Buffer UITs

Protect Against Market Downturns

Downside Protection for Uncertain Markets

Buffer Unit Investment Trusts (UITs) are investment vehicles designed to help manage equity market uncertainty by combining growth potential with downside protection. Using options strategies, buffer UITs allow investors to participate in market gains up to a cap, while providing a “buffer” against a predetermined amount of losses over a set time period.

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KEY POINTS

Reduce the Emotional & Financial Impact of Market Downturns

Buffer UITs aim to reduce the emotional and financial impact of market downturns, aligning with behavioral finance findings that losses are felt more acutely than gains.

 

Mitigate Downside Risk

Buffer UITs can help risk-averse investors stay comfortably invested during volatile periods, potentially improving long-term portfolio outcomes.

 

Understand the Trade-Off

Investors accept a cap on upside returns in exchange for partial protection against losses.

 

Why Consider Buffer UITs

Limiting downside loss can significantly enhance long-term portfolio performance. Larger portfolio losses require proportionally greater gains to break even: a 10 percent loss needs an 11 percent gain, while a 40 percent loss needs a 67 percent gain to break even. Mitigating drawdowns reduces the recovery burden, improving long-term results.

RECOVERY PERIOD IN MONTHS FOR THE S&P 500® INDEX FOR VARIOUS DRAWDOWN LEVELS (1948 – 2024)1

 

Why Consider Buffer UITs

Hypothetical example for illustrative purposes only. 1Source: Bloomberg 7.31.2024. Months to Recover begins from low dates of 10.9.2002 during the Tech Bubble, 3.09.2009 during the Financial Crisis, and 3.23.2020 for COVID, respectively. Average recession recovery period is based on mathematical average low date.

How Do Buffer UITs Work?

A buffer strategy puts guardrails on investor returns, using options to defend against losses to a specified percentage in exchange for capping gains at a specified upside cap.

EXAMPLE OF HYPOTHETICAL 20% BUFFER INVESTMENT WITH 20% CAP (BEFORE FEES AND EXPENSES)

 

How Do Buffer UITs Work?

Hypothetical example for illustrative purposes only. Does not represent any Guggenheim product. There is no guarantee that a buffer investment will achieve its investment objective.
The hypothetical investment shown assumes no fees and expenses. Actual results net of fees and expenses would be slightly different.

Why Use UITs for Buffer Exposure?

UITs offer the convenience and diversification of owning a fixed portfolio of securities in a packaged investment with a stated investment objective and a defined maturity. Guggenheim believes that a UIT’s unique defined maturity makes it an attractive vehicle for buffer strategies.

 

Known Upside and Downside

Known Upside and Downside

Due to its defined maturity, if purchased at inception and held to maturity, a buffer UIT should deliver performance within the range of returns stated in the investment objective, though it is not guaranteed.1

Cost-Competitive, Convenient Access

Cost-Competitive, Convenient Access

UITs offer cost-competitive, convenient access to buffer strategies with a low minimum investment.

Liquidity

Liquidity

UITs offer liquidity via a daily net asset value (NAV).

No Credit Risk

No Credit Risk2

By holding exchange-listed FLEX® Options to meet its investment objective, there is minimal counterparty risk.

1There is no guarantee that the defined outcomes will be realized or that the strategy will achieve its investment objective. A Trust's performance can be impacted by redemption activity, market movements, and changes in liquidity of the options. 2FLEX Options are not backed by the faith and credit of an issuing institution, so they are not exposed to credit risk.

How to Incorporate a Buffer UIT Into a Portfolio

Buffer UITs can be used as core or tactical positions within a well-allocated portfolio. They may be attractive to risk-averse investors who are seeking to buffer against potential stock market losses.

 

Manage Risk

Through a stated downside buffer, seeks to limit downside risk to help preserve assets.

 

Mitigate Downside Risk

May offer an attractive risk-aware way for reentering the stock market.

 

Be Retirement-Ready

May offer effective risk management for those approaching or already in retirement.

Resources

Learn more about how buffer investing may be beneficial to your portfolio.

 

AN INNOVATIVE WAY TO MANAGE EQUITY RISK
Buffer Video
Defined Outcome Investing Course
Understanding Your Investment Experience


 

Buffer investing may not be suitable for all investors. Investing involves risk, including the possible loss of principal. There is no guarantee that a outcome based investment will achieve its objective. The ability of a outcome based investment to provide the capped return or limited downside loss is typically dependent on investors purchasing units at the beginning of an outcome period and holding them until the last day of the period. Investors purchasing units after the outcome period has begun or redeeming units prior to its termination may experience very different results from the stated investment objective.

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.

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