Innovator Adds 2 ‘Step Up’ Buffer ETFs

Today, Innovator added yet another dimension to its vast lineup of defined outcome ETFs, with the introduction of two ETFs relying on a “step up” strategy.

The Innovator Buffer Step-Up Strategy ETF (BSTP) and the Innovator Power Buffer Step-Up Strategy ETF Trust (PSTP) will aim to protect against losses, and rather than having a set upside cap to their performance, their active managers will actively manage their portfolios of 12-month flexible exchange (FLEX) options with the goal of achieving greater upside.

BSTP and PSTP come with expense ratios of 0.89% and list on the NYSE Arca.

Both ETFs rely on the SPDR S&P 500 ETF (SPY) as their reference ETF and invest primarily in 12-month FLEX options contracts on the fund.

While BSTP is designed to protect against the first 9% of SPY’s losses, PSTP protects against the first 15% of losses, the prospectus says. However, in the case of both funds, the downside buffers are reset whenever the manager rebalances the fund’s options portfolio.

The underlying strategy for both funds was inspired by the practice some investors have of rotating into other ETFs in Innovator’s defined outcome ETF family in order to lock in gains or reset the caps and buffers that constrain the funds. Although actively managed, the step-up ETFs reset their options positions using a rules-based process that is determined by the movements of each fund’s net asset value (NAV), a press release notes.

“We feel that the managed process behind BSTP and PSTP will provide greater access to the type of ‘step-up’ strategies that many advisors have employed, automating the process of stepping-up into new and potentially higher upside caps and refreshing the buffer against market loss. And we believe the tax-efficient nature of the Step-Up Strategy ETFs means these managed risk equity solutions may be particularly useful in taxable nonretirement accounts and model portfolios,” said Innovator ETFs CEO Bruce Bond.

The press release also points out that these are not actually defined outcome ETFs in that they do not have a set outcome period and are not constrained by any caps. Even the buffers are not truly set, as they can be refreshed whenever the portfolio moves into a different set of options contracts.

“The Step-Up Strategy ETFs are designed to continuously seek market gains in positive markets, or provide potential outperformance relative to SPY in down markets, while refreshing buffers against the market’s downside and resetting the Funds’ upside caps to capture more of the market’s potential upside,” the document noted.

Contact Heather Bell at [email protected]