Innovator Capital Management, LLC (Innovator) today announced the anticipated listing of the Innovator S&P 500 Defined Outcome ETFs – July Series on Cboe on August 8, 2018. The Innovator Defined Outcome ETFs will seek to offer investors exposure to the S&P 500 Price Return Index (S&P 500) to a Cap, with downside protection levels (or buffers) of 10%, 15%, or 30% over an Outcome Period of approximately one year, at which point each ETF will reset. This is the first time investors will be able to access structured outcomes through the ETF vehicle. The result is an efficient product suite that seeks the following benefits:
- Defined downside protection levels
- Exposures to S&P 500 upside performance
- Low cost, flexible, liquid, and transparent
- No credit risk
- Resets annually and can be held indefinitely
Every once in a while a product comes along with the potential to change the way we invest. Today we are pleased to announce the arrival of one of those products, said Bruce Bond, CEO of Innovator ETFs. Through the Defined Outcome ETFs, we believe that we have solved a key challenge for millions of Americans by providing the ability for people to stay invested in the market, knowing they have upside growth potential and downside protection levels. This is truly innovative, and another first for the ETF industry.
Innovator S&P 500 Defined Outcome ETFs
Each Innovator S&P 500 Defined Outcome ETF seeks to provide investors defined exposure to the S&P 500, where the downside protection level, upside growth potential to a Cap, and Outcome Period are all known, prior to investing. The Fund will invest substantially all of its assets in FLexible EXchange (FLEX) Options on the S&P 500. FLEX Options are customizable exchange-traded option contracts guaranteed for settlement by the Options Clearing Corporation.
The anticipated return profiles for the July Series of Innovator Defined Outcome ETFs are listed below:
* The Cap Range is based on the highest and lowest Cap as illustrated by each Funds strategy over the past 10 trading days and is shown gross and net of the 0.79% management fee. The actual Cap for each Fund will be set at the beginning of the Outcome Period, and is dependent upon market conditions at that time. As a result, the Cap set by each Fund may be higher or lower than the Cap Range. Upon Fund launch, Innovator will provide important Fund information related to the potential outcomes of an investment in a Fund (including the Cap) on a daily basis via its website (www.innovatoretfs.com). Cap refers to the maximum potential return, before fees and expenses, if held over the full Outcome Period. Buffer refers to the amount of downside protection, before fees and expenses, over the full Outcome Period. Outcome Periodis the intended length of time over which the defined outcomes are sought.
** The initial Outcome Period for the Innovator Defined Outcome July Series ETFs is less than 12 months to allow the period to conclude on June 30, 2019, at which point the Funds will resume their respective anticipated 12-month Outcome Periods, each beginning on July 1st.
Innovator S&P 500 Buffer ETF (Cboe: BJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against the first 10% of losses over the Outcome Period, before fees and expenses.
Innovator S&P 500 Power Buffer ETF (Cboe: PJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against the first 15% of losses over the Outcome Period, before fees and expenses.
Innovator S&P 500 Ultra Buffer ETF (Cboe: UJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against a decline of 30% of losses over the Outcome Period, from -5% to -35%, before fees and expenses. Investors are exposed to loss between 0% and 5% and over 35% over the Outcome Period, before fees and expenses.
The Defined Outcome ETFs may be held indefinitely, with the applicable Funds 10%, 15% or 30% buffers remaining fixed and associated Caps resetting at the beginning of each Outcome Period (approximately annually). Innovator intends to issue a quarterly series of each Defined Outcome ETF to provide investors an opportunity to purchase shares as close to the beginning of their respective Outcome Periods as possible. Investors will also be able to purchase shares of a previously listed Defined Outcome ETF throughout the entire Outcome Period; and obtain a new set of defined outcome parameters, which will be disclosed through a web tool for each Fund developed by Innovator (see Interim Period Shareholders below).
What Is Defined Outcome Investing?
