Innovator Capital Management, LLC (Innovator) will bring to market a new suite of accumulation-oriented Defined Outcome ETFs, the Innovator Accelerated ETFs, the world’s first ETFs to seek to offer a multiple of the upside return of a reference asset, up to a cap, with approximately single exposure on the downside.
Part of Innovator’s Defined Outcome ETF family, the Accelerated ETFs will offer advisors the ability to accelerate a portfolio’s equity performance to a cap over a one-year or three-month outcome period. The Accelerated ETFs represent another ETF industry milestone in Innovator’s path to disrupting the asset management and insurance industries for the benefit of advisors and the end-investor.
Anticipated to list on 1 April on the Cboe, the initial Innovator Accelerated ETFs are below:
Ticker, Reference Asset, Upside to Cap, Downside, Average Cap, Outcome Period, Anticipated Listing
XDAP, SPY, 2X, 1X, 19.55 per cent, Annual, 4/1
XBAP, SPY, 2X, 1X, 9 per cent Buffer, 11.46 per cent, Annual, 4/1
XDSQ, SPY, 2X, 1X, 8.12 per cent, Quarterly, 4/1
XTAP, SPY, 3X, 1X, 17.06 per cent, Annual, TBD
XDQQ, QQQ, 2X, 1X, 11.33 per cent, Quarterly, 4/1
QTAP, QQQ, 3X, 1X, 22.23 per cent, Annual, TBD
“The Accelerated ETFs have always been part of the vision for our Defined Outcome ETF lineup, and we are very excited to introduce them to advisors and ETF investors,” says Bruce Bond, CEO of Innovator ETFs.
“The Accelerated ETFs seek to enhance investors’ equity performance potential to a cap without taking on additional downside risk. This is a growth investing product concept we’ve been working diligently on since 2017 when we filed for our first Buffer ETFs. And now, for the first time ever in an ETF, investors who hold shares for an entire outcome period will have access to potentially double or triple the upside of SPY or QQQ, to a cap, with approximately single exposure on the downside. This means that in instances when SPY or QQQ returns less than the cap over the outcome period and the investor holds the respective Accelerated ETF for the entire outcome period, they will have the potential to outperform the respective market.”
“Given the popularity of such asymmetric accelerated or enhanced equity return strategies in other structures, we think the Accelerated ETFs will really resonate with advisors who have been attracted to these types of strategies but were deterred by the illiquidity, opacity, high relative costs and credit risk of structured notes,” says John Southard, CIO of Innovator ETFs.
“No one can predict the future but, if history is a guide, certain domestic equity markets could have a very slim chance of beating the annualised returns they’ve produced over the recent decade. With valuations elevated, Wall Street strategists are near unanimously forecasting a low to moderate growth environment for domestic large-cap equities in the mid- to long-term outlook. The Accelerated ETFs seek to provide the potential to enhance returns in such challenging environments, helping to support investors’ accumulation goals.”
Bond adds: “With the launch of Innovator Accelerated ETFs, investors will have even greater ability to construct strategic, diversified portfolios with Defined Outcome ETFs. Alongside our Stacker ETFs, we believe the Accelerated ETFs will provide powerful growth tools to potentially enhance equity returns while our Defined Outcome Buffer ETFs can be used for equity risk management and as alternatives to core bond allocations being confronted by the triple whammy of historically low yields, a steepening yield curve and the potential for elevated inflation.”
On 1 April, Innovator plans to list the following Accelerated ETFs based on the Large-cap US equity market through options on SPY (the SPDR S&P 500 ETF Trust): the Innovator US Equity Accelerated ETF – April (XDAP); the Innovator US Equity Accelerated 9 Buffer ETF – April (XBAP); the Innovator US Equity Accelerated ETF – Quarterly (XDSQ); as well as the Innovator US Equity Accelerated Plus ETF – April (XTAP).
Innovator US Equity Accelerated ETF – April (XDAP) will seek to provide investors with double the upside performance of SPY, to a cap, with approximately single exposure to SPY on the downside, over a one-year outcome period.
Innovator US Equity Accelerated 9 Buffer ETF – April (XBAP) will seek to provide investors with double the upside performance of SPY, to a cap, with approximately single exposure to SPY on the downside and a buffer against the first 9 per cent of losses in SPY, over a one-year outcome period.
