This is a defined outcome ETF that provides exposure to a U.S. equity index while using options to protect against a set range of losses. Over a one-year outcome period, it cushions a certain amount of downside in exchange for a cap on upside returns, and the structure is reset every May.

It suits moderate-risk investors who want U.S. equity exposure with protection over a set range of downside and who accept a cap on upside.

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

The fund provides exposure to a U.S. equity index and uses an options structure to cushion a set range of losses over the one-year outcome period, and in return it places a cap on upside returns. A new buffer and cap are set each May, and buying partway through the outcome period can change the protection and cap that actually apply.

• Structure that cushions a set range of downside
• Defined outcome design with a cap on upside

Assets under management (AUM) stand at $447.0M, and the total 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.

Buffer strategies tend to lag the underlying index in rising markets because of the cap, while in falling markets they cushion a set range and reduce the drawdown. The protection and cap that actually apply depend on whether you enter partway through the outcome period.

Defined outcome products tend to attract inflows when market uncertainty rises and demand for downside protection grows, and money sometimes moves into this group of products when interest in volatility management increases. It is also worth noting that performance varies with market conditions and the outcome period.

The defined downside cushion is its strength, while the upside cap, dependence on the outcome period, and changing conditions for mid-period entry are points to consider.

For direct exposure to U.S. equities without protection, direct alternatives include SPY and VOO, which track the S&P 500, and for a laddered buffer that spreads across several outcome periods, products such as BUFR are also worth comparing. Buffer products with a different start month, such as GFEB, can be reviewed as well. The three products shown in the table, BUFR, BUFD, and PJAN, are respectively a laddered buffer, a deep buffer, and a buffer with a different start month, and they differ in the level of protection and in structure. What sets this ETF apart is its May-based defined outcome buffer structure.

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

The cap in strong rallies 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, you may get results that differ from your expectations.

It is a suitable candidate for moderate-risk investors who want U.S. equity exposure with protection over a set range of downside. If you want to invest without protection, products such as SPY and VOO fit better, and if you want a defined outcome buffer structure, it is advisable to choose this product after understanding how the structure works.