What is GJUL? (Pros, Cons, and Strategies)

With the growing interest in buffered ETFs as a means to manage volatility and safeguard investments, the FT Vest U.S. Equity Moderate Buffer ETF - July (GJUL) has garnered attention. This blog post will demystify GJUL by explaining its primary features, pros, and cons, as well as offering investment strategies for those considering adding it to their portfolio.

What is GJUL?

GJUL is a buffered ETF designed to offer investors exposure to the U.S. equity market while providing downside protection up to a predetermined buffer. The ETF aims to help investors manage risk while still participating in potential market gains.

GJUL is part of the FT Vest series, which offers a range of similar buffered ETFs launched at different intervals throughout the year to accommodate various investment timelines and strategies.

Key Features of GJUL

• Protective Buffer: The ETF offers a 15% buffer against the losses over a one-year outcome period. This means that if the U.S. equity market falls by up to 15%, investors will not lose money.
• Cap on Gains: To provide this buffer, the upside potential is capped. The cap varies over time based on market conditions and is set at the start of each outcome period, lasting one year.
• Outcome Period: Each GJUL ETF has a one-year outcome period that resets annually in July. This structure helps investors to easily plan and anticipate performance based on their investment horizon.

GJUL Composition

GJUL typically invests in a portfolio consistent with the U.S. equity market, primarily targeting large-cap stocks. The buffer and cap features are achieved through a combination of options and derivatives in conjunction with the equity holdings. This ensures that the ETF can provide both growth opportunities and protective measures within the set terms.

Pros of GJUL

Downside Protection

One of the primary advantages of investing in GJUL is the defensive buffer. This provides peace of mind, especially in volatile markets. With a 15% buffer, GJUL can mitigate losses, making it an attractive option for conservative investors or those nearing retirement who cannot afford to weather significant market downturns.

Potential for Market Participation

Despite the downside protection, GJUL still allows investors to participate in market gains, up to a predetermined cap. This makes GJUL a balanced investment, combining both safety and growth potential.

Predictable Risk

The defined one-year outcome period and clear terms for buffer and cap provide a level of predictability that's beneficial for financial planning. Investors know the maximum loss and gain they can experience within the outcome period, allowing for more precise investment strategies.

Cons of GJUL

Limited Upside Potential

While the downside protection is a significant benefit, the cap on gains can be a drawback in a bull market. Investors must sacrifice part of the potential upside to obtain the protective buffer. This can make GJUL less attractive during periods of strong market performance.

Complexity

Buffered ETFs like GJUL can be more intricate than traditional ETFs. Understanding the nuances of how the buffers and caps function, and how they are implemented through options, requires a higher level of financial literacy.

Not Suitable for All Market Conditions

GJUL is designed primarily for markets where downside protection is essential. In times of sustained bull markets, GJUL's growth potential is limited by its cap. Investors looking for high growth might find this limitation restrictive.

GJUL Investment Strategies

Given its unique characteristics, GJUL can be a valuable component of an investment strategy when used appropriately.

Long-term Investment Strategy

GJUL can serve as a stabilizing force within a diversified portfolio. For investors with a long-term horizon, incorporating GJUL can help smooth out volatility, protect against downturns, and contribute to steady growth.

Balanced Portfolio Allocation

For investors close to retirement or those with a lower risk tolerance, an allocation to GJUL can mitigate portfolio risks. Pairing GJUL with other growth-focused investments allows for participation in market gains while ensuring protection against severe losses.

Dynamic Reallocation

Investors may consider using GJUL dynamically. During periods of high market volatility, increasing the allocation to GJUL can reduce overall portfolio risk. Conversely, in strong bull markets, reducing the GJUL stake and reallocating to higher growth assets can optimize returns.

Conclusion

GJUL offers a unique blend of downside protection and growth potential, making it a versatile tool for risk management within an investment portfolio. However, it is essential to understand its limitations and carefully consider investment strategies to leverage GJUL effectively. Whether used for long-term stability or as a dynamic allocation strategy, GJUL can be a beneficial addition for investors seeking a more balanced approach to market participation.