What is the XDOC ETF ?
In the ever-evolving landscape of finance, Exchange-Traded Funds (ETFs) have gained immense popularity among investors due to their flexibility and diversification benefits. One such ETF that has been making waves in the market is the XDOC ETF. In this article, we will take a closer look at this financial instrument, its underlying assets, benefits of investing in it, and important considerations before making an investment.
XDOC ETF: Overview
The XDOC ETF is an innovative financial product designed to provide investors with exposure to a specific set of assets through FLEX Options. At least 80% of the ETF's net assets are invested in a portfolio of FLEX Options that reference the SPDR® S&P 500® ETF Trust, an exchange-traded fund registered under the Investment Company Act of 1940. The underlying ETF aims to track the performance of the S&P 500 Index, which comprises 500 leading companies in leading U.S. industries.
FLEX Options are unique exchange-traded options contracts that offer customizable terms, allowing the ETF to tailor its strategy based on its specific investment objectives. These options are guaranteed for settlement by the Options Clearing Corporation (OCC) but may be less liquid than traditional exchange-traded options, thereby introducing some level of counterparty risk.
XDOC ETF: Underlying and Exposure - What does it track and how?
As mentioned earlier, the XDOC ETF's primary underlying asset is the SPDR® S&P 500® ETF Trust. The ETF's strategy is designed to produce specific outcomes based on the performance of the underlying ETF's share price over an approximately one-year period called the Outcome Period. The current Outcome Period spans from October 1, 2022, to September 30, 2023.
During the Outcome Period, the XDOC ETF seeks to provide investors with an increase in value that is twice the share price increase experienced by the underlying ETF. This is known as the Accelerated Return. However, it is essential to note that the Accelerated Return is subject to a Cap, which represents the maximum percentage return an investor can achieve from holding shares in the XDOC ETF over the Outcome Period. The Cap is set at the beginning of each Outcome Period based on prevailing market conditions.
XDOC overlap What is the XDOC ETF ?
XDOC ETF: Benefits of Investing in This ETF
Enhanced Returns with Customizable Risk: The XDOC ETF aims to provide accelerated returns, making it an attractive option for investors seeking potential higher gains. The use of FLEX Options allows for a degree of customization to tailor risk exposure to the investor's preferences.
Diversification: By investing in the SPDR® S&P 500® ETF Trust, the XDOC ETF provides exposure to a broad basket of 500 leading U.S. companies, spreading risk across multiple industries and sectors.
Transparent Strategy: The ETF's strategy and outcomes are clearly defined and disclosed to investors, offering transparency and insight into potential returns.
XDOC ETF: Considerations Before Investing
Market Conditions and Cap: Investors should consider prevailing market conditions at the beginning of the Outcome Period to understand the potential Cap, which limits the maximum return. A high Cap might limit further potential gains during the Outcome Period.
Investment Horizon: The XDOC ETF is designed for investors with a long-term investment horizon, as the outcomes are based on the entire Outcome Period. Investors should be prepared to hold their shares for the entire duration.
Counterparty Risk: As FLEX Options are subject to counterparty risk with the OCC, investors should carefully evaluate the implications of this risk on their investment.
Conclusion
The XDOC ETF is a unique financial instrument that aims to provide investors with the potential for enhanced returns based on the performance of the SPDR® S&P 500® ETF Trust. Through the use of FLEX Options, the ETF offers a customizable risk profile and diversification benefits. However, it is crucial for investors to carefully consider prevailing market conditions, the Cap, and their investment horizon before deciding to invest in this innovative financial product.
Disclaimer: This article is for informational purposes only and does not provide any investment advisory services. Investors should conduct their due diligence and consult with a qualified financial advisor before making any investment decisions.
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FAQ
What is the XDOC ETF?
The XDOC ETF, also known as the Emles Made in America ETF, is an exchange-traded fund that aims to provide exposure to U.S. dollar-denominated equities publicly-listed by U.S. companies (and their subsidiaries) headquartered in the U.S. and focused on the production of goods within North America, excluding Central America.
How does the XDOC ETF select its holdings?
The XDOC ETF constructs its portfolio by including companies featured on the annual Industry Week Top US Manufacturing Companies list. Eligible companies must have 85% or more of their total revenue generated in the U.S. or Canada, with at least 70% of their total revenue generated in the U.S. The ETF excludes companies in the energy or energy-related, financial services, and distribution sectors. The selection also considers factors such as market capitalization, manufacturing footprint, and revenue.
What is the role of Emles Indexing LLC in managing the XDOC ETF?
Emles Indexing LLC, affiliated with Emles Advisors LLC (the "Adviser"), serves as the index provider for the XDOC ETF. They determine the constituents of the index and establish the weighting scheme. S&P Opco, LLC acts as the calculation agent and independently prices the index during equity market hours.
How does the XDOC ETF rebalance its holdings?
The XDOC ETF seeks to rebalance its holdings quarterly to maintain the index's weighting scheme. In certain circumstances, such as a merger between two index constituents, a special rebalance may occur.
What investment approach does the XDOC ETF use?
The XDOC ETF adopts a "passive" or indexing approach. It aims to track the performance of its underlying index and does not actively try to beat it. The ETF's portfolio turnover is kept low, seeking to achieve lower costs and potentially better after-tax performance compared to actively managed investment companies.