Hedging risk is a vital part of every investment decision. But it’s especially critical – and far more challenging – during periods of volatility. Accessing upside potential can sometimes bring exposure to undesirable levels of risk. So WisdomTree created an innovative risk management tool to help advisors and investors navigate these challenges. The WisdomTree Target Range Fund (GTR) is an actively managed exchange traded fund, ETF, that aims to deliver equity upside, while seeking to limit downside losses. It uses a sophisticated options strategy built on a bullish call spread.
Every January, the Fund buys one-year call options that are 15% in-the-money and sells one-year call options that are 15% out-of-the money. It does this while the remainder of the Fund is allocated to short-term fixed income investments in a collateral account. Let’s say the 15% in-the-money options cost 15 cents. That means about 85 cents of every dollar in the fund is invested in the collateral account. So, if markets decline, the potential target loss would be the amount of capital invested in the call options, minus any proceeds earned from selling the higher strike price.
Investors may be wondering how the strategy also manages risk in an up market. Should the market rally above the price of the out-of-the-money call option, the strategy will “ratchet” up the price of the call options allowing for additional upside potential.
In order to manage risk on a global basis, GTR provides exposure to U.S. large cap and small caps, developed international, and emerging market ETFs. The Fund purchases options on ETFs with the following targets:
SPY SPDR S&P 500 ETF Trust (50%)
IWM iShares Russell 2000 ETF (20%)
EFA iShares MSCI EAFE ETF (20%)
EEM iShares MSCI Emerging Markets ETF (10%)
The WisdomTree Target Range Fund aims to deliver capital appreciation and may provide a standard deviation similar to a balanced or moderate portfolio.
Replacing a traditional equity allocation with GTR could help provide upside potential without assuming full equity risk and help investors that benchmark to a traditional 60/40 or 70/30 approach.
Visit WisdomTree.com/GTR or speak to a WisdomTree representative to learn more about this innovative risk management tool.
Before investing, carefully consider a Fund's investment objectives, risks, charges and expenses contained in the prospectus available at WisdomTree.com. Read it carefully.
