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What is a “cap”?​

A cap is a limit on how much return an investor can earn in an investment. It is the maximum gain an investor can get over a specific period—often 12 months in buffered ETFs. Caps are often utilized by buffered ETFs, as a mechanism to fund the buffer component structure.

In the ARK DIET ETF structure, there is no cap, instead, the buffer is funded with a combination of: 

  • The upside hurdle (investors skip the first ~5% of gains).
  • The participation rate (investors get a portion of the gains after the hurdle, generally 50-80% of gains). 

For example: 

  • If the ARK DIET ETFs’ underlying ETF ARKK – the ARK Innovation ETF, gains 50%.
  • And if the hurdle is 5%, participation rate is 80%.
  • Investors get 80% of the remaining 45% = 36% return. 

So, while there’s still room for strong returns, the upside participation rate exists to help pay for the buffer. It's the trade-off between protection and growth.