RYSE, which listed on Friday, February 3, 2023, is a first-of-its-kind ETF, seeking to generate capital appreciation from an increase in the 10-year interest rate, while providing a defined limit to losses on the downside and a maximum return on the upside.
Portfolios are constantly exposed to risk from changes in interest rates. That risk was realized when the series of rate hikes beginning in March 2022 triggered broad declines in bond and equity prices. Lulled by declining rates in the preceding four decades, many investors were caught off guard and did not have tools to manage interest rate risk.
Karan Sood, CEO of Cboe Vest, said, 'While institutional investors routinely use interest rate-linked derivatives and other sophisticated tools to hedge interest rate risk, these solutions have largely been out of reach for a broader set of investors, until recently. RYSE seeks to remedy this by providing a distinctive tool to counteract rising interest rates and also bringing the defined-outcome style of investing to the interest-rate sensitive part of investor's portfolios.'
Whereas many assets may decline in value when rates rise, RYSE is structured to benefit from an increase in the 10-year rate. As such, it can be used in a typical portfolio to offset some of the risk of rising interest rates.
RYSE seeks to generate capital appreciation from rising 10-year interest rates, and is designed to deliver a specific outcome over a three-month period:
RYSE seeks to deliver positive returns, before any fees and expenses, when the 10-year rate rises; RYSE is expected to experience losses when the 10-year rate falls.
The fund will generally seek to limit losses to a maximum loss of 15% (before fees and expenses) over a quarterly period, with the potential upside capped between 15% to 35% (before fees and expenses) over the quarter. The upside cap could be more or less depending on market conditions.
Cboe Vest Financial LLC, a wholly owned subsidiary of Cboe Vest Group Inc., is an institutionally-focused asset management firm with expertise in risk management. Cboe Vest created Target Outcome Investments®, which target a defined return profile, with an allowance for a specific level of risk, at a particular point in time. These leading-edge investments were first introduced to the market in 2013 with Cboe Vest's flagship Buffer Protect Strategy. Today the firm manages, sub-advises, and supervises more than 90 Target Outcome investment products. To explore the evolution of Target Outcome Investments, visit cboevest.com/#/timeline.
DISCLOSURES Investors should consider the investment objectives, potential risks, management fees and charges and expenses carefully before investing. This and other information is contained in the Fund's prospectus, which may be obtained by calling (855) 979-6060 or by visiting cboevest.com/etfs. Please read the prospectus carefully before investing. Distributed by Quasar Distributors LLC. Member FINRA/SIPC.
Investments involve risks. Principal loss is possible. The value of an investment will fluctuate and may be worth more or less than the original investment. There can be no guarantee that the Fund will be successful in its strategy to provide a hedge against declines below a floor in the 10-year rate over a quarter. Swaptions Risk. The Fund will invest in swaptions. A swaption is an option contract that gives the holder the right (but not the obligation) to enter into a swap at a predetermined rate at expiration in exchange for a premium payment. Swaptions enable the Fund to purchase exposure that is significantly greater than the premium paid. Consequently, the value of swaptions can be volatile, and a small investment in swaptions can have a large impact on the performance of the Fund. The Fund risks losing all or part of the cash paid (premium) for purchasing swaptions. Additionally, the value of the option may be lost if the Fund fails to exercise such option at or prior to its expiration. Interest Rate Swaps Risk. The Fund will invest in interest rate swaps. In an interest rate swap, the Fund and another party exchange their rights to receive interest payments based on a reference interest rate. Because interest rate movements do not always align with projections of a swap counterparty, interest rate swaps are subject to interest rate risk. An interest rate swap could result in losses if the underlying asset or reference does not perform as anticipated. Counterparty Risk. The risk of loss to the Fund for derivative transactions (such as interest rate swaps or swaptions) that are entered into on a net basis depends on which party is obligated to pay the net amount to the other party. A counterparty may be unwilling or unable to make timely payments to meet its contractual obligations or may fail to return holdings that are subject to the agreement with the counterparty. If the counterparty or its affiliate becomes insolvent or bankrupt, or defaults on its payment obligations to the Fund, the value of an investment held by the Fund may decline. Capped Upside Return Risk. To the extent that the Fund uses a derivatives instrument to cap the Fund's return when the 10-year rate increases above a specified level at the end of the calendar quarter, the Fund will not participate in gains beyond the cap. In the event an investor purchases shares after the date on which the Fund enters into such derivative instruments (i.e., at the end of each calendar quarter) and the 10-year rate has risen to a level near to the cap, there may be little or no ability for that investor to experience an investment gain on their shares with respect to the 10-year rate during that quarter. Floor Loss Risk. There can be no guarantee that the Fund will be successful in its strategy to provide protection against declines below a floor in the 10-year rate over a calendar quarter. The Fund's strategy seeks to hedge against increases in the 10-year rate, while limiting downside losses from a significant decrease in the 10-year rate, if shares are bought on the day on which the Fund enters into these derivatives and held until they expire at the end of the calendar quarter. In the event an investor purchases shares after the date on which the derivatives were entered into and the Fund has already increased in value, then the investor may experience losses prior to gaining the protection offered by the floor, which is not guaranteed. The Fund does not provide principal protection, and an investor may experience significant losses on its investment, including the loss of its entire investment. ETF Risk. ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
Please see the prospectus for more information regarding these and other risks associated with the Fund.
A derivative is a security with a price that is dependent upon or derived from an underlying asset, group of assets or benchmark. The derivative itself is a contract between two or more parties based upon the asset or assets. Options and swaps are among the most common types of derivatives.
A hedge is an investment made with the purpose of reducing the risk of adverse price movements in another asset.
An Interest rate swaption is an option on interest rate swaps.
A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments.