FEBT provides partial downside protection against S&P 500 losses while capping upside gains over a one-year period starting each February. The fund absorbs the first 10% of market losses but limits gains to a predetermined cap, creating an asymmetric return profile for risk-conscious equity investors.
How It Works
The fund uses a FLEX options strategy on the S&P 500, buying at-the-money puts for downside protection and selling out-of-the-money calls to fund the hedge. Each February, the options reset with new strike prices and a fresh cap level based on prevailing volatility. Between reset dates, the buffer and cap levels float with the market, meaning mid-period buyers face different risk-return profiles than those who enter at inception.
Key Features
- 10% downside buffer protects against moderate corrections but not bear markets
- Annual February reset provides predictable entry points for full buffer protection
- Zero expense ratio makes it cheaper than most structured products or annuities
Risks
- Losses beyond 10% hit dollar-for-dollar — a 25% market drop means 15% fund loss
- Upside cap varies with volatility at reset, potentially limiting gains to single digits in calm markets
- Mid-period entries get partial buffer protection and unknown remaining upside, complicating the value proposition
Who Should Own This
Best suited for pre-retirees or conservative investors who want equity exposure but can't stomach full drawdowns. Works well as a 10-20% portfolio sleeve for those willing to sacrifice bull market gains for bear market cushioning. Investors should ideally buy at February reset for maximum buffer benefit and hold the full year.