This is a defined outcome ETF that gains exposure to a U.S. equity index while using options to protect against deeper losses. Over a one-year outcome period, it cushions a wider range of losses than a standard buffer, but in exchange applies a lower upside cap. The structure is reset every November.

It suits conservative investors who want to invest in U.S. equities, be protected against deeper losses, and accept a lower upside cap in return.

It is a passive (index-tracking) ETF managed by First Trust.

The fund gains exposure to a U.S. equity index and uses an options structure to cushion deeper losses than a standard buffer over the one-year outcome period. In return, it places a lower cap on upside gains. A new buffer and cap are set each November, and buying partway through the outcome period can change the protection and cap that apply.

• Structure that cushions deeper losses
• Defined outcome design with a lower upside cap

Assets under management (AUM) are $411.9M, and the expense ratio is 0.85% per year.

Compared with other buffer and defined outcome ETFs such as BUFR and BUFD, the main points of comparison are the level of protection, the cap level, and the outcome period.

Deep buffer strategies tend to deliver more limited gains than the underlying index in rising markets because of the lower cap, while in falling markets they cushion a wider range of losses and sharply reduce drawdowns. The protection and cap that actually apply depend on whether an investor enters partway through the outcome period.

Defined outcome products tend to attract inflows as downside protection demand rises when market uncertainty grows, and money sometimes shifts into this product category when demand for greater protection increases. It is also worth noting that performance varies with market conditions and the outcome period.

Deeper downside cushioning is its strength, while the lower upside cap, dependence on the outcome period, and changed conditions for mid-period entry are considerations.

For investing in U.S. equities directly without protection, direct alternatives include SPY and VOO, which track the S&P 500. For a laddered buffer that spreads across several outcome periods, products such as BUFR are also worth comparing. For buffer products with a different start month, products such as GFEB can also be considered. The three products shown in the table, BUFR, BUFD, and PJAN, differ in protection range and structure: a laddered buffer, a deep buffer, and a buffer with a different start month. This ETF is differentiated by its deeper buffer structure based on November.

Here are the points to review before investing in DNOV. The deeper downside cushion is attractive, but the lower upside cap, dependence on the outcome period, and the limits of the cushion should be checked in advance. It is best to approach the product only after fully understanding the defined outcome structure.

The low upside cap and large declines that exceed the buffer are the main variables for performance, and buying partway through the outcome period changes the protection and cap that apply. Without a full understanding of the defined outcome structure, results may differ from expectations.

It is a suitable candidate for conservative investors who want to invest in U.S. equities while being protected against deeper losses. For investing without protection, consider products such as SPY and VOO, and for a deeper buffer structure, it is advisable to choose this product after understanding its structure.