VanEck's October buffer fund cushions more than Innovator's October fund, for a lower cap
VanEck began trading its October buffer fund OCT on Thursday, October 1, seeking a 17% cushion on the S&P 500 ETF's share price and a 13.75% cap, both before a 0.50% fee.
Key takeaways
VanEck started trading OCT on Thursday, October 1, a fund that tries to absorb the first 17% of losses in the SPDR S&P 500 ETF Trust, SPY, and to stop the gains at 13.75%, before a 0.50% fee. SPY holds the S&P 500 stocks.
The fee cuts this year's 17% cushion to 16.50% and the cap to 13.25% for someone who bought on the first day and holds the year.
The cap is on the share price. A holder also gives up the dividends SPY has been paying. Over the last four quarters those came to 0.98% of the latest share price, on top of any gain the cap cuts off.
Innovator already sells an October buffer, POCT, that cushions the first 15% of SPY losses before fees. After its 0.79% fee, a buyer who holds the year has a 14.21% cushion and a 14.80% cap. Even after fees, Innovator's fund still leaves more of the upside.
AllianzIM's October buffer, OCTW, targets a 20% cushion before its 0.74% fee. After that fee, the cushion is 19.26% and the cap is 12.02%. OCT charges the least of the three. AllianzIM's fund cushions more than either.
Cushion and cap below are after fees, for a buyer who got in on the first day and holds the year:
Innovator's fund listed in 2018, AllianzIM's in 2020. VanEck's assets are from Friday, October 2.
OCT does this with options on SPY that expire on Thursday, September 30, 2027.
Other costs can cut the cushion and the cap further. VanEck says the cushion is a target, not a guarantee, and that a drop 10 percentage points past it is roughly a 10% loss for the fund.
A buyer who waited past Thursday is not getting those starting figures. By the close on Friday, October 2, the shares had risen, so a new buyer could lose 1.38%, after fees, before the cushion began.
VanEck called OCT the second of four quarterly funds it intends to list. Its July buffer, JULV, already chose a 20% cushion and an 11% cap, before fees, at the same 0.50% fee.
Each October, when the fund sets new terms, VanEck can choose a cushion from 15% to 20%. It says that range is meant to allow a more attractive cap.
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Frequently asked questions
What cushion and cap does VanEck's October buffer leave after fees?
For a buyer who got in on the first day and holds the year, the fee cuts the cushion to 16.50% and the cap to 13.25%.
Does Innovator's October fund still leave more upside?
After its 0.79% fee, a buyer who holds the year has a 14.21% cushion and a 14.80% cap, so Innovator's fund still leaves more of the upside.
Which October buffer cushions the most?
AllianzIM's October buffer cushions 19.26% after its 0.74% fee, more than either VanEck or Innovator, with a 12.02% cap.
Do those starting figures still apply after the first day?
By the close on Friday, October 2, the shares had risen, so a new buyer could lose 1.38%, after fees, before the cushion began.
