Innovator Capital Management has partnered with Investor Business Daily to launch an ETF based on the signature breakout methodology of investing that goes back to William O’Neil’s research in the 1950’s to help investors focus on areas that could breakout.
On Thursday, Innovator launched the Innovator IBD Breakout Opportunities ETF (NYSEArca: BOUT), which has a 0.80% expense ratio.
The Innovator IBD Breakout Opportunities ETF tries to reflect the performance of the IBD Breakout Stocks Index, a rules-based index developed by Investor’s Business Daily that tries to provide opportunistic investment exposure to those stocks with the potential to “break out,” or experience a period of sustained price growth beyond the stock’s recent “resistance level,” with consideration for various market conditions, according to the fund’s prospectus.
“Investor’s Business Daily’s founder William O’Neil began researching breakout stocks in the late 1950s. During more than a half century of research and investing, compiling charts on the best stock market winners of each market cycle, O’Neil found the biggest winners often started their moves the same way, with a stock breakout,” Chris Gessel, Chief Content Officer of IBD, said in a note. “The IBD Breakout Stocks Index begins by identifying with companies that have strong fundamental indicators and uses a chart pattern recognition algorithm to select stocks for inclusion that are at or nearing breakout points.”
The resistance level is the price at which a stock has previously reached, but not exceeded. Determining a stock’s resistance level is part of a technical analysis of the stock and represents the top of its expected price trading range.
IBD Composite Ranking and Relative Price Strength Rating
The underlying index follows a ranking score based upon the security’s IBD Composite Ranking and Relative Price Strength Rating to assign weights, and stocks with higher rankings receiving larger weights.
Specifically, the underlying index incorporates an algorithm that analyzes the following trends for each stock: 1. The length of time from the establishment of the base to the current date. 2. The difference in price between the base and the lowest subsequent price for the stock. 3. The percentage difference between the current price and the high at the start of the base. 4. The percentage difference in price from the stock’s lowest price subsequent to the establishment of the base and its current price. 5. The percentage change in the stock’s price in each of the last three weeks.
Furthermore, the index utilizes a Relative Price Strength Rating based on Earnings Per Share Rating, Relative Price Strength Rating, Industry Group Relative Strength Rating, Sales Margins Return on Equity (SMR) Rating, Accumulation Distribution Rating and Percentage Deviation from 52-week Price High.
“While many ETFs focus on stocks with established momentum, the Innovator IBD Breakout Opportunities ETF (BOUT) seeks to identify companies before they have established momentum, and may offer investors unique exposure that can be utilized as an alternative or complement to momentum ETFs,” Bruce Bond, Chief Executive Officer of Innovator Capital Management, said in a note. “Identifying stock breakouts from a sound chart pattern is a good way to improve the timing for investing in growth companies, and to participate in potential big stock market winners.”
For more information on new fund products, visit our new ETFs category.