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What is a reference fund?​

The reference fund is the investment that the buffered ETF is designed to track or modify. It’s the underlying asset that determines the ETF’s potential outcomes.

For the ARK Defined Innovation Exposure Term ETFs cases the reference fund is ARKK, the ARK Innovation ETF. The buffered ETFs create a modified return path based on ARKK’s performance, using options. 

An investor is not investing directly in the reference fund when they buy a buffered ETF. Instead, they're investing in a strategy that is linked to that fund’s performance—but with a defined outcome profile that includes: 

  • Partial protection from downside losses (50% protection for ARK DIET) 
  • A structured upside with a hurdle and participation rate (5% hurdle, generally 50-80% upside for ARK DIET) 

The reference fund provides the raw performance, and the buffered ETF uses options to reshape how much of that performance investors experience.