The US’s Innovator Capital Management has announced the launch of the Innovator Buffer Step-Up Strategy ETF (BSTP) and the Innovator Power Buffer Step-Up Strategy ETF (PSTP) on NYSE Arca.
The firm writes that the latest in its Managed Outcome ETF line-up, the new “Step-Up” Strategy ETFs will seek to provide advisers 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.
The planned Funds were designed to be a solution for advisers who value the concept of Buffer ETFs but would rather have the process of evaluating return parameters and investing in buffered equity strategies professionally managed.
Much like Innovator’s flagship U.S. Equity Buffer and U.S. Equity Power Buffer ETFs, the Step-Up Strategy ETFs will consist of three layers of customised 12-month FLEX Options contracts that seek upside participation to SPY, to a cap, with known buffers against SPY losses of 9 per cent (in the case of BSTP) or 15 per cent (in the case of PSTP).
But 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 pre-determined range. 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.
“The Step-Up Strategy ETFs bring to market a concept we’ve been working on for some time and one that many advisers have asked for. As we completed monthly issuance on our flagship U.S. Equity Buffer ETF lineup in May 2020, ‘stepping-up’ – selling one Buffer ETF for another monthly series – became a popular strategy amongst some advisers who used the Defined Outcome ETFs in non-taxable retirement accounts. These new funds in our Managed Outcome ETF line-up will seek to provide advisers with tax-efficient strategies that manage the process of ‘trading up’ from the set of return parameters of one monthly series of U.S. Equity Buffer ETF to the current month’s opportunity set, depending on market movements and conditions. We feel that the managed process behind BSTP and PSTP will provide greater access to the type of ‘step-up’ strategies that many advisers 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,” says Bruce Bond, CEO of Innovator ETFs.
Innovator Buffer Step-Up Strategy ETF (BSTP)
BSTP will actively manage a portfolio of 12-month options contracts to seek upside participation to SPY in rising markets and renewed buffers to hedge against SPY losses up to 9 per cent in falling markets. BSTP will feature a total expense ratio of 0.89 per cent.
Innovator Power Buffer Step-Up Strategy ETF (PSTP)
PSTP will actively manage a portfolio of 12-month options contracts to seek upside participation to SPY in rising markets and renewed buffers to hedge against SPY losses up to 15 per cent in downward markets. PSTP will feature a total expense ratio of 0.89 per cent.
In volatile periods, the firm writes that the Step-Up Strategy ETFs will have the added benefit of resetting into options when the market typically offers higher upside caps.
Because the Funds seek to rebalance their options portfolios under certain market conditions, the Funds do not themself pursue a defined outcome strategy over a set outcome period, nor do they seek to provide a set buffer against reference asset losses, the firm says.