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Friday, March 11, 2022

A $6B-AUM Shop Adds Three Managed Outcome ETFs

Reported by Neil Anderson, Managing Editor

The team at a Chicago-area ETF shop with more than $6 billion in AUM (as of last Friday) recently expanded their lineup with a pair of new options funds and a fund-of-funds, all to help advisors more efficiently use the buffer ETF strategies the firm is known for.

Harold Bruce "Bruce" Bond
Innovator Capital Management LLC
President, CEO
On Monday, Bruce Bond, CEO of Innovator ETFs, unveiled the Wheaton, Illinois based firm's new Innovator Buffer Step-Up Strategy ETF (BSTP on the NYSE Arca, Inc.) and Innovator Power Buffer Step-Up Strategy ETF (PSTP). The new ETFs, which listed on the exchange on Tuesday, both come with an expense ratio of 89 basis points and had $1.9 million in AUM each as of yesterday.

That dual launch comes a month after the Innovator team rolled out the Innovator Laddered Allocation Buffer ETF (BUFB). That fund, which listed on the exchange on February 9, also comes with an expense ratio of