Today, Innovator launched the Innovator Nasdaq-100 Managed Floor ETF, which looks to offer exposure to the performance of the Nasdaq-100 Index while limiting losses to 10% within a 12 month period.
Essentially, the strategy pairs an investment in the securities in the Nasdaq-100 with a laddered put options overlay managed by Morgan Stanley affiliate Parametric. By doing so, the fund provides a hedge against tail risk while also reducing the fund’s volatility.
“Historically, in positive years, the Nasdaq-100 has averaged returns of 29%, but in negative years it has averaged losses of -30%. Most investors are unable to stomach this type of volatility and QFLR is a solution to allow investors to remain fully invested in the Nasdaq-100 with built-in risk management,” said Innovator Chief Investment Officer Graham Day.
He noted that the steep losses in 2022 caused many investors to withdraw from the equity market and, as a result, miss 2023’s rally that saw the S&P 500 return more than 25%.
However, the options overlay means investors also give up some of the underlying index’s upside. Innovator previously launched a similar strategy, the $132 million Innovator Equity Managed Floor ETF (SFLR ), in November 2022. The fund aims to reflect the performance of an index of large-cap U.S. stocks while limiting losses to 10%, just like QFLR. According to the press release for QFLR, SFLR investors saw about 80% of the equity portfolio’s upside but only 70% of the volatility.
The new fund has an expense ratio of 0.89%.
Innovator has $17.6 billion in assets under management spread across more than 110 ETFs. Its largest fund is the $1.2 billion Innovator U.S. Equity Power Buffer ETF – January (PJAN ), which launched at the start of 2019.
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