IFLR provides exposure to developed international stocks while using options to establish a downside floor that resets quarterly. The fund targets participation in most of the upside while limiting losses to approximately 10% over any three-month period.
How It Works
The fund holds a basket of developed market equities (likely tracking MSCI EAFE or similar) and overlays a systematic options strategy using put spreads to create the floor. Each quarter, the fund resets its protection level based on current market prices, buying new put options funded partially by selling deeper out-of-the-money puts. This creates a defined risk buffer rather than full downside protection.
Key Features
- Quarterly reset means fresh 10% floor every three months regardless of prior performance
- Lower cost than buying full downside protection since floor (not full hedge) is partially self-funded
- Captures most international equity upside unlike capped buffer ETFs that limit gains
Risks
- In sharp selloffs exceeding 10% quarterly, you still eat the loss beyond the floor level
- Protection resets can lock in losses - if down 8% at reset, new floor starts from that lower level
- Options overlay creates tracking error versus plain international equity returns, typically 1-3% annually
Who Should Own This
Best for investors who want international exposure but get queasy during corrections - think retirees or those within 5-10 years of retirement who can't stomach another 2008 in their foreign holdings. Also works for advisors dealing with skittish clients who need guardrails to stay invested internationally rather than panic-selling at bottoms.