Defined outcome ETFs that allow investors to participate in the market's upside up to a cap while reducing losses if the market declines are one of the fastest-growing categories of the ETF market. They experienced high inflows last year despite persistent market volatility. Innovator Capital Management, the pioneer of buffer ETFs, released a new fund this …
Defined outcome ETFs that allow investors to participate in the market’s upside up to a cap while reducing losses if the market declines are one of the fastest-growing categories of the ETF market. They experienced high inflows last year despite persistent market volatility.
Innovator Capital Management, the pioneer of buffer ETFs, released a new fund this month that aims to deliver market upside with 100% downside protection. The Innovator Equity Defined Protection ETF TJUL is the world’s first ETF to guarantee investors no losses. This product tries to track the performance of the SPDR S&P 500 ETF Trust SPY, up to a cap of 16.6%, while protecting investors from 100% of losses during a two-year period. Investors forego dividend income and pay a 0.79% expense ratio.
This product, like other buffer ETFs, invests in a basket of FLEX options with variable strike prices. The technique entails purchasing call options to increase SPY exposure and put options for downside protection, followed by selling call options to offset the expenses and cap upside returns. Investors should keep in mind that equities tend to rise over time, and they should ignore short-term noise. SPY has returned slightly more than 10% annually since its debut in January 1993. Investors forego any potential upside over the cap by seeking downside protection.
At the same time, many risk-averse investors, particularly those nearing retirement, have been hesitant to purchase stocks following last year’s disastrous performance. There is a lot of money sitting on the sidelines. Some invest in products such as fixed indexed annuities and market-linked CDs, which offer downside protection but have substantially higher fees, large investment minimums, long lockup periods, and unfavourable tax treatment. For such investors, ETFs such as TJUL are far superior.
Risk disclaimer:
Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.
