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.
So far, Innovator ETFs have completed their first outcome period for seven series, including August, July, October, January, April and June.
Over the first outcome period ended July 31, BAUG generated a 9.08% return with a 23.49% volatility, PAUG generated a 8.14% return with a 18.01% volatility and UAUG generated a 8.33% return with a 14.29% volatility. In comparison, the S&P 500 Index rose 9.76% with a 33.76% volatility over the same period. When comparing the performances, it can be seen that these Buffer ETFs did what they set out to do: they captured the upside while diminishing downside risks for an overall improved risk-adjusted return.
The Innovator Defined Outcome ETFs have numerous portfolio applications for financial advisors. The series comes with behavioral and asset allocation applications to help keep clients invested, build an advisory business, replace traditional equity/bonds, and include timely applications to hedge risks.
Innovator ETFs has also expanded its Defined Outcome suite of ETFs, including the recently launched Innovator Laddered Fund of S&P 500 Power Buffer ETFs (BUFF), which provides exposure to the investment results of the Refinitiv Laddered Power Buffer Strategy Index. The Index is comprised of an equal-weight allocation to each of the 12 Innovator S&P 500 Power Buffer ETFs which provide the upside of U.S. equities, subject to caps, while buffering against the first 15% of U.S. equity losses.
Additionally, Innovator is working on the first-ever Defined Outcome bond ETF series, including the Innovator 20+ Year Treasury Bond 5% Floor ETF – July (TFJL) and the Innovator is also looking at an Innovator 20+ Year Treasury Bond 9% Buffer ETF – July (TBJL).
Financial advisors who are interested in learning more about Defined Outcome strategies can watch the webcast here on demand.