This is a defined outcome ETF that gains exposure to a U.S. equity index while using options to protect against a set range of losses. In exchange for cushioning a certain amount of decline over the one-year outcome period, upside returns are capped, and the structure is reset every September.

It suits moderate-risk investors who want to invest in U.S. equities, accept an upside cap, and receive protection against a defined range of declines.

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 a set amount of decline over the one-year outcome period, in return for capping upside gains. A new buffer and cap are set every September, and buying partway through the outcome period can change the protection and cap that apply to you.

• Structure that cushions a defined range of declines
• Defined outcome design with an upside cap

Assets under management (AUM) stand at $369.3M, and the total expense ratio is an annual 0.85%.

Compared with other buffer and defined outcome ETFs such as BUFR and BUFD, the main points of comparison are the level of downside 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 certain range of losses and reduce drawdowns. The protection and cap that actually apply depend on whether you enter partway through the outcome period.

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

The defined downside cushion is the main strength, while the upside cap, dependence on the outcome period, and changed terms for mid-period entry are factors to consider.

For direct exposure to U.S. equities without protection, alternatives include SPY and VOO, which track the S&P 500. For a laddered buffer that spreads exposure 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 be considered as well. The three products shown in the table, BUFR, BUFD, and PJAN, differ in protection level and structure: a laddered buffer, a deep buffer, and a buffer with a different start month, respectively. What sets this ETF apart is its September-based defined outcome buffer structure.

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

The cap in strong bull markets 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 thorough 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 to invest in U.S. equities while receiving protection against a defined range of declines. For investing without protection, products such as SPY and VOO fit better, and for a defined outcome buffer structure, it is advisable to choose this product after understanding how the structure works.