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

In an increasingly volatile market environment, many investors are seeking innovative ways to protect their portfolios while still capturing some upside potential. One such investment vehicle gaining attention is MAYZ, the TrueShares Structured Outcome (May) ETF. Whether you're aiming for portfolio stabilization or managed growth, understanding MAYZ can offer useful insights into strategically balancing risk and reward. Today, we'll delve into what MAYZ is, its pros and cons, and optimal strategies for incorporating it into your investment portfolio.

What is MAYZ?

MAYZ is a structured outcome ETF that uses options to offer defined investment outcomes. Specifically, the TrueShares Structured Outcome (May) ETF aims to provide capped gains while protecting against potential losses over a predefined outcome period, which, in this case, begins and concludes in May of each year.

MAYZ employs a mix of options strategies on the SPDR S&P 500 ETF Trust (SPY) to achieve its objectives, typically combining put options for downside protection and bought/sold call options for capping the upside. The ETF is designed to help investors achieve a more predictable risk/return profile tied to the broader market.

Key Features of MAYZ

• Defined Outcome Period: Each annual cycle starts and ends in May.
• Downside Protection: Limits potential losses within a certain range.
• Capped Upside: Gains are capped, offering moderate growth potential.
• Options-Based Strategy: Utilizes SPY options for strategic positioning.

The goal of MAYZ is to offer a clear, defined investment outcome which can aid in predictability and planning for both short-term and long-term investors.

MAYZ Composition

MAYZ is constructed with a variety of SPY options to offer both protection and opportunity for growth. Key to its strategy is the layered use of put and call options:

• Put Options: These are used to provide a buffer against significant downturns.
• Call Options: Bought and sold to cap the potential upside, which funds the downside protection.

This allocation lets MAYZ provide an attractive risk-adjusted return, especially in volatile markets. It enables investors to participate in the market's growth while mitigating severe losses.

Pros of MAYZ

Limited Downside Risk

One of the most compelling benefits of MAYZ is its structured downside protection. In a bearish market scenario, the ETF can significantly cushion losses, offering peace of mind for investors worried about severe market downturns. This strategic buffer is achieved through purchasing put options that become effective when the SPY index declines beyond a specific threshold.

Predictable Outcomes

MAYZ offers investors a defined outcome that helps in planning and predicting performance. As long as you hold the ETF for the entire annual term, you'll achieve the defined outcome, making it easier to align with investment goals and timelines.

Reduced Volatility

The options strategy employed by MAYZ results in lower portfolio volatility. For investors wary of seeing their portfolio swing wildly with market fluctuations, this stability can be invaluable. This reduced volatility stems from MAYZ's low allocation to high-risk assets and its employment of hedging strategies.

Cons of MAYZ

Capped Upside Potential

One significant downside is the capped upside. While the ETF provides downside protection, the potential for gains is limited. In a bullish market scenario, investors may find themselves missing out on substantial market growth.

Complexity

The options-based strategy can be complex for inexperienced investors to fully grasp, making it somewhat opaque. Understanding the nuanced mechanics of put and call options may require a steeper learning curve compared to more straightforward investment vehicles.

Expense Ratio

Because MAYZ employs a complex options strategy, its expense ratio tends to be higher than that of straightforward index ETFs. For cost-conscious investors, this could be a drawback, particularly for long-term holdings.

MAYZ Investment Strategies

MAYZ provides a unique blend of risk management and growth potential, making it a suitable tool for various investment strategies.

Defensive Positioning

If you expect market volatility or are risk-averse, incorporating MAYZ into your portfolio can be an excellent defensive move. By providing downside protection and reducing portfolio volatility, MAYZ allows for more consistent returns in unpredictable market environments.

Core-Satellite Approach

MAYZ can serve effectively in a core-satellite approach to investing. In this strategy, MAYZ acts as a conservative core holding that stabilizes the overall portfolio. Surrounding it with high-growth satellite investments allows you to capture higher returns while mitigating overall risk.

Annual Rebalancing

Given the defined outcome periods, an annual rebalancing strategy that aligns with the May cycle can be effective. Review your MAYZ holdings each May and adjust based on the past year’s performance, your risk tolerance, and future market outlook.

Long-term Investment Strategy

While the defined outcome period is annual, long-term investors can still benefit by holding MAYZ through multiple cycles. Investors preparing for retirement may find MAYZ useful in mitigating sequence-of-return risk, protecting against significant market downturns during crucial periods of withdrawal.

In summary, MAYZ offers a nuanced approach to balancing market participation with risk management. While it may not fit every investment style, its unique features make it a compelling option for strategic, risk-conscious investors.