Today saw the debut of five ETFs using defined outcome strategies. The TrueShares Structured Outcome (July) ETF (JULZ) is from first-time issuer TrueMark Investments, while Innovator rolled out the Innovator Russell 2000 Power Buffer ETF – July (KJUL) and the Innovator Nasdaq-100 Power Buffer ETF – July (NJUL). Allianz also launched two new ETFs, the AllianzIM U.S. Large Cap Buffer10 Jul ETF (AZAL) and AllianzIM U.S. Large Cap Buffer20 Jul ETF (AZBL).
Despite being from different issuers, the TrueMark and Innovator funds come with expense ratios of 0.79% and list on Cboe Global Markets, the parent company of ETF.com. Meanwhile, AZAL and AZBL both come with expense ratios of 0.74% and list on the NYSE Arca.
The TrueShares lineup is expected to eventually cover 12 months, so that there is a fund in the family resetting every month of the year. But for now, JULZ offers a different take on the defined outcome genre, which should make it stand out among the four firms—which also include Innovator, First Trust and Allianz—offering defined outcome ETFs.
TrueMark’s twist on the concept means that the buffer against downside performance covers a range—in this case, 8-12%—and there is no set cap on upside performance. The fund uses options contracts, including Flexible Exchange (FLEX) options, on the S&P 500 Price Index and the SPDR S&P 500 ETF (SPY) to achieve its goal. Rather than seeing their upside participation halted at a particular level, investors will simply see their percentage of participation in that upside reduced by a certain percentage due to the cost of the options contracts, the prospectus indicates.
“We do not pursue a hard cap on the upside. It’s not one-to-one participation, but there’s no limit,” said TrueMark CEO Michael Loukas.
“This is just another tool that can be used in your portfolio that will react differently than some of the other [similar] products on the market,” he added.
Loukas notes certain key advantages to his firm’s take on defined outcome funds. One is that investors do not risk missing out on compounded returns to the same degree.
“Missing those one or two big upside moves can have a very serious effect on your long-term return,” he pointed out.
Further, the strategy offers tighter upside correlation than similar approaches in that it provides upside exposure at a reduced percentage, expected to be roughly 75-80%, of the upside movements with no hard stop, Loukas says.
Innovator added two more ETFs to its lineup that are tied to the price performance of the Russell 2000 and Nasdaq-100. These are the fourth funds in each series and complete the quarterly lineup.
For the next year, KJUL and NJUL will protect against losses of 15% but cap upside performance at 16.11% and 14.25%, respectively. Those buffer and cap levels do not include expenses, and the caps will reset on or around July 1, 2021, while the buffers are static.
The funds are actively managed and primarily hold FLEX options on their reference indexes.
Innovator’s lineup of defined outcome ETFs now includes nearly 50 funds and has almost $3 billion in assets under management.
AZAL and AZBL both offer buffered exposure to the S&P 500 Price Index, with the former protecting investors against the first 10% of losses and the latter protecting against up to a 20% loss. AZAL's cap for the outcome period ended July 31, 2021, is 16.10% before expenses, while AZBL's cap is set at 8.80% before expenses.
The Allianz funds are actively managed and rely on Flexible Exchange (FLEX) options tied to the index they are looking to reflect to manage the portfolio’s performance. They also reset annually, like the existing products, at the end of their outcome period. The firm launched its first two funds in this family at the start of April.
Contact Heather Bell at [email protected]