Worried about a market decline?
Understanding Buffer ETFs
These strategies help you protect against market declines and participate in the upside to a pre-determined level. If the underlying reference asset falls, you have a buffer zone to mitigate losses. In a nutshell: you trade in some upside for the added downside protection.
How Buffer ETFs work
Potential Outcomes Scenarios: Day 1 to Day 365
For illustrative purposes only. The actual buffered zone and upside cap are set at the beginning of the target outcome period and only applies at the end of the specified outcome period.
Discover our Buffer ETFs
(Ticker: ZJAN)
(Ticker: ZOCT)
(Ticker: ZAPR)
Why buy these ETFs?
- Protection: Protect against market declines and participate in market appreciation up to a cap.
- No options expertise required: Traditional ETF that trades on the exchange
- No upfront commissions: As opposed to other structures, ETFs are ideal for fee-based and discretionary accounts
- No use of leverage: Outcomes generated through a mix of equities
Resources
Key metrics updated daily to help make informed investment decisions and a one-pager to learn more about BMO Buffer ETFs.
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Note: When entering U.S. Dollar unit symbol “(.U)” on Thomson One use “(‘U)”. (‘U-T) for TSX listed ETFs and (‘U-GD) for NEO listed ETFs
Buffer ETFs FAQs
First, the fund invests in the underlying reference asset. For example, the BMO S&P 500 Hedged to CAD index ETF, ticker ZUE.
Next, the fund buys a customized options package known as a put spread to create the downside buffer.
Third, the fund sells an upside call option to pay for the cost of the protective put spread. This is what creates the upside cap on growth potential.
Footnotes
1 BMO Buffer ETFs seeks to provide income and appreciation that match the return of a Reference Index up to a cap (before fees, expenses and taxes), while providing a buffer against the first 15% (before fees, expenses and taxes) of a decrease in the Reference Index over a period of approximately one year, starting from the first business day of the stated outcome period.↩
2 Intrinsic value refers to the difference between the current price of the underlying security and the strike price in the option contract. Time value, by contrast, reflects an additional premium that investors are willing to pay for the time left on the option contract; typically, the time value of an option decreases as the contract approaches expiry.↩
3As the fund is less than one year old; the actual Management Expense Ratio (MER) will not be known until the fund financial statements for the current fiscal year are published. The estimated MER is an estimate only of expected fund costs until the completion of a full fiscal year and is not guaranteed.↩
Disclosures
This communication is intended for informational purposes only and is not, and should not be construed as, investment and/or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual’s circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment.
An investor that purchases Units of a Structured Outcome ETF other than at starting NAV on the first day of a Target Outcome Period and/or sells Units of a Structured Outcome ETF prior to the end of a Target Outcome Period may experience results that are very different from the target outcomes sought by the Structured Outcome ETF for that Target Outcome Period. Both the cap and, where applicable, the buffer are fixed levels that are calculated in relation to the market price of the applicable Reference ETF and a Structured Outcome ETF’s NAV (as Structured herein) at the start of each Target Outcome Period. As the market price of the applicable Reference ETF and the Structured Outcome ETF’s NAV will change over the Target Outcome Period, an investor acquiring Units of a Structured Outcome ETF after the start of a Target Outcome Period will likely have a different return potential than an investor who purchased Units of a Structured Outcome ETF at the start of the Target Outcome Period. This is because while the cap and, as applicable, the buffer for the Target Outcome Period are fixed levels that remain constant throughout the Target Outcome Period, an investor purchasing Units of a Structured Outcome ETF at market value during the Target Outcome Period likely purchase Units of a Structured Outcome ETF at a market price that is different from the Structured Outcome ETF’s NAV at the start of the Target Outcome Period (i.e., the NAV that the cap and, as applicable, the buffer reference). In addition, the market price of the applicable Reference ETF is likely to be different from the price of that Reference ETF at the start of the Target Outcome Period. To achieve the intended target outcomes sought by a Structured Outcome ETF for a Target Outcome Period, an investor must hold Units of the Structured Outcome ETF for that entire Target Outcome Period.
S&P 500® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”). This trademark has been licensed for use by S&P Dow Jones Indices LLC and sublicensed to BMO Asset Management Inc. in connection with the above-mentioned BMO ETFs. These BMO ETFs are not sponsored, endorsed, sold or promoted by S&P Dow Jones LLC, S&P, or their respective affiliates and S&P Dow Jones Indices LLC, S&P and their affiliates make no representation regarding the advisability of trading or investing in such BMO ETF(s).
Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compound total returns including changes in prices and reinvestment of all distributions and do not take into account commission charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their value change frequently and past performance may not be repeated.
For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETFs prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/ or elimination.
BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager, and separate legal entity from Bank of Montreal.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
®/™Registered trademarks/ trademark of Bank of Montreal, used under licence.