Innovator ETFs filed for two actively managed equity ETFs with the SEC: the Innovator Equity Managed Floor ETF (patterned on the S&P 500 Index) and the Innovator Technology Managed Floor ETF (patterned on the Nasdaq-100 Index). Both funds will seek to address tail risk in stocks.
Using a custom laddered options strategy designed by Morgan Stanley Investment Management and Eaton Vance affiliate Parametric, the named subadvisor, both ETFs will target maintaining floors against maximum loss of 10%. To create the 10% floor mechanism, the strategies will regularly purchase a series of options whereby each tranche targets a 10% max loss.
The construction of the laddered options strategy, however, seeks to be able to participate significantly in the upside during strong directionally positive equity markets.
According to the filings, the Innovator Equity Managed Floor ETF and the Innovator Technology Managed Floor ETF will systematically purchase exchange traded one-year put option contracts to provide a floor against significant losses in the S&P 500 and Nasdaq-100, respectively. Both funds will also systemically sell short-dated call option contracts, which have an expiration date of approximately two weeks, with the objective of generating incremental returns above and beyond the premium outlay of the protective put option contracts.
The bulk of the portfolios will be comprised of representative stocks from the chosen index, however, not options. Unlike Innovator’s Defined Outcome ETFs, which are fully options-based, the Managed Floor strategies will pay out the dividends of their underlying stocks.
“We are thrilled to be working with Parametric to bring their systematic and scientific investing approach to the ETF market,” said Bruce Bond, CEO of Innovator ETFs. “These equity managed floor strategies have been designed to be not just tail risk products but core portfolio solutions, and we think that they will prove quite attractive to advisors and their clients.”
Bond added: “Parametric’s long legacy of customization and renowned quantitative expertise has been key to designing these equity Managed Floor ETFs, which will be the first stock-based floor ETFs of their kind in the market, following in the footsteps of our Treasury Bond Floor ETF (TFJL) launched in 2020.”
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