Innovator Capital Management expanded its selection of downside-protected ETFs with the launch of the Innovator Equity Managed 100 Buffer ETF.
The goal of this ETF is to offer capital appreciation while limiting portfolio vulnerability to potential losses. It operates with a net expense ratio of 89 basis points.
“We believe advisors seeking downside protection with upside potential will find greater value in an equity strategy with built-in 100% buffers than from bonds, active management or hedge funds,” said Graham Day, Innovator CIO. “BFRZ was built to offer higher return potential and built-in downside protection compared to the unknown hedging capabilities of bonds, and the poor performance of various hedge funds.”
The strategy for the fund begins by investing in equities within the Solactive GBS United States 500 Index. This index focuses on the 500 largest companies within the U.S. stock market.
Tto limit potential vulnerability in its portfolio, BFRZ buys put options contracts. These options are designed to help protect investors from 100% of potential losses across a one-year outcome period.
Laddered Security
Laddered Security
Crucially, BFRZ sets up its options exposure in a laddered framework. To do so, the fund invests in four one-year put options that have expiration dates about three months apart from each other. From there, the fund ladders short-dated call option contracts that have expiration dates that are a few days apart.
Since BFRZ ladders its options coverage on a quarterly basis, only 25% of the fund’s coverage gets reset each quarter. This creates rolling, blended coverage while mitigating some of the timing concerns present with traditional defined outcome ETFs.
Given the relative volatility of the large-cap U.S. equity market, it can make a great deal of sense to opt for a strategy that offers strict downside protection. However, it’s important to note that the fund’s options strategy will limit the extent of returns that BFRZ may participate in.
“BFRZ is an interesting innovation in the Buffer ETF category,” noted Cinthia Murphy, investment strategist at VettaFi. “It blends the characteristics of Innovator’s Managed Floor strategies with higher upside capture potential than traditional Defined Outcome ETFs. The fund’s use of a laddered options approach means it’s an easy-to-implement strategy that doesn’t require an annual-reset type of thinking that Buffer ETFs often do. Innovator has been a pioneer in this type of investing, and it’s still innovating.”
Innovator currently offers more than 150 different ETFs on U.S. markets. In total, these funds amount to well over $24 billion in assets under management.
For more information, please visit VettaFi.com | ETF Trends..
