Markets

Innovator Capital Extends Defined Outcome ETF Series

Innovator Capital Management has come up with a new ETF, Innovator S&P 500 Buffer ETFBJUL , listed on the Cboe Global Markets. It uses flexible exchange (FLEX) options on the S&P 500 Index that vary in strike price but share the same expiration date. This is in addition to the previous two ETFs launched of the July 2018 series, namely Innovator S&P 500 Power Buffer ETFPJUL and Innovator S&P 500 Ultra Buffer ETFUJUL ( see all Long-Short ETFs ).

"There are no other ETFs in the market today that provide investors defined exposures to the S&P 500, where the downside protection level, upside growth potential, and outcome period can all be known, prior to investing," said Bruce Bond, Chief Executive Officer of Innovator Capital Management.

Innovator seeks to come up with a quarterly issue of these kinds of ETFs to provide investors with an opportunity to purchase shares that correspond to the beginning date of their chosen outcome period. These ETFs allow investors to take advantage of market growth, while maintaining a defined level of downside protection.

Historically, the genre of defined outcome has been dominated by banks and structured insurance products but this state of affairs has been altered by Innovator Outcome Defined ETFs. These ETFs provide outcome investing in a wider and cost-effective way with no credit risk.

Inside BJUL

BJUL provides protection to investors against the first 9% of losses over the outcome period. It is reset at the end of each outcome period, which is approximately 10 months. ETFs in this series are trailblazers. Investors have the option to purchase the previously listed defined outcome ETFs throughout the defined outcome period and receive the updated set of defined outcome parameters that are disclosed on the web tool for individual funds of the sponsor.

It could be held indefinitely and used in place of fixed income, equity and alternative investments in portfolios. The feature of defined downside protection allows for risk management and playing the upside in S&P 500 to the cap of 10.85% (gross) and 10.19%(net of fees and expenses) (see: Top and Flop ETFs of August ).

The fund has been able to amass $2.6 million since its inception on Aug 29 and has an expense ratio of 0.79%.

How do they fit in a portfolio?

The U.S. stock market has been on the longest Bull Run in its history. The S&P 500 touched the 2900 mark on Aug 28 and has earned 8.52% year to date. America is exhibiting the strongest growth in nearly four years buoyed by an 18-year high consumer confidence level and unemployment levels that have touched a nearly two-decade low -- 3.9% (see: S&P 500 Tops 2,900: Best ETFs & Stocks of Best Sectors ).

The interest rates are on the rise as the Fed has further plans to hike interest rates twice this year -signaling a strong economy. Information technology, consumer discretionary and healthcare is the top performing sectors this year. Technological stocks have been the top performers for the index with a rise of 19% . This sector is in high demand as companies look out for cutting-edge technology, which has led to increased global spending. The FANG stocks have been a great hit. Geopolitical risks have forced the investors to flee toward the safe haven of healthcare, which was the third-best performer with gains of 11.4% after consumer discretionary, which rose 17.3%.

Competition

Since the new ETF is a novel concept, it will garner enough investor interest and have first-mover advantage. However, the product might compete with its own issuer's ETFs, PJUL and UJUL.

These also track the S&P 500 (up to a predetermined cap) but differ on the buffer provided to investors. PJUL offers protection against the first 15% of losses over the outcome period before fees and expenses, while UJUL provides protection on 30% of the same. The cap (gross) for the upside is 8.11% for PJUL and 8.77% for UJUL. PJUL and UJUL have amassed $2.5 million since their inception on Aug 8, 2018 and charge the same expense ratio as BJUL of 0.79%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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