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

In the realm of exchange-traded funds (ETFs), there are many specialized products designed to meet different investment objectives. One such innovative product is the FT Vest U.S. Equity Moderate Buffer ETF - March, commonly known as GMAR. Designed to offer a unique blend of equity exposure and downside protection, GMAR has been gaining attention among investors. In this blog post, we'll delve into what GMAR is, its features, pros, cons, and investment strategies.

What is GMAR?

GMAR stands for FT Vest U.S. Equity Moderate Buffer ETF - March. This ETF is part of a series of buffer ETFs offered by First Trust Advisors, which aim to provide investors with capped gains and a buffer against potential losses over a specified outcome period.

Key Features of GMAR

• Buffer Protection: Provides a buffer against the first 15% of market losses during the outcome period, making it attractive for risk-averse investors.
• Capped Gains: Offers upside potential up to a cap, which resets annually in March.
• Outcome Period: Each GMAR outcome period lasts approximately one year, beginning in March of each year.
• Underlying Index: Seeks to track the performance of the SPDR S&P 500 ETF Trust (SPY) using flexible exchange (FLEX) options.

GMAR Composition

GMAR invests in a combination of U.S. equity securities and FLEX options that provide exposure to the SPY. The FLEX options are customized options contracts that provide the fund with its unique capped and buffered structure. By combining these elements, GMAR provides exposure to the large-cap U.S. equities with protection against substantial losses.

Pros of GMAR

Downside Protection

One of GMAR's most compelling features is its built-in buffer protection. This means that if the market experiences a significant downturn, the first 15% of losses are absorbed by the ETF. This feature offers peace of mind to investors who are concerned about market volatility.

Diversified Equity Exposure

GMAR provides exposure to the S&P 500, which consists of 500 of the largest publicly traded companies in the U.S. This diversification mitigates the risk associated with single-stock exposure and aims to capture the broad market's returns.

Predictable Outcome Periods

The one-year outcome periods provide a clear framework for investors. Knowing that the buffer and cap reset annually in March allows for straightforward planning and rebalancing of investment portfolios.

Cons of GMAR

Capped Gains

The downside protection comes with a trade-off: capped gains. While the ETF offers a buffer against losses, it also limits the upside potential to a certain percentage, which resets annually. This means that in a bullish market, your returns will be capped, potentially leaving money on the table.

Complexity

GMAR's structure involves sophisticated financial instruments like FLEX options, which can be complex and difficult for the average investor to fully understand. This complexity might deter some investors from including GMAR in their portfolio.

Expense Ratio

While not exorbitant, the expense ratio for buffer ETFs like GMAR is generally higher than traditional ETFs due to the costs associated with managing the options strategy.

GMAR Investment Strategies

Risk-Mitigation Strategy

Given the buffer against the first 15% of market declines, GMAR is an ideal fit for conservative investors seeking to mitigate downside risk. If you're wary about potential market downturns, incorporating GMAR into your portfolio can provide a cushion during volatile periods.

Long-term Investment Horizon

While GMAR offers annual buffers, it's also suitable for long-term investors who can benefit from periodic rebalancing. Over several years, the buffer protection can help navigate through multiple market cycles, offering a smoother ride.

Complementary Asset

Rather than relying solely on GMAR, it can serve as a complementary asset within a diversified portfolio. By combining GMAR with other equity ETFs or fixed-income investments, you can create a balanced portfolio that aligns with your risk tolerance and investment goals.

Conclusion

GMAR presents a unique investment opportunity for those looking to balance equity exposure with downside protection. While the capped gains might not appeal to everyone, the buffer against market losses offers a compelling case for risk-averse investors or those planning for long-term objectives. As with any investment, it's crucial to understand both the pros and cons before making a decision. Consider your risk tolerance, investment goals, and time horizon to determine if GMAR is the right fit for your portfolio.