Day Hagan Defined Outcome Strategy

The Day Hagan Defined Outcome strategy utilizes ETFs that provide investors with potential equity appreciation up to a cap and pre-determined downside buffer levels over a specified period. The goal is to achieve moderate total returns over a full market cycle while always having protection in place to buffer against adverse market environments. The strategy utilizes a variety of risk management techniques within the portfolio.

The first risk management tool is that the portfolio is allocated across a variety of specified time periods to minimize the impact of unfavorable environments for the underlying securities. While the securities' downside buffers (protection) are set, the upside cap on potential returns will vary based on the volatility backdrop at the beginning of the securities stated time period.

The second risk management tool is the selection of the underlying securities. There are three major risk profiles, each with different degrees of downside protection, which may be used to populate the portfolio based on Day Hagan’s proprietary modeling. The portfolio will allocate to securities with higher levels of downside protection when our models determine high-risk levels in the market. The opposite also holds true, and the security selection will favor securities with higher upside caps and a lesser degree of downside protection when the models show lower levels of risk in the market.

After the time period and risk profiles are selected, the securities are monitored on an ongoing basis. After the defined outcome ETF’s stated time period begins, the degrees of downside buffer and potential upside returns until the cap is reached will change as the market fluctuates. If the risk-to-reward profile for a security becomes unfavorable (not enough downside protection and too little upside potential) before the stated time period ends, that security will be replaced with a security with more favorable terms based on our analysis.

Overall, the strategy incorporates a multitude of risk management techniques. The negative impact adverse markets have on the value of a portfolio is partially offset by the buffer levels of the underlying ETFs as well as the overall hedges that are used, and the negative impact certain market environments have on potential upside caps is offset by utilizing ETFs with different stated time periods. The goal of the strategy is to mute the volatility a traditional portfolio with exposure to the S&P 500 might have while still participating in a portion of the index’s appreciation in an efficient and liquid manner.

The underlying securities utilized in the strategy track the S&P 500 and other broad indexes to a varying degree. The underlying securities allow for the downside volatility to be muted, the degree to which depends on a multitude of factors like time and the magnitude of the underlying index’s move, with a predefined buffer in place to mitigate a portion of the losses if held for the entire outcome period. Similar to the downside exposure, the securities the strategy utilizes will also track the S&P 500 index and other broad indexes higher to varying degrees, depending on factors such as time and magnitude, up to a predefined cap.

This strategy is appropriate for investors willing to take on equity-like risks in their portfolio.