After a tumultuous year that saw both equity and fixed income allocations receive headwinds from historic inflationary pressures and hawkish central bank policies, investors could continue to see new challenges in the coming year.
In the upcoming webcast, Managing New Challenges in 2023, Tim Urbanowicz, head of Research & Investment Strategy at Innovator ETFs, and Grant Copple, external sales consultant at Innovator ETFs, will outline the potential hurdles investors will face in the new year and focus on alternative investment strategies to help financial advisors’ clients potentially generate positive returns in flat or down-market conditions through a built-in downside risk mitigation methodology.
For example, the Innovator Equity Managed Floor ETF (NYSE Arca: SFLR) can help deliver U.S. equity upside and income while limiting a shareholder’s potential for maximum loss through a sophisticated options overlay. The active strategy is sub-advised by Parametric Portfolio Associates.
SFLR’s portfolio consists predominantly of S&P 500 Index stocks, with the sub-advisor implementing a representative sampling strategy to efficiently gain exposure to returns of the referenced index. As part of the equity sampling methodology, SFLR will seek to provide investment income, distributing dividends from the portfolio’s stock holdings back to fund shareholders.
Through a custom-developed, laddered options strategy, SFLR will target a maximum loss of roughly 10% on a rolling 12-month basis. The laddered options strategy employed by SFLR seeks to maximize upside potential. This should allow investors to participate in high-returning environments more fully for the fund’s large-cap domestic stock benchmark.
Additionally, Innovator ETFs offer a suite of Defined Outcome ETF strategies with a built-in buffer to help investors hedge against risks ahead, depending on one’s level of risk aversion.
For instance, the January series includes the Innovator S&P 500 Buffer ETF (BJAN), Innovator S&P 500 Power Buffer ETF (PJAN), and Innovator S&P 500 Ultra Buffer ETF (UJAN), which have a 9%, 15%, and 30% buffer, respectively. The Defined Outcome ETF suite also includes the other months of the year to provide full annual coverage, depending on an investor’s preferred outcome period.
The quarterly series of Defined Outcome ETFs are designed to allow investors to purchase shares as close to the beginning of their respective outcome periods as possible. Investors can also purchase shares of a previously listed Defined Outcome ETFs throughout the entire outcome period and obtain a current set of defined outcome parameters.
Investors may look to Innovator’s buffer strategies to mitigate risks and still maintain upside potential. The Defined Outcome ETFs provide market exposure with a built-in downside buffer. The ETFs start with a synthetic 1 to 1 exposure to the target market. They would then include a put spread to provide targeted buffers of 9%, 15%, or 30% to their respective targets. Lastly, the upside is capped by selling an upside call to finance downside buffers.
“The goal of Defined Outcome ETF investing is to take a traditional (undefined) investment and restructure it to create a new risk/reward profile,” according to Innovator ETFs.
“Defined Outcome ETF investments can provide exposure to broad market indexes or to ETFs, and can offer a variety of downside and upside profiles.”
Financial advisors who are interested in learning more about a risk-managed investment approach can register for the Wednesday, January 11 webcast here.