It’s been a wild week for stocks, but there’s one firm that could help you weather those wild swings using ETFs.
Innovator Capital Management has a set of ETFs with built-in “buffers” for five broader market indexes: the S&P 500, Nasdaq 100, Russell 2000, MSCI EAFE and MSCI Emerging Markets indexes. The firm calls them Defined Outcome ETFs that they say help protect investors from market swings to the downside.
There are three different built-in “buffer levels” in the ETFs that hedge investors from 9% downside, 15% downside or a 30% pullback depending on which level they choose. Innovator offers a Buffer ETF, Power Buffer ETF and Ultra Buffer ETF for every month of the year (they correspond respectively with the three buffer levels).
In total, there are 38 Defined Outcome ETFs that cover five broad market indexes.
With these ETFs, investors “have an opportunity to get into the market, know that they have a buffer on the downside, but [also know] they’re going to have participation on the upside,” said Innovator CEO Bruce Bond on CNBC’s “ETF Edge” Wednesday.
But given that the ETFs do have a built-in buffer, there is a cap to how much upside investors can get depending on the buffer level they choose. A 9% buffer level yields a higher return than a 30% downside buffer level.
“What you’re doing is you’re giving up some of your potential upside to get the downside buffer,” Bond said.
And since the different months reset, Astoria Portfolio Advisors’ John Davi believes the ETFs offer a less traditional play for investors.
“I think this is an alternative to people that don’t want to go out, buy their own puts, pick their own strikes and have to roll the options maturities,” Davi, his firm’s founder and chief investment officer, said in the same “ETF Edge” interview. “That’s what I think the ETF is doing.”
Innovator is set to list their March series of buffer ETFs on March 2nd, according to the firm’s product website. Its Defined Outcome ETFs passed the $2 billion mark in assets under management this week.
