EMMY provides emerging markets exposure with a 15% downside buffer over a one-year period starting each May, using options to cushion the first 15% of losses while capping upside gains. This structured product targets investors who want EM exposure but can't stomach the typical 30-40% drawdowns these markets can deliver.
How It Works
The fund uses FLEX options on an emerging markets ETF to create defined outcomes over 12-month periods. It absorbs the first 15% of losses (if the underlying drops 20%, you lose 5%), but caps upside participation at a level set each May based on option prices. The cap resets annually but typically ranges from 10-20% depending on volatility when the series begins.
Key Features
- 15% downside buffer protects against typical EM corrections without eliminating exposure entirely
- Annual May reset allows entry at known cap levels vs monthly series with varying terms
- Zero expense ratio makes this cheaper than most EM funds despite the options overlay
Risks
- Losses beyond 15% hit dollar-for-dollar — a 40% EM crash still means 25% losses for holders
- Upside cap means missing out on EM's explosive rallies that often follow deep selloffs
- Must hold for full year to get buffer protection — selling mid-period can mean losses without protection
Who Should Own This
Best for investors who want emerging markets allocation but have been burned before by the volatility — think retirees who know they need EM exposure for returns but can't handle another 2008-style 50% drawdown. Also works for advisors dealing with skittish clients who pull money at the worst times. Hold for the full May-to-May period or you're just gambling on options prices.