Defined outcome ETF pioneer firm Innovator Capital has announced the planned launch of the Innovator Laddered Allocation Buffer ETF (BUFB) on the Cboe.
The firm writes that BUFB will allocate equally to each of Innovator’s 12 monthly US Equity Buffer ETFs and rebalance semi-annually. The underlying U.S. Equity Buffer ETFs each seek to provide a buffer against the first 9 per cent of losses in the SPDR S&P 500 ETF Trust (SPY) and upside performance to a cap over a one-year outcome period.
The laddered approach to BUFB means that the underlying US Equity Buffer ETFs have outcome periods ranging from less than one-month to one-year. Each month, one US Equity Buffer ETF concludes its one-year outcome period and resets its options on SPY for the coming year. The firm writes that BUFB’s managed strategy can provide advisers and money managers with an efficient way to incorporate the benefits of Buffer ETFs – risk management with upside exposure to equities – into balanced portfolios, retirement accounts, target-date funds and model portfolios.
“The Innovator Laddered Allocation Buffer ETF (BUFB) will seek to allow advisers to own the market with built in buffers but without the need to evaluate the parameters of each monthly series. BUFB can help smooth out the equity investing experience by investing in Buffer ETFs that historically have shown lower volatility, beta] and drawdowns relative to SPY – the main benchmark for US stocks – yet still participate in a healthy amount of the upside that equities can provide over time,” says Bruce Bond, CEO of Innovator ETFs.
“There are many portfolio applications for this new ETF, and we’re excited to have it joining BUFF as potential solutions during a confusing market environment that is challenging both sides of a traditional balanced portfolio. These ETFs can potentially smooth out the equity investing experience and reduce the effects of severe market downturns, something that is so important for pre-retirees and retirees who are sensitive to sequence of returns risk,” says Bond, CEO of Innovator ETFs.
The launch of BUFB represents the buildout of Innovator’s Managed Outcome ETF line-up. The funds within the Managed Outcome ETF suite seek to provide investors with professionally managed, tax-efficient and diversified portfolios based on Innovator’s industry-leading family of Defined Outcome ETFs.
The firm writes that with 80 Defined Outcome ETFs, including the flagship suite of US Equity Buffer ETFs, Innovator has laid the groundwork for a range of managed strategies that seek to simplify and streamline the defined outcome investing process for advisors looking to allocate to solutions at any point in time.
Bond says: “With the Managed Outcome ETFs suite, Innovator is focused on bringing investors a seamless, packaged way to invest in Defined Outcome strategies. The Laddered Allocation Buffer ETF will join BUFF – our original fund of Buffer ETFs that uses a laddered allocation approach – in offering investors the ability to plug-and-play these potential solutions into portfolios. But we’re just getting started with this group of products. We see more concepts to bring in the Managed Outcome ETF suite that will leverage our expertise in Defined Outcome investing for the benefit of investors and their advisers, and we’re looking forward to growing this exciting line-up.”
Innovator also announced planned changes to its BUFF ETF, comprised of an equal-weight allocation to each of the 12 Innovator US Equity Power Buffer ETFs that seek to provide the upside of Large-cap US stocks, subject to caps, while buffering against the first 15 per cent of US equity losses.
BUFF became the first fund of Buffer ETFs composed of 12 monthly underlying Buffer ETFs on Large-cap US stocks when it was converted from a previous strategy in August 2020.
Currently named the Innovator Laddered Fund of U.S. Equity Power Buffer ETFs, on Wednesday, February 9th, BUFF will change its name to the Innovator Laddered Allocation Power Buffer ETF.
Additionally, BUFF’s total expense ratio will be reduced by 10 basis points from .99 per cent to .89 per cent of the Fund’s average daily net assets. This total expense ratio includes the fees for the underlying Buffer ETFs, which are all 79 basis points. This name change and reduction in the annual unitary management fee paid by shareholders to Innovator Capital Management, LLC the Fund’s investment adviser, was recently approved by the Board of Trustees of the Innovator ETFs Trust.
BUFB – Innovator Laddered Allocation Buffer ETF
BUFB will seek to offer investors a managed portfolio (an ETF of ETFs) that will invest equally across all 12 monthly US Equity Buffer ETFs – providing a ladder of buffered exposures to SPY. The 12 underlying buffered SPY exposures each have a different upside cap level and period of time until their annual reset, but share a 9 per cent buffer against losses in SPY over their outcome period. Innovator’s intention with BUFB is to provide investors a managed approach to Buffer ETF investing that maintains upside growth potential by continuously participating in new upside caps as the underlying ETFs reset monthly – and which can be allocated to at any point during the year.
BUFB will be rebalanced semi-annually, charge a total expense ratio of .89 per cent and seeks to provide investors with a simplified, efficient solution to buffered equity investing. It is anticipated the ETF will provide investors with lower volatility (standard deviation), beta and drawdowns relative to SPY while capturing a measure of the capital appreciation potential of US domestic large-cap stocks, the largest equity market globally by capitalisation and typically the most significant allocation in most diversified portfolios.
As an ETF of ETFs, BUFB is designed to be bought and/or sold without regard for the outcome period associated with the underlying individual ETFs. The strategy, as measured by its index – the MerQube US Large Cap Equity Buffer Laddered Index (MQUS9BLF) – seeks to provide lower volatility (standard deviation), beta and drawdowns relative to SPY. While BUFB will invest in Innovator Defined Outcome Buffer ETFs – in an equal weighted portfolio of all 12 monthly issues of the US Equity Buffer ETFs, which have a 9 per cent buffer against loss in the S&P 500 – the fund will not be a Defined Outcome product with an upside cap and downside buffer, nor an outcome period.
BUFB will seek investment results that correspond generally (before fees and expenses) to the price and yield of the MerQube US Large Cap Equity Buffer Laddered Index. BUFB will generally invest at least 80 per cent of its net assets (including investment borrowings) in securities comprising this Index. The Index has been developed by and is maintained and sponsored by MerQube.