According to ETF.com, a new exchange-traded fund (ETF) specially tailored to investors who wish to avoid risk has recently launched. In the growing ETF space, companies listing new products have increasingly had to cater toward more and more specific interests. There are now ETFs for just about every theme one can imagine, from cannabis to video games. Innovator Funds is hoping to play to an inherent strength of the ETF as an investment vehicle: stability.
The new Innovator S&P 500 Buffer ETF (BJUL), listed on Cboe Global Markets, is designed with loss aversion at its core. BJUL invests in custom S&P 500 FLEX options with a variety of strike prices but the same expiration date. (See also: What Kind of Securities Should a Risk-Averse Investor Buy?)
What BJUL Does
By including multiple strike prices, BJUL is "designed to offer investors exposure to some of S&P 500 price returns while providing a buffer in a down market," the report suggests. With the buffer in place, BJUL offers up to 9% downside protection. This means that if the S&P 500 drops by as much as 9%, investors will not see any negative impact on their investments.
For those worried that downside protection may limit upside gains, BJUL still allows investors to capture up to 10.85% in upside gains. For investors looking to limit risk as much as possible and predict their potential outcome, BJUL may be a strong option. (For more, see: How Low-Volatility ETFs Can Enhance Your Success.)
New Strategy to the ETF Space
Innovator Funds' Bruce Bond recognizes that "this type of strategy has long been offered as a structured product or at insurance companies, but it hasn't really been available in ETF form." He adds that "it's about providing predictable outcomes to investors."
The fund, which launched on Aug. 29, 2018, bases its outcome range on the first day of trading. Investors entering the fund later on may see different outcomes as a result of market action that has already happened. For investors concerned about what this means practically, Innovator has launched a separate online tool allowing for a calculation of downside/upside caps upon entry for any time that an investor may buy into BJUL during the 12-month duration. The fund will reset each year in July, at which point in time a new cap is set based on current market conditions.
This is not the first time that Innovator has launched a buffer fund. Indeed, BJUL is part of a larger series of ETFs which deliver different buffer ranges as a result of market conditions on the first day of trading. Besides BJUL, Innovator has also launched the Innovator S&P 500 Power Buffer ETF - July (PJUL) and the Innovator S&P 500 Ultra Buffer ETF - July (UJUL). These offer 15% and 30% downside protection, respectively. (See also: 7 Best ETF Trading Strategies for Beginners.)
For investors concerned about lack of diversification or high correlation, BJUL could replace some large-cap allocation in a portfolio. Bond suggests that the fund could serve as an alternative to fixed-income exposure as well.
BJUL and its siblings listed above are part of a larger group of ETFs that Innovator has on the docket. Each of these quarterly funds will reset annually in July. For investors, BJUL could then serve as either a long-term holding with a reset each year, or it could be part of a more active, tactical approach. Investors could buy and sell BJUL much more frequently based on how market conditions change.
The expense ratio for BJUL is 0.79%, set as a unitary fee that covers all associated costs. Innovator's eight ETFs, three of which were launched in August alone, have combined assets of roughly $750 million. As more Innovator funds launch, this number will likely continue to grow. (For additional reading, check out: 5 Ways Successful Investors Choose ETFs.)