AUGT provides one-year downside protection against the first 10% of S&P 500 losses starting each August, while capping upside gains at a predetermined level. It's designed for investors who want equity exposure but are willing to trade away some upside for a cushion against moderate market declines.
How It Works
The fund uses a options collar strategy, buying S&P 500 exposure while simultaneously purchasing put options 10% below the starting level and selling call options to fund the protection. The buffer and cap levels reset annually each August, with the cap determined by options pricing at reset. Between reset dates, the effective buffer and remaining cap change based on the fund's price movement relative to its starting value.
Key Features
- 10% downside buffer resets annually each August, protecting against moderate corrections
- Cap levels vary by vintage but typically range 12-20% depending on volatility at reset
- No protection beyond -10%; investors fully participate in losses below the buffer
Risks
- Losses beyond 10% are unprotected — a 25% market drop means you lose 15%
- Buying mid-period means inheriting a partially depleted buffer and cap from original terms
- August reset timing risk — poor entry point if markets rally hard just before your protection begins
Who Should Own This
Best for nervous equity investors approaching retirement or those overweight stocks who want to reduce portfolio volatility without going to cash. Works well as a 1-2 year parking spot for money you'll need soon but don't want sitting in bonds. Requires active monitoring since the buffer depletes and protection expires — this isn't a set-and-forget holding.