In general, any ARK Defined Innovation Exposure Term (DIET) Buffer ETF will have performance similar to what is illustrated by the options curve, shown here, as compared to the ARK Innovation ETF (ARKK), over the course of one year (the outcome period). 

When ARKK has negative performance over the course of a year, the corresponding ARK DIET ETF will decrease only 50% as much as ARKK. 

When ARKK returns between 0 and 5%, the ARK DIET ETF will return 0%.

Finally, when ARKK returns greater than 5% (the hurdle), the ARK DIET ETF has a set upside capture percentage (between 50-80%) of any return beyond the hurdle.

For more complete information on the potential outcomes of ARK DIET ETFs please view the prospectus here.

In a down market (when stock prices are falling), a buffered product is designed to protect investors from experiencing the full extent of the losses. This is where the “buffer” comes into play.

Here’s how it works:

This protection is created using put options, which increase in value when the market goes down. These options give the fund the right to sell at higher prices, offsetting some of the losses in the underlying investment.

In a down market, investors don’t avoid all losses. Investor loss is reduced, however, by 50%. The downside participation rate resets every 12 months, so it applies for one outcome period.

For more complete information on the potential outcomes of ARK DIET ETFs, please view the prospectus here.

Simply, when the ARK Innovation ETF (ARKK) returns 0 to 5% through a given outcome period, the corresponding ARK Defined Innovation Exposure Term (DIET) ETF will return 0%. This 0-5% window is considered the hurdle rate in our options curve. 

Because the ARK DIET ETFs offer some downside protection, an investor funds this protection by giving up part of the upside.

In other words, investors are not paying cash for the insurance (the buffer). Instead, investors are paying with the first 5% of gains and by accepting a limit on investors' returns.

This trade-off is what makes an ARK DIET ETF a defined outcome product: investors know how much protection they have, and generally how much upside they’ll get.

For more complete information on the potential outcomes of ARK DIET ETFs please view the prospectus here.

In an up market (when prices are rising), a buffered ETF lets investors participate in gains—but not all of them.

Here’s why:

First, there is usually an upside hurdle—a percentage of gains that you don’t receive. For ARK Defined Innovation Exposure Term ETFs (“ARK DIET”), that’s the first 5% of gains.

After that hurdle, investors get a portion of the remaining gains.

This structure is made using a combination of call options. A short call (sold by the fund) sets the hurdle and fund's downside protection, and a long call (bought by the fund) allows the ETF to participate in upside after the hurdle.

In summary, investors may miss some early gains. Investors participate in the rest, but at a partial rate (for ARK DIET, generally 50–80%). There’s no limit on the upside—but there is reduced participation.

For more complete information on the potential outcomes of ARK DIET ETFs please view the prospectus here.