DECT provides partial downside protection against the first 10% of S&P 500 losses over a one-year period starting each December, in exchange for capping your upside gains. Think of it as insurance that kicks in after a 10% drop but costs you the chance at big rallies.
How It Works
The fund uses a options collar strategy, buying S&P 500 exposure while simultaneously purchasing put spreads for downside protection and selling call options to fund that protection. The buffer and cap levels reset annually each December, with specific levels determined by options pricing at the time. Between reset dates, the effective buffer shrinks as the market moves, making entry timing crucial.
Key Features
- 10% downside buffer protects against losses between -10% and -20% from December start price
- Annual December reset provides fresh protection levels each year, unlike monthly buffer ETFs
- Options-based structure means no direct stock holdings, potentially more tax-efficient than funds that trade stocks
Risks
- Losses beyond 20% from start price are unprotected — in a 30% crash, you still lose 20%
- Upside cap (typically 15-20% annually) means missing out on strong bull market gains entirely
- Mid-period buyers get unpredictable protection — buying in June might mean 5% buffer, 8% cap remaining
Who Should Own This
Best for nervous investors approaching retirement who want to stay in equities but can't stomach another 2008-style drawdown. Works well for someone who'd be happy with 10-15% gains in good years if it means avoiding the first chunk of losses in bad ones. Not for long-term accumulators who need full market upside.