.

“In most of those quarterly periods, if you look back historically—based on a cap of about 8%—in about 80% of those periods you wouldn’t reach that cap. We wanted to set the cap at a point where in most periods you weren’t limiting your upside,” said First Trust ETF Strategist Ryan Issakainen.

“You have to strike a balance to what you’re going to protect on the downside while still giving as much upside exposure as possible,” he added, noting that there has been a lot of investor interest in gold as a potential hedge against inflation.  

Although there are defined outcome ETFs linked to international and small-cap benchmarks, BGLD is the first to be linked to a commodity. 

Meanwhile, BUFD is similar to the FT Cboe Vest Fund of Buffer ETF (BUFR), which rolled out in August 2020. Both funds hold a laddered portfolio of four First Trust defined outcome ETFs that reset at different times—generally one of the funds will reset in any given quarter. But while BUFR holds funds from the defined outcome series that offer 10% downside protection on the performance of the SPDR S&P 500 ETF Trust (SPY), BUFD will hold First Trust “Deep Buffer” funds that are also tied to the performance of SPY and allow for 5% of losses while protecting against the next 25% of downside up to 30%.

Contact Heather Bell at [email protected]

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