Innovator today launched the Innovator Buffer Step-Up Strategy ETF (BSTP) and the Innovator Power Buffer Step-Up Strategy ETF (PSTP), providing investors with an alternative to managing and evaluating a series of buffer strategies.
The two ETFs listed on the NYSE on March 8 with an expense ratio of 89 basis points. The new ETFs seek to provide advisors with tax-efficient ways to seek upside in directionally positive markets while continuously refreshing buffers against loss in the SPDR S&P 500 ETF Trust (SPY) during down markets.
BSTP and PSTP were designed to be a solution for advisors who value the concept of buffer ETFs but would rather have the process of evaluating return parameters and investing in buffered equity strategies be professionally managed.
The Step-Up Strategy ETFs will consist of three layers of customized 12-month FLEX Options contracts that seek upside participation to SPY, to a cap, with known buffers against SPY losses of 9% (in the case of BSTP) or 15% (in the case of PSTP).
In volatile periods, the Step-Up Strategy ETFs will have the added benefit of resetting into options when the market typically offers higher upside caps
A Step-Up Strategy ETF can rebalance its portfolio when it is deemed advantageous for the fund to do so. Using a rules-based methodology, a Step-Up Strategy ETF will reset its options portfolio — selling the existing contracts and entering into new 12-month contracts — if the fund’s NAV rises or falls within a predetermined range, according to a statement from the firm.
The funds’ step-up investment strategies seek to help investors offset the timing risks inherent in owning an options package for one year. In this manner, the Step-Up Strategy ETFs are designed to continuously seek market gains in positive markets, or provide potential outperformance relative to SPY in down markets, while refreshing buffers against the market’s downside and resetting the funds’ upside caps to capture more of the market’s potential upside, according to a statement from the firm.
“We feel that the managed process behind BSTP and PSTP will provide greater access to the type of ‘step-up’ strategies that many advisors have employed, automating the process of stepping-up into new and potentially higher upside caps and refreshing the buffer against market loss. And we believe the tax-efficient nature of the Step-Up Strategy ETFs means these managed risk equity solutions may be particularly useful in taxable non-retirement accounts and model portfolios,” Bruce Bond, CEO of Innovator ETFs, said in a statement.
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