Innovator Capital Management announced the listing of a new suite of income-focused Defined Outcome ETFs. The four new Innovator Premium Income Barrier ETFs seek to offer fixed rates of high income with protective barriers against decline in the S&P 500 over a one-year period.
As part of Innovator’s lineup of Defined Outcome ETFs, the Premium Income Barrier ETFs will seek high rates of investment income with protective barriers against reference asset price declines. The initial four Innovator Premium Income Barrier ETFs, enumerated below with their recent indicative distribution rate ranges and barrier levels, are expected to list on the Cboe BZX on April 3.
| Ticker | APRD | APRH | APRJ | APRQ |
|---|---|---|---|---|
| Distribution Rate† | 10.28% | 8.82% | 7.31% | 6.14% |
| Barrier | -10% | -20% | -30% | -40% |
| Reference Asset | SPX | SPX | SPX | SPX |
*The Distribution Rates are based on the average rates as illustrated by the Funds’ strategy, based upon the five trading days prior to March 30th and are shown gross of each fund’s 0.79% management fee. “Distribution Rate” refers to the maximum potential return, before fees and expenses and any shareholder transaction fees and any extraordinary expenses, if held over the full Outcome Period. “Barrier” refers to the initial amount of downside protection the fund seeks to provide, before fees and expenses, over the full Outcome Period. If the decrease in the price of the reference asset at the end of the Outcome Period exceeds the barrier level, investors will experience the entirety of reference asset losses. Outcome Period is the length of time over which the defined outcomes are sought. Upon fund launch, the distribution rates can be found on a daily basis via www.innovatoretfs.com.
See more: Webcast: A New Tool for Risk Managed Income
“We’ve experienced a steady drumbeat of advisor interest for income-focused Defined Outcome ETFs, and we’re excited to be able to meet that demand,” said Bruce Bond, CEO of Innovator ETFs, in a news release. “The Barrier ETFs are unique in that they are designed to offer meaningful positive return potential in up or down markets, which we believe creates a compelling portfolio diversification benefit.”
Added Bond: “Unlike traditional covered call strategies that generate a fluctuating level of income and seek no built-in downside risk management, the Barrier ETFs seek to offer a pre-determined fixed level of income over the outcome period, along with a protective barrier against losses.”
Graham Day, CIO of Innovator ETFs, added in the release: “The traditional income sleeve of a portfolio often has a large allocation to bonds and carries significant exposure to both interest rate risk and corporate credit risk.”
The Barrier ETFs hold option positions on the large-cap U.S. equity market and have one-year outcome periods, leaving them with no exposure to bank credit risk and very low duration. Rather than taking the form of a bank obligation, Barrier ETFs custody the assets that determine the fund’s NAV.
The funds will invest in Flexible Exchange Options (FLEX Options) that reference the S&P 500 Price Return Index and in U.S. Treasury bills to employ an income-oriented defined outcome strategy.
If the reference asset price has increased or has decreased to a level inside the barrier at the end of the outcome period, the ETF’s NAV is designed to be unchanged from its NAV at the start of the period. If the reference asset finishes the outcome period below the barrier level, the fund’s NAV is designed to be down by the same amount and to generate a total return that exceeds reference asset return by the amount of the distribution rate at the start of the period.
Innovator plans to build out its suite by listing additional series of Barrier ETFs in July, October, and January.
The Barrier ETFs will be part of Innovator’s suite of Defined Outcome ETFs, which are designed to provide investors with built-in buffers against losses and exposure to the growth of core markets, to a cap, in a tax-efficient vehicle over a one-year outcome period.
“Innovator continues to make it easier for advisors to better control outcomes in client portfolios using ETFs,” said Todd Rosenbluth, head of research at VettaFi. “Many advisors have been successfully using buffer ETFs to limit the downside, but these new ETFs will provide an income alternative to bond ETFs without credit or duration risk.”
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