No one knows when the next drawdown will hit, but if the time comes, investors can hold exposure to alternative solutions to limit the negative effects of sudden spikes in volatility. Alternative investments that incorporate an innate buffer can help investors reduce their exposure to downside risks and still maintain upside potential, to a cap, capturing any further market moves.
In the upcoming webcast, Finding Certainty Amid the Global Pandemic – Where can you turn in Today’s Markets?, Bruce Bond, Co-Founder and CEO, Innovator ETFs; and Graham Day, Vice President of Product and Research, Innovator ETFs, will explain how the Defined Outcome strategy with a built-in buffer may help financial advisors better diversify client portfolios during these more troubled times.
For example, the Innovators August Defined Outcome series includes the Innovator S&P 500 Buffer ETF (BAUG), Innovator S&P 500 Power Buffer ETF (PAUG) and Innovator S&P 500 Ultra Buffer ETF (UAUG), which have a 9%, 15%, and 30% buffer, respectively.
The Innovator’s buffer strategies can help 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 series of Defined Outcome ETFs are designed to provide investors an opportunity 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 ETF throughout the entire Outcome Period and obtain a current set of defined outcome parameters.
Knowing the return profile before investing can significantly reduce the uncertainty involved in buying equities, which typically are among the most volatile asset classes in many investors’ portfolios. Innovator Defined Outcome ETFs represent a new type of strategy that can be effective tools for investors to strike a balance between growth and risk mitigation in portfolios, in a systematic and disciplined manner.
The Defined Outcome ETFs can be used in an investment portfolio to diversify risk in a low-volatility sleeve better, provide an alternative to bonds when faced with similar risk/reward scenarios, help investors lock in the rally and remain invested while incorporating a buffer to manage downside risks ahead.
Financial advisors who are interested in learning more about Defined Outcome strategies can register for the Thursday, August 13, webcast here.