AUGZ provides S&P 500 exposure with a built-in hedge that kicks in after a 10% decline, protecting against the next 15% of losses while capping upside at around 15-20% over a one-year period starting each August.
How It Works
The fund uses a options overlay strategy, buying S&P 500 exposure through FLEX options while simultaneously purchasing put spreads for downside protection and selling call options to fund the hedge. The protection buffer and upside cap reset annually each August, with specific levels determined by market conditions at reset. Between resets, the fund's effective protection and remaining upside change daily based on market movements.
Key Features
- 10% deductible before protection starts, then shields next 15% of losses
- Annual August reset with new cap/buffer levels based on options pricing
- No management fee, just the embedded cost of the options strategy
Risks
- First 10% of losses are unprotected - you eat the full decline before buffer kicks in
- Upside capped around 15-20% annually - you'll miss big rallies beyond the cap
- Protection only works if held through full August-to-August period - mid-period buyers get different risk/reward
Who Should Own This
Best for investors who want equity exposure but can't stomach a 2008-style crash, particularly those nearing retirement who need growth but can't afford a 30%+ drawdown. Works as a core holding replacement for investors willing to give up some upside to sleep better during market turmoil.