Defined Outcome ETF Universe Grows

It wouldn’t be the first of the month if there wasn’t a wave of new defined outcome ETFs. Today, TrueShares, Innovator and Pacer are among the firms adding to their lineups.

Innovator Capital Management, in particular, is beginning a major expansion of its defined outcome ETF offering as it debuts six “Accelerated” ETFs that offer leveraged upside exposure with unleveraged downside exposure and reset at differing intervals. The new lineup includes the following:

• The Innovator U.S. Equity Accelerated ETF – April (XDAP) aims to provide 2X upside exposure up to a cap of 19.55% before expenses, and single exposure to downside performance of the SPDR S&P 500 ETF Trust (SPY).
• The Innovator U.S. Equity Accelerated 9 Buffer ETF – April (XBAP) aims to offer similar exposure to XDAP, with an upside cap of 11.46%, but it also buffers against the first 9% of downside performance, before expenses.  
• The Innovator U.S. Equity Accelerated ETF – Quarterly (XDSQ), like XDAP, provides 2x exposure to the upside performance of SPY, and single exposure to its downside, except it has an upside cap of 8.12%, before expenses, and resets quarterly instead of annually.
• The Innovator U.S. Equity Accelerated Plus ETF – April (XTAP) aims to offer triple exposure to the performance of SPY, up to a pre-expenses cap of 17.06%, and single exposure to downside performance.
• The Innovator Growth Accelerated ETF – Quarterly (XDQQ) looks to provide double exposure to the upside performance of the Invesco QQQ ETF (QQQ), up to a pre-expenses cap of 11.33%, and single exposure to the fund’s downside performance. It resets quarterly.
• The Innovator Growth Accelerated Plus ETF – April (QTAP) aims to provide triple exposure to the upside performance of QQQ, up to a pre-expenses cap of 22.23%, but single exposure to downside performance.

All of the funds come with expense ratios of 0.79% and list on Cboe Global Markets.

“Now, for the first time ever in an ETF, investors who hold shares for an entire outcome period will have access to potentially double or triple the upside of SPY or QQQ, to a cap, with approximately single exposure on the downside. This means that in instances when SPY or QQQ returns less than the cap over the outcome period and the investor holds the respective Accelerated ETF for the entire outcome period, they will have the potential to outpace the respective market,” said Innovator ETFs CEO Bruce Bond.

“Given the significant allocations to similar asymmetric accelerated or enhanced equity return strategies in less advantageous product structures, we think the Accelerated ETFs will really resonate with advisors who have been attracted to these types of investments but were deterred by the illiquidity, opacity, high relative costs and credit risk of structured notes,” said Innovator ETFs CIO John Southard.

The funds all rely on flexible exchange (FLEX) options to achieve their objectives.

Traditional Innovator Buffer ETFs

The firm also launched two more standard buffer ETFs that look to replicate the performance of international ETFs. The Innovator MSCI EAFE Power Buffer ETF — April (IAPR) is tied to the performance of the iShares MSCI EAFE ETF (EFA) up to an upside pretax cap of 9.5%, with downside protection up to 15%. Meanwhile, the Innovator MSCI Emerging Markets Power Buffer ETF — April (EAPR) is tied to the performance of the iShares MSCI Emerging Markets ETF (EEM) up to an upside pretax cap of 13%, with downside protection up to 15% of losses.

EAPR comes with an expense ratio of 0.89%, and IAPR charges 0.85%. They list on the NYSE Arca.

TrueShares

Today, TrueMark Investments added to its lineup with the launch of a defined outcome ETF that resets at the start of every April. The TrueShares Structured Outcome (April) ETF (APRZ) looks to replicate the performance of the S&P 500 Price Index.

APRZ comes with an expense ratio of 0.79% and lists on Cboe Global Markets.

The TrueShares are unique among the pantheon of defined outcome ETFs. They do not target a specific downside buffer, but have a range of 8-12%, with 10% protection being the goal for the entire outcome period. As for the upside, they do not have a set cap, but instead seek to give investors reduced exposure to the upside in the area of 85%, so that investors never find their participation in market upside halted entirely.

According to Mike Loukas, CEO of TrueMark, the funds have been used in risk parity strategies, tactical trading, core equity exposure and for volatility management, among other purposes. The funds aim to allow investors to meet their portfolio goals in the face of high volatility and low yields.

The TrueShares defined outcome ETFs invest in FLEX options on the S&P 500 Price Index or ETFs tracking that index. There are nine other ETFs in this family of funds that reset every January, February, March, July, August, September, October, November and December.

Pacer

Pacer, a relative newcomer to the defined outcome space, rolled out three ETFs offering varying degrees of protection.

• The Pacer Swan SOS Conservative (April) ETF (PSCW) is tied to the performance of SPY up to a pre-expenses upside cap of 9.92%. Meanwhile, it allows for a 5% initial loss, but protects against the next 25% of losses up to 30%.
• The Pacer Swan SOS Flex (April) ETF (PSFM) is tied to the performance of SPY up to a pre-expenses upside cap of 16.04%. Meanwhile, it protects against the first 20% of losses. However, after it hits the 20% buffer, the fund will decline 2% for every 1% decline in SPY up to a loss of 40%.
• The Pacer Swan SOS Moderate (April) ETF (PSMR) is tied to the performance of SPY up to a pre-expenses upside cap of 10.48%. Meanwhile, it allows for a 5% initial loss, but protects against the 15% of losses.

All three funds come with an expense ratio of 0.75% and list on Cboe Global Markets.

Contact Heather Bell at [email protected]