Innovator to Debut Defined Outcome 'Stacker ETFs' on Oct. 1 | ETF Trends

Innovator Capital Management will debut its first three Innovator Stacker ETFs™ on Oct. 1, the world’s first ETFs to offer a “stacked” or multiple exposure on the upside, to a cap, with a single exposure to the downside.

Part of Innovator’s Defined Outcome ETF™ family, the Stacker ETFs™ will offer advisors a potential solution to magnify their equity exposures and performance potential by accessing multiple U.S. stock market return streams simultaneously, up to a cap, while maintaining downside exposure to a single benchmark, SPY (the SPDR S&P 500 Index ETF), over a one year outcome period.

The Stackers ETFs™ will not be like traditional leveraged ETFs, which can produce distorted returns and higher volatility when held long-term due to their frequent, often daily, rebalancing. Instead, the Stacker ETFs™ will seek to provide asymmetrical returns over a year-long outcome period that are magnified on the upside only, to a cap, while rebalancing annually, making them more suited for longer-term investors.

Bruce Bond, CEO of Innovator ETFs, said they are very excited to introduce the Stacker ETFs™.

He said they have been working diligently on this product concept for over three years.

“Now, for the first time in an ETF, investors who hold shares for an entire outcome period have access to triple or double exposures on the potential upside to a cap with a single exposure on the downside, the S&P 500,” Bond said. “The Stacker ETFs™ seek to provide advisors with diversified exposure across the U.S. stock markets and can magnify investors’ performance potential without increasing risk beyond exposure to the S&P 500, the benchmark many clients are most comfortable with. It has been an honor for us to witness the growth of the Innovator Buffer ETFs and we believe the ‘Stackers’ will be embraced in the same way.”

John Southard, CIO of Innovator ETFs, said today’s ultra-low yielding and low forward-looking return environment for U.S. equities is challenging advisors’ ability to hit their clients’ return goals with traditional portfolio assets, strategies and allocations.

“The idea with the Innovator Stacker ETFs™ is to allow investors to participate in the potential upside, to a cap, across multiple U.S. equity market segments without taking on the potential downside risk and additional volatility of Growth and Technology, as well as Small-Caps,” Southard said. “And with the ‘Stackers’, advisors don’t have to be right about which U.S. equity market segment to allocate to based on fundamentals, technicals, geopolitics or stimulus measures, etc; you can get multiple exposures in a single ETF. Especially in low-return equity markets, we feel the ‘Stackers’ hold significant appeal and they could displace allocations to active managers given the transparency, return parameters and outperformance potential.”

Bond said another reason they see the ‘Stackers’ resonating with advisors is that they will be able to map their annual market return expectations directly to a specific Stacker ETF™.

“The Innovator Stacker ETFs™ will allow advisors to know their potential outcomes prior to investing, including the environments in which they can potentially outperform the U.S. large-cap equity market,” he said. “To do all this with the benefits of liquidity, transparency and tax-efficiency illustrates the beauty of the ETF vehicle and the utility we think the ‘Stackers’ will bring to advisors’ playbooks.”.

On Oct. 1, Innovator plans to list the Innovator Triple Stacker ETF™ – October (TSOC), the Innovator  Double Stacker ETF™ – October (DSOC) and the Innovator  Double Stacker 9 Buffer ETF™ – October (DBOC) on the Cboe. The Innovator  Triple Stacker ETF™ – October (TSOC) will seek to provide investors with upside performance comprised of 100% of SPY (S&P 500) + 100% of QQQ1 (Nasdaq 100) + 100% of IWM2 (Russell 2000), to a cap, and the downside exposure to SPY only, over a one-year Outcome Period. The Innovator  Double Stacker ETF™ – October (DSOC) will seek to provide investors with upside performance comprised of 100% of SPY (S&P 500) + 100% of QQQ (Nasdaq 100), to a cap, and the downside exposure to SPY only, over a one-year Outcome Period. The Innovator  Double Stacker 9 Buffer ETF™ – October (DBOC) will seek to provide investors with upside performance comprised of 100% of SPY (S&P 500) + 100% of QQQ (Nasdaq 100), to a cap, and the downside exposure is to SPY only and includes a Buffer against the first 9% of losses in SPY over a one-year Outcome Period.

