Innovator’s Buffer Solution Sprouts

November 22, 2019

Who are your users of these products? Traders, long-term investors?
The bulk of the users are people who are just going to put it in there and let it run. But by and large, we think the best usage is for people to own them over a calendar year, get the outcome, and go from there.

We had a substantial amount of assets go in last January, when the market crashed. And the buffer ETF itself had a cap of 22% with a 9% buffer. By February, the market was up 13%, and that ETF was up 10%. It basically captured 80% of the upside in the market at that period.

This is one of the only truly original ideas to hit the ETF space in a few years. Any concern about copycats?
There is. And we’re doing what we can to protect our position in the market in a number of different ways. We’re trademarking a lot of the nomenclature that we’ve come up with to describe the products and what the products do in the ETF space. We filed for the patent around some of the technology and how the products operate to try to protect ourselves as well.

The copycat nature of the ETF business is a little disappointing. But it happens. To a large extent, it puts at risk the smaller providers that the bigger providers just copy their good ideas, and they don’t have a way to protect themselves. I think that’s a little bit disappointing, because it limits the diversity within the space.

We intend to keep our leadership position here. With PowerShares, we were copied a lot back then, with the things we did. It was the things that were successful that were copied. To an extent, one of the things we realized is that there’s a little flattery that’s there that they would copy what you’re doing. But also, it’s good to have a larger provider out there saying, “This is a valid strategy. You should consider it.”

What’s your vision for the future of Innovator?
We’re focused on introducing additional defined outcomes to give people options. The products we have out right now are very straightforward and vanilla. We want to start there, build that product lineup, to get people really comfortable.

We intend to continue to evaluate, research and develop new investment approaches, using options and other types of tools to deliver those outcomes to people and continue our leadership within this space.

We worked together with Cboe Global Markets [parent company of] to get the approval for in-kind transfer for options within ETFs. Because of that, on a go-forward basis, we believe we’re going to be able to deliver the same tax-free management within the Innovator ETFs using options, so that people will be able to defer their gains as with other ETFs, and so that their assets will compound in a greater way, and they’ll have their own personal tax experience.

Things like that are tremendous developments for our product, and for options, and for another big development in the ETF space. That’s going mean more options used in ETFs, and is going to introduce more types of outcomes in ETFs using options.


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