On the latest episode of “ETF 360,” Innovator’s Tim Urbanowicz joined VettaFi head of research Todd Rosenbluth. The two discussed market risks and the Innovator’s managed floor product, the Innovator Equity Managed Floor ETF (SFLR).
Urbanowicz Looks at the 2 Big Risks Over the Next 12 Months
Speaking to the risks coming in the next 12 months, Urbanowicz said, “The first and most important comes down to how long we’re going to see rates at this restrictive level. If you look at corporations and you look consumers, both have digested rate hikes extremely well. A big reason for that is neither really have much floating rate debt exposure.” The longer the rate hikes linger, the more they are likely to inflict pain. Accordingly, Urbanowicz added, “We need to be able to get to a point where the Fed can cut and the rates can come back down.”
Urbanowicz noted the second big risk is complacency: “A little bit of bad news has the potential to shake some of the good news that’s already been priced in.”
Cash at an Extreme, According to Urbanowicz
“If you look right now, high net worth individuals hold about 34% of their assets in cash,” Urbanowicz said. This is a significant increase from previous years. He doesn’t see these investors as timing the market. Advisors are seeing clients eager to remove unknowns. As such, investors are happy to park assets in cash while they wait out a potential recession. “We all know that in long run, getting out of the market and being in cash is a mistake,” Urbanowicz said.
SFLR Hits the Dance Floor
The Innovator Equity Managed Floor ETF (SFLR) is an actively managed product that seeks to give equity exposure with a 10% floor against losses. Correspondingly, Urbaniwicz shared, “We hold a portfolio of downside puts to create that 10% floor.” As such, SFLR is being used as a core equity holding. Lots of advisors are using it to manage risk.
To watch past episodes of ETF 360, visit the ETF 360 Channel.