Innovator ETFs launches ETF of buffer ETFs

Innovator Capital Management has launched the Innovator Laddered Fund of S&P 500 Power Buffer ETFs (BUFF), which will invest equally in each of Innovator’s 12 monthly S&P 500 Power Buffer ETFs and rebalance semi-annually. 

The underlying S&P 500 Power Buffer ETFs each seek to provide a buffer against the first 15 per cent of losses in the S&P 500 and upside performance to a cap over a one-year outcome period; they are part of Innovator’s category-creating Defined Outcome ETF family.

As announced in May, to launch BUFF, Innovator will make changes to its existing Innovator Lunt Low Vol/High Beta Tactical ETF (LVHB), including a change to the fund’s name, ticker symbol, underlying index, investment objective, management fee and strategy at that time.

BUFF will seek to offer investors a managed portfolio (an ETF of ETFs) that will invest equally across all twelve monthly S&P 500 Power Buffer ETFs – providing a ladder of buffered S&P 500 exposures. The twelve underlying buffered S&P 500 exposures each have a different upside cap level and period of time until their annual reset, but share a 15 per cent buffer against losses in the S&P 500 Index over their outcome period. Innovator’s intention with BUFF is to offer an ETF that can provide investors a managed approach to buffered equity investing that maintains upside growth potential by continuously participating in new upside caps as the underlying ETFs reset monthly – and which can be allocated to at any point during the year.

Bruce Bond, CEO of Innovator ETFs, says: “The Innovator Laddered Fund of S&P 500 Power Buffer ETFs (BUFF) will streamline the process of investing in our revolutionary Defined Outcome ETFs. With BUFF, we believe investors can take advantage of the foundation we’ve laid as the leaders and pioneers in Defined Outcome ETFs and the infrastructure that we’ve built in issuing monthly series of the S&P 500 Power Buffer ETFs. By bringing BUFF to market, Innovator is realising our long-term vision of providing a full and diversified suite of Defined Outcome ETFs for advisors and is consistent with offering investors effective, transparent and scalable risk management tools they can understand in an ETF.”

BUFF will be rebalanced semi-annually, charge 20 basis points1 and seeks to provide investors with a simplified, efficient solution to buffered equity investing. It is anticipated the ETF will provide investors with lower volatility (standard deviation), beta and drawdowns relative to the S&P 500 while capturing a measure of the capital appreciation potential of US domestic large-cap stocks, the largest equity market globally by capitalisation and typically the most significant allocation in most diversified portfolios.

Bond says: “The retiring of the Baby Boomers marks the biggest demographic challenge today’s advisors are working through; fiduciaries know better than anyone that the estimated 10,000 Baby Boomers retiring each day don’t want to make their money twice. When losing less matters more, reducing risk is crucial to overcoming investors’ worst behavioural tendencies, like selling at the wrong time because portfolios were mismatched with investors’ risk tolerance levels. This year’s historically volatile market conditions and the vastly differing forecasts for the economic and market climate ahead demonstrate the value of buffering portfolios against an uncertain future while maintaining exposure to the potential growth of equities.

“With BUFF, investors will be able to achieve constant diversified buffered exposure to the S&P 500 Index, locking in new caps as each monthly series resets while decreasing market losses and smoothing out the overall ride in equities. As a risk-managed growth engine, we see many applications for BUFF, including within retirement portfolios, target-date funds and model portfolios where BUFF can easily be plugged into an allocation framework to replace a portion of equities, bonds and/or alternatives."

As an ETF of ETFs, BUFF is designed to be bought and/or sold without regard for the outcome period associated with the underlying individual ETFs. The strategy, as measured by its index – the Refinitiv Laddered Power Buffer Strategy Index – seeks to provide lower volatility (standard deviation), beta and drawdowns relative to the S&P 500. While BUFF will invest in Innovator Defined Outcome Buffer ETFs – in an equal weighted portfolio of all twelve monthly issues of the S&P 500 Power Buffer ETFs, which have a 15 per cent buffer against loss in the S&P 500 – the fund will not be a Defined Outcome product with an upside cap and downside buffer, nor an outcome period.

BUFF will seek investment results that correspond generally (before fees and expenses) to the price and yield of the Refinitiv Innovator Laddered Power Buffer Strategy Index. BUFF will generally invest at least 80 per cent of its net assets (including investment borrowings) in securities comprising this Index. The Index has been developed by and is maintained and sponsored by Refinitiv/Thomson Reuters. The Index is comprised of the shares of the following twelve underlying Innovator S&P 500 Power Buffer ETFs:

Innovator S&P 500 Power Buffer ETF – January (PJAN)
Innovator S&P 500 Power Buffer ETF – February (PFEB)
Innovator S&P 500 Power Buffer ETF – March (PMAR)
Innovator S&P 500 Power Buffer ETF – April (PAPR)
Innovator S&P 500 Power Buffer ETF – May (PMAY)
Innovator S&P 500 Power Buffer ETF – June (PJUN)
Innovator S&P 500 Power Buffer ETF – July (PJUL)
Innovator S&P 500 Power Buffer ETF – August (PAUG)
Innovator S&P 500 Power Buffer ETF – September (PSEP)
Innovator S&P 500 Power Buffer ETF – October (POCT)
Innovator S&P 500 Power Buffer ETF – November (PNOV)
Innovator S&P 500 Power Buffer ETF – December (PDEC)

BUFF’s investment performance, tracking its Index, will largely depend on the investment performance of the underlying ETFs in which the Fund invests, subject to the respective caps and buffers of the underlying ETFs.  There is no guarantee the underlying funds will achieve their investment objectives.

In May 2020, the Board of Trustees of the Innovator ETFs Trust II approved a reduction in the annual unitary management fee paid by shareholders to Innovator Capital Management, LLC the Fund’s investment adviser, from 0.49 per cent of the Fund’s average daily net assets to 0.20 per cent of the Fund’s average daily net assets. In addition to the Fund’s own fees and expenses, the Fund will pay indirectly a proportional share of the fees and expenses of the underlying ETFs in which it invests, included advisory and administration fees4. 

Once effective, LVHB will trade its shares under the new ticker symbol “BUFF”.