Innovator Capital Management, LLC (Innovator) today announced the anticipated listing of the Innovator S&P 500 Defined Outcome ETFs – July Series on Cboe on August 8, 2018.
The Innovator Defined Outcome ETFs is designed to offer investors exposure to the S&P 500 Price Return Index (S&P 500) to a Cap, with downside protection levels (or “buffers”) of 10 per cent, 15 per cent, or 30 per cent over an Outcome Period of approximately one year, at which point each ETF will reset.
The firm writes that this is the first time investors will be able to access structured outcomes through the ETF vehicle. The result is an efficient product suite that seeks the following benefits: Defined downside protection levels; Exposures to S&P 500 upside performance; Low cost, flexible, liquid, and transparent; No credit risk and resets annually and can be held indefinitely
“Every once in a while a product comes along with the potential to change the way we invest. Today we are pleased to announce the arrival of one of those products,” says Bruce Bond, CEO of Innovator ETFs. “Through the Defined Outcome ETFs, we believe that we have solved a key challenge for millions of Americans by providing the ability for people to stay invested in the market, knowing they have upside growth potential and downside protection levels. This is truly innovative, and another first for the ETF industry.”
Each Innovator S&P 500 Defined Outcome ETF seeks to provide investors defined exposure to the S&P 500, where the downside protection level, upside growth potential to a Cap, and Outcome Period are all known, prior to investing. The Fund will invest substantially all of its assets in FLexible EXchange (FLEX) Options on the S&P 500. FLEX Options are customisable exchange-traded option contracts guaranteed for settlement by the Options Clearing Corporation.
The anticipated return profiles for the July Series of Innovator Defined Outcome ETFs are listed below:
Capture.PNG* The Cap Range is based on the highest and lowest Cap as illustrated by each Fund’s strategy over the past 10 trading days and is shown gross and net of the 0.79 per cent management fee. The actual Cap for each Fund will be set at the beginning of the Outcome Period, and is dependent upon market conditions at that time. As a result, the Cap set by each Fund may be higher or lower than the Cap Range. Upon Fund launch, Innovator will provide important Fund information related to the potential outcomes of an investment in a Fund (including the Cap) on a daily basis via its website (www.innovatoretfs.com). “Cap” refers to the maximum potential return, before fees and expenses, if held over the full Outcome Period. “Buffer” refers to the amount of downside protection, before fees and expenses, over the full Outcome Period. Outcome Period is the intended length of time over which the defined outcomes are sought.
Innovator S&P 500 Buffer ETF (Cboe: BJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against the first 10 per cent of losses over the Outcome Period, before fees and expenses.
Innovator S&P 500 Power Buffer ETF (Cboe: PJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against the first 15 per cent of losses over the Outcome Period, before fees and expenses.
Innovator S&P 500 Ultra Buffer ETF (Cboe: UJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against a decline of 30 per cent of losses over the Outcome Period, from -5 per cent to -35 per cent, before fees and expenses. Investors are exposed to loss between 0 per cent and 5 per cent and over 35 per cent over the Outcome Period, before fees and expenses.
The Defined Outcome ETFs may be held indefinitely, with the applicable Fund’s 10 per cent, 15 per cent or 30 per cent buffers remaining fixed and associated Caps resetting at the beginning of each Outcome Period (approximately annually). Innovator intends to issue a quarterly series of each Defined Outcome ETF to provide investors an opportunity to purchase shares as close to the beginning of their respective Outcome Periods as possible. Investors will also be able to purchase shares of a previously listed Defined Outcome ETF throughout the entire Outcome Period; and obtain a new set of defined outcome parameters, which will be disclosed through a web tool for each Fund developed by Innovator.
The firm defines defined outcome investing as seeking to target a specific defined payoff profile, with an allowance for a specific defined level of risk, at a specific point in time in the future. This approach to investing has been available for decades, largely through certain bank and insurance products. The defined outcomes sought by the Innovator Defined Outcome ETFs are comparable to certain equity-linked investment strategies often used by other product structures like structured notes and structured annuities—spaces with more than USD1 trillion collectively in the US alone. As large as the structured product space has become, it has historically been accessed by institutional and high net worth investors.
Innovator has set its sights on placing these defined outcome based solutions inside the benefit rich ETF structure, retaining many of the features that have contributed to the success of structured products (e.g., downside protection levels, defined outcome parameters), but with the added benefits of transparency, liquidity and lower costs afforded by the ETF product structure.
“For financial advisors operating as fiduciaries and acting in their clients’ best interests, we believe the Innovator Defined Outcome ETFs may be a better tool to meet an investor’s individual risk tolerance levels,” says John Southard, Innovator’s chief investment officer. “The Defined Outcome ETFs seek defined levels of downside protection over an Outcome Period, which is something no other equity ETF in the marketplace offers.”