VanEck has launched its first defined-outcome fund, tapping Lido Advisors as subadvisor for a strategy designed to limit investors' losses from declines in the S&P 500 in exchange for a cap on the upside.
The VanEck U.S. Equity Buffer ETF – July (JULV), which is built to shield investors from the first 20% of S&P 500 losses over an approximately one-year period, uses FLEX options on the SPDR S&P 500 ETF Trust to track index performance up to a predetermined cap, resetting each July. It marks VanEck's entry into a corner of the ETF market that has expanded rapidly as advisors look for ways to keep clients invested through volatile stretches.
Defined-outcome products accounted for a substantial share of listed derivatives-based equity ETFs by the end of 2024, according to CFRA Research, and the category has since continued to draw large capital commitments from major asset managers.
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Lido Advisors, an independent investment advisory firm with more than $46 billion in regulatory assets under management, has run defined-outcome strategies for clients for over a decade, according to the late August announcement of the VanEck ETF launch.
Jeff Garden, Lido's chief investment officer, said the firm's move into the ETF wrapper reflects a shift in how it wants to deliver that expertise.
"We've been running defined-outcome strategies for clients for over a decade – directly, and through private and mutual fund structures," Garden told InvestmentNews. "Over that time it became clear that the ETF is simply a better delivery vehicle for this type of program: it's more efficient, more transparent, and it lets us extend the strategy beyond our own client base."
As Garden tells it, Lido's defined-outcome program has grown from a single, basic structure into more than 15 distinct approaches spanning downside protection, diversification, growth and tactical positioning.
"It represents a significant share of our assets under management, and we've run it through both bull and bear markets – which is where you learn what a structure actually does versus what it's supposed to do," he said.
For Garden, a defined-outcome strategy can make sense to a wide swath of investors, and the suitability question revolves more around their sentiments on the market.
"When someone is worried about entry timing, or about valuations, or about a specific market condition they can see coming, this is a structure worth looking at," he explained, pointing to JULV's versatility as both a defensive holding as well as a tactical, opportunistic investment vehicle.
Ed Lopez, VanEck's managing director and head of product management, said the firm chose to enter the category now given elevated market uncertainty and rising advisor demand for defined outcomes.
"We're very excited to make our entry to the buffered ETF category with JULV and equally as thrilled to be working with Lido Advisors, a team that brings deep expertise in building these types of strategies," Lopez said in the launch statement.
VanEck and Lido plan to introduce additional buffered ETFs with varying outcome periods. In the meantime, VanEck said it will be publishing daily updates on JULV's remaining cap, remaining buffer, how far the fund can fall before the buffer activates, and the number of days left in the outcome period
The launch also lands amid a broader wave of RIA firms launching their own ETFs rather than solely distributing products from outside managers. While Lido isn't as bullish on that opportunity, Garden said the firm does recognize the potential of ETFs to act in ways that aren't always possible in other vehicles.
"ETFs let us do things that aren't always possible in other vehicles – more efficiently, and generally with better tax treatment," he said. "Exposure is uniform across accounts, minimums are lower, liquidity is higher, transparency is excellent, and in some cases the wrapper enables strategies we simply couldn't deliver otherwise."
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