Innovator’s Latest ETF Aims to Outperform SPY

Innovator ETFs rolled out an exchange-traded fund on Thursday that is designed to outperform the SPDR S&P 500 ETF Trust (SPY) by combining exposure to the fund with an options overlay.  

The Innovator Uncapped Accelerated U.S. Equity ETF (XUSP) holds four laddered packages of one-year flexible exchange options expiring three months apart. During each quarter of the year, one of the packages will roll into another options position. 

Unlike Innovator’s defined outcome series of ETFs, which provide buffered and capped exposure to the price return of SPY, XUSP’s upside potential is uncapped and it has no downside buffer. The fund comes with an expense ratio of 0.79% and lists on Cboe Global Markets. 

“A number of advisors we speak to have expressed a desire for an investment strategy that could potentially outperform SPY–the leading U.S. equity benchmark–in positive markets, but without relying on an active manager’s stock selection skill or their ability to correctly time the market,” said Innovator ETFs CEO Bruce Bond in a company statement. “They also sought a strategy they could stick with and know what it is designed to do rather than chase performance across the style box and various sectors or try to identify the next hot factor.” Although actively managed, XUSP uses a rules-based approach to deliver what Innovator terms an “accelerated return rate,” though that will only kick in once SPY’s price has increased more than 5%.  

The options packages in the portfolio are laddered such that one will expire every three months. Each package will generate an accelerated return rate once SPY has increased 5% from its price on that package’s roll date, and the “accelerated rate” is different for each package as it is dependent on market conditions.  

If SPY’s price does not increase more than 5% during the period, the options package will not generate any returns, though any appreciation in the options package will still benefit the investor. However, if SPY’s price declines, the options package’s value will decline along with it on a one-to-one basis, with no acceleration.  

 Innovator’s fact sheet notes that when the S&P 500 is positive over a 12-month period, the index tends to be up more than 5%, with 12-month positive returns averaging 16.3% from 1950 to 2021. XUSP also does not use leverage. 

Contact Heather Bell at [email protected]