MAYC provides a 10% downside buffer against S&P 500 losses over a one-year period starting each May, while capping upside gains at a predetermined level. It's designed for investors who want equity exposure but are willing to trade away some upside for partial downside protection.
How It Works
The fund uses a options collar strategy, buying S&P 500 exposure while simultaneously purchasing put options 10% out-of-the-money and selling call options to fund the puts. The exact upside cap is set annually based on option prices at the May reset. Between reset dates, the buffer and cap levels float with the fund's price, creating different risk/reward profiles for investors who buy mid-period.
Key Features
- First 10% of S&P 500 losses absorbed annually from May reset date
- Upside capped around 15-20% annually depending on volatility at reset
- No credit risk unlike structured notes - uses exchange-traded options
Risks
- Losses beyond 10% hit dollar-for-dollar - 30% market drop means 20% fund loss
- Mid-period buyers get different buffer/cap levels that can be significantly worse than advertised
- Missing dividends plus option costs create ~2-3% annual performance drag vs S&P 500
Who Should Own This
Best for retirees or conservative investors who need equity exposure but can't stomach full drawdowns, particularly those who can align purchases with May reset dates. Works well as a 10-20% portfolio sleeve for investors worried about near-term market risks but who don't want to go fully to cash.