Innovator US Equity Accelerated ETF – Quarterly (XDSQ) will seek to provide investors with double the upside performance of SPY, to a cap, with approximately single exposure to SPY on the downside, over a three-month, or quarterly, period.
Innovator US Equity Accelerated Plus ETF – April (XTAP) will seek to provide investors with triple the upside performance of SPY, to a cap, with approximately single exposure to SPY on the downside, over a one-year outcome period.
Also on 1 April, Innovator plans to list the following Accelerated ETFs based on Growth stocks through options on QQQ (the Invesco QQQ Trust): the Innovator Growth-100 Accelerated ETF – Quarterly (XDQQ) as well as the Innovator US Equity Accelerated Plus ETF – April (QTAP).
Innovator Growth-100 Accelerated ETF – Quarterly (XDQQ) will seek to provide investors with double the upside performance of QQQ, to a cap, with approximately single exposure to QQQ on the downside, over a three-month, or quarterly, period.
Innovator Growth-100 Accelerated Plus ETF – April (QTAP) will seek to provide investors with triple the upside performance of QQQ, to a cap, with approximately single exposure to QQQ on the downside, over a one-year outcome period.
The shorter outcome period of the Quarterly outcome period ETFs (XDSQ, XDQQ) means they will follow the reference asset (SPY or QQQ) more closely, but will have lower starting caps. Investors can use both outcome periods to tactically respond to changing market conditions should they wish to do so. The first outcome period for each of the three Accelerated ETFs will be slightly longer than the subsequent outcome periods due to the launch date of the ETFs.
The Accelerated ETFs will not be like leveraged ETFs, which typically seek to provide a magnified exposure on both the upside and the downside on a daily basis and can compound risk with higher volatility when held long-term due to their frequent, often daily, rebalancing. Instead, the Accelerated ETFs will seek to provide asymmetrical returns over either a typically annual or quarterly outcome period that are magnified on the upside only, to a cap. Innovator’s Accelerated ETFs will rebalance annually or quarterly, making the funds more suited for asset allocation and longer-term investors rather than tools for ultra-tactical trading. In the Accelerated ETFs case, it is important to note that investors must hold shares for an entire outcome period to achieve the enhanced returns that a fund seeks to provide.
While the Funds are designed to participate in the reference ETF (SPY or QQQ) losses on a one-to-one basis over the duration of the outcome period as a whole, a decrease in the value of the reference 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 incremental downside risk if the reference asset has increased in value.
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 each ETF’s outcome period, the ETF will simply rebalance and reset, providing investors with new upside caps and a fresh 9 per cent Buffer in the case of XBAP, over the next outcome period. The Accelerated 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 Accelerated ETFs will not receive dividend yield from their holdings; the ETFs will be based on the price returns of the reference ETF (SPY or QQQ) over the length of the outcome period. The Innovator Accelerated ETFs will charge a 0.79 per cent management fee.
The Accelerated ETFs will be constructed using Cboe FLEX Options, offering exposure to equity markets rather than investing in them directly. The FLEX Options forming the underlying positions of the first three Innovator Accelerated ETFs are based on SPY or QQQ (the reference asset).
The Accelerated 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 Accelerated ETFs won’t maintain proportional betas of 1.0 to the reference ETF in instances of positive returns for the associated equity benchmark. Though they provide simultaneous multiple exposure to the upside of the benchmark, the Accelerated ETFs only seek to provide the positive performance of the reference ETF over the full Outcome Period, up to a cap, and 1:1 downside to the reference asset over the Outcome Period. In the interim, or intra-Outcome Period, investors can expect the Accelerated 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 downside from that point forward if the reference asset has appreciated in value since the period began.
The Accelerated 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 per cent (“Buffer”), -15 per cent (“Power Buffer”) or –30 per cent (“Ultra Buffer”) and exposure to the growth of core markets, to a cap, in a tax-efficient vehicle over a one-year outcome period. Innovator currently has 57 Defined Outcome Buffer ETFs™ in the market, as well as the Innovator Laddered Fund of S&P 500 Power Buffer ETFs (BUFF), with total assets under management (AUM) of over USD4 billion.
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