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

Investing in a diversified portfolio is crucial for retirement planning, and ETFs like XJUN offer unique benefits. In this blog post, we'll delve into what XJUN is, its pros and cons, and the strategies you can use to maximize your investment.

What is XJUN?

XJUN, or FT Vest U.S. Equity Enhance & Moderate Buffer ETF - June, is a specialized ETF designed to offer exposure to the U.S. equity market with an embedded risk management strategy.

XJUN seeks to provide investors with buffered downside protection while aiming for enhanced exposure to the upside. Essentially, it aims to reduce the impact of market volatility, making it a suitable option for conservative investors who still want equity exposure.

Key Features of XJUN

• Buffered Downside Protection: Protects against losses up to a certain percentage, typically around 15%.
• Enhanced Upside: Offers a multiple (usually 1.5x) of the performance of the underlying index up to a capped level.
• Target Outcome Period: Runs from June of one year to June of the next year, resetting annually.

Pros of XJUN

Risk Management

One of the primary advantages of XJUN is its embedded risk management. The ETF offers a buffer against market downturns, generally absorbing losses up to 15%. This feature is particularly beneficial during volatile market conditions or bear markets, significantly lowering the risk profile of the investment.

Enhanced Returns

XJUN aims to offer enhanced exposure to the upside performance of the S&P 500, usually up to a capped level. This feature allows investors to participate in market gains more aggressively than they would in a standard ETF, without the corresponding increase in risk.

Diversification

XJUN includes a diversified portfolio of U.S. equities, providing exposure to a wide range of sectors. This diversification reduces sector-specific risks and the impact of individual stock performance on the overall portfolio.

Cons of XJUN

Capped Upside

The most significant drawback of XJUN is the capped upside. While it offers enhanced returns up to a certain point, any gains beyond the cap are not realized by the investor. Therefore, in a highly bullish market, the potential for profit is limited compared to other equity ETFs.

Complexity

The structure of XJUN is more complex than that of ordinary ETFs, making it harder for novice investors to understand. The embedded options strategy and the annual reset can be confusing, requiring a more in-depth understanding of the product.

Higher Expense Ratio

XJUN typically has a higher expense ratio compared to traditional equity ETFs due to the cost associated with providing downside protection and enhanced upside. These higher fees can eat into long-term returns.

XJUN Investment Strategies

Given its unique features, XJUN offers various strategies that can be tailored to individual investment goals and risk profiles.

Long-term Investment Strategy

XJUN can be a viable component of a long-term investment strategy, especially for conservative investors looking to mitigate market risk while still participating in equity growth. The buffered protection can provide peace of mind over extended investment horizons, making XJUN suitable for retirement portfolios.

Tactical Allocation

XJUN can also be used as part of a tactical allocation strategy. For instance, investors may choose to allocate a portion of their portfolio to XJUN during times of anticipated market volatility. This strategy can help protect against downturns while still offering exposure to potential gains.

Rebalance Regularly

Since XJUN resets annually, it's essential to continually review and rebalance your portfolio. This regular assessment helps ensure that your investment remains aligned with your financial goals and adjusts to any changes in your risk tolerance or market conditions.

Combine with High-Growth ETFs

To counteract the capped upside, investors may choose to combine XJUN with high-growth ETFs that focus on sectors like technology or emerging markets. This combination allows for a balanced approach, providing both risk management and opportunities for significant gains.

Conclusion

XJUN stands out as a specialized ETF designed to provide buffered protection and enhanced exposure to the U.S. equity market. While it comes with its limitations, particularly the capped upside, it offers valuable risk management features that can be particularly beneficial for conservative investors or those nearing retirement.

By incorporating XJUN into a well-diversified portfolio and employing thoughtful investment strategies, investors can leverage its unique attributes to meet their financial goals and navigate the complexities of market volatility.