While the funds are designed to not participate in any QQQ or IWM ETF losses, as applicable, over the duration of the Outcome Period as a whole, a decrease in the value of an underlying asset’s share price may cause a decrease in the Fund’s NAV while an Outcome Period is ongoing.  Therefore an investor that purchases Shares after an Outcome Period has begun may be exposed to the downside risks for QQQ and IWM.

The funds have characteristics unlike many other traditional investment products and may not be suitable for all investors. For more information regarding whether an investment in the Fund is right for you, please see “Investor Suitability” in the prospectus.

At the end of TSOC, DSOC and DBOC’s outcome period, September 30, 2021, the ETFs will simply rebalance and reset, providing investors with new upside caps and a fresh 9% Buffer, respectively, over the next one year outcome period. The Stacker ETFs™ do not expire and can be long-term core equity holdings in a portfolio. The options-based ETFs are anticipated to be as tax-efficient as traditional equity ETFs, with no planned cap gains distributions to shareholders and investors being able to defer taxes until selling.

Investors in the Innovator Stacker ETFs™ will not receive dividend yield from their holdings in TSOC, DSOC or DBOC, respectively; the ETFs are based on the price returns of the reference ETFs (SPY, QQQ and IWM) over the length of the outcome period. The Innovator Stacker ETFs™ will charge a 0.79% management fee.

The Stacker ETFs™ are constructed using Cboe FLEX Options, offering exposure to select equity markets rather than investing in them directly. The FLEX Options forming the underlying positions of the Innovator Stacker ETFs™ are based on SPY, QQQ and IWM. The Innovator Stacker ETFs™ are likely to be issued on a quarterly frequency.

The Stacker ETFs™ provide defined returns over the entire Outcome Period, not on a daily basis. As a result, interim returns may lag the reference benchmark ETFs. This is due to the time-value nature of the underlying options held by the fund; as such, the Stacker ETFs™ won’t maintain proportional betas of 1.0 to the reference ETFs in instances of positive returns for the associated equity benchmarks. Though they provide simultaneous exposure to the upside of multiple benchmarks, the Stacker ETFs™ only seek to provide the positive performance of the reference ETFs over the full Outcome Period, up to a cap, and/or 1:1 downside to SPY over the Outcome Period. In the interim, or intra-Outcome Period, investors can expect the Stacker ETFs™ to exhibit lower beta than traditional passive index-tracking ETFs. An investor that purchases Shares after an Outcome Period has begun may be exposed to the downside risks for QQQ and IWM.

The Stacker ETFs™ will be part of Innovator’s category-creating Defined Outcome ETF™ family – the first group of ETFs designed to provide investors with built-in buffers against losses of -9% (“Buffer”), -15% (“Power Buffer”) or -30% (“Ultra Buffer”) and exposure to the growth of core equity markets, to a cap, in a tax-efficient vehicle over a one year outcome period. Innovator currently has 50 Defined Outcome Buffer ETFs™ in the market, as well as the recently launched Innovator Laddered Fund of S&P 500 Power Buffer ETFs (BUFF), with total assets under management (AUM) of $3.3 billion and $1.4 billion in inflows year-to-date3. In addition to being named “ETF Issuer of the Year – 2019” in the seventh annual ETF.com Awards*, acknowledging the rapid advisor adoption and the positive potential impact on investor behavior of the Defined Outcome ETFs™, Innovator recently won “Newcomer Alternative ETF of the Year” and was “Highly Commended” for “ETF Suite of the Year” at the Mutual Fund Industry and ETF Awards 2020 by Fund Intelligence** in July.