Defined outcome investing seeks to target a specific defined payoff profile, with an allowance for a specific defined level of risk, at a specific point in time in the future. This approach to investing has been available for decades, largely through certain bank and insurance products. The defined outcomes sought by the Innovator Defined Outcome ETFs are comparable to certain equity-linked investment strategies often used by other product structures like structured notes and structured annuities1-spaces with more than $1 trillion collectively in the U.S. alone. As large as the structured product space has become, it has historically been accessed by institutional and high net worth investors.
Innovator has set its sights on placing these defined outcome based solutions inside the benefit rich ETF structure, retaining many of the features that have contributed to the success of structured products (e.g., downside protection levels, defined outcome parameters), but with the added benefits of transparency, liquidity and lower costs afforded by the ETF product structure.
For financial advisors operating as fiduciaries and acting in their clients best interests, we believe the Innovator Defined Outcome ETFs may be a better tool to meet an investors individual risk tolerance levels, said John Southard, Innovators chief investment officer. The Defined Outcome ETFs seek defined levels of downside protection over an Outcome Period, which is something no other equity ETF in the marketplace offers.
Webinar: Wednesday, August 15th, 2018
To continue the educational effort around the Innovator Defined Outcome ETFs, Innovator has scheduled a webinar on Wednesday, August 15th at 4:30 pm eastern time.
Interim Period Shareholders
Unlike structured notes, which offer limited liquidity, Innovator Defined Outcome ETFs will trade throughout the day on an exchange, like a stock. As a result, investors purchasing shares of a Fund after its launch date will achieve a different payoff profile than those who entered the Fund on day one. Innovator recognizes this as a benefit of the Funds and intends to provide investors with a web-based tool that depicts detailed information about each Funds current share price in relation to its Cap, Outcome Period, and buffer. This will enable investors to know, in real-time throughout the trading day, their potential defined outcome profile before they invest, based on the current ETF price and the Outcome Period remaining.
These Funds will allow investors to seek a return profile on a point-to-point basis, before they invest, regardless of the day they invest, Southard added. We anticipate the web tool being a large part of the Defined Outcome ETF experience.
Upon launch, Innovators web tool can be accessed at http://www.innovatoretfs.com/define. Investors considering purchasing shares after the Outcome Period has begun or selling shares prior to the end of the Outcome Period should visit the website to fully understand potential investment outcomes.
Financial advisors will also have the opportunity to sign up to receive a weekly pricing sheet that illustrates each ETFs defined outcome parameters as of the close of the previous trading week.
ETF Construction
Each Fund will hold a portfolio of custom exchange-traded FLEX Options that have varying strike prices (the price at which the option purchaser may buy or sell the security, at the expiration date), and the same expiration date (approximately one year). The layering of these FLEX Options with varying strike prices provides the mechanism for producing a Funds desired outcome (i.e. Cap or buffer). Each Fund intends to roll options components annually, on the last business day of the month associated with each Fund.
The ETFs will be subadvised by Milliman Financial Risk Management LLC (Milliman FRM), a global leader in financial risk management. Milliman FRM was also instrumental in the design of the Cboe S&P 500 Target Outcome Indexes, which the Innovator Defined Outcome ETFs are benchmarked against.
Although each Fund seeks to achieve the defined outcomes stated in its investment objective, there is no guarantee that it will do so. The returns that the Funds seek to provide do not include the costs associated with purchasing shares of the Fund and certain expenses incurred by the Fund.
About Innovator Capital Management, LLC
Innovator Capital Management, LLC is an SEC registered investment advisor (RIA) based in Wheaton, IL. Formed in 2014, the firm is currently headed by ETF visionaries Bruce Bond and John Southard, founders of one of the largest ETF providers in the world. Innovation is our hallmark and acts as a guide to our company principles. Innovator is committed to helping investors better control their financial outcomes by providing investment opportunities they never considered or thought possible.
