Appendix A Rip-off ETF?
An article in The Economist suggests, right in the title, “Investors should avoid a new generation of rip-off ETFs”. An ETF is an exchange-traded fund, which holds a collection of assets and trades on an exchange like a single stock. For example, the SPDR S&P 500 ETF Trust tracks the S&P 500 index; if you own a share of this ETF, you own a small fraction of the 500 largest companies in the US.
The Economist article describes “buffer ETFs” which use options to limit both the losses and gains of investors. Specifically, the example in the article caps annual losses at 0% and annual gains at 10%. The article demonstrates that this cap is a bad deal for investors, and I wanted to check the math.
