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What if there was a better version of popular Buffer ETF that limits downside losses in exchange for a cap on upside performance? Ben Fulton, CEO of WEB Investments in Park City, Utah, thinks he has the answer.
The WEBs Defined Volatility SPY ETF (DVSP) and the WEBs Defined Volatility QQQ ETF (DVQQ), which began trading last week, are essentially looking for the same outcome as exchange-traded funds in the form of lower price volatility.
The main distinction, as Fulton explained, is that his ETFs operate without embedded rails and instead target a level of volatility that matches the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ).
Index-tracking ETFs target the historical average volatility levels of the underlying ETFs by adding volatility when it is below average and reducing volatility when it is above average. Volatility management is achieved by increasing cash when volatility is too high and increasing exposure to the underlying ETF by up to 200% when volatility is too low.
“Our whole goal is to take the existing ETFs and create a more stable environment for investors and financial advisors trying to keep their clients in the markets,” Fulton said. “And we give investors an opportunity to outperform the traditional ETF.”
The strategy, which Fulton has subsequently tested since the 2008 financial crisis, is to manage the travel investor experience by managing volatility.
While a strategy that targets average volatility is technically no different than just holding SPY or QQQ, Fulton said that by removing the peaks and valleys, he expects investors to have a smoother ride.
“We compare it to a thermostat that keeps the temperature inside your house at 70 degrees all the time,” he said. “We don’t care what the temperature is outside as long as it’s 70 degrees inside.”
As for SPY and QQQ historical average volatility hitting the same spot as their new funds, Fulton said, “It’s like saying the average temperature in Park City is 60 degrees, but you wouldn’t want to live outside all year long.” ‘year”.
WEB’s ETFs charge 85 basis points, and Fulton said there will be more.
“You can use ETFs with cushioning and pay for downside protection with upside limits,” he said. “Or you can go with us and not have a cap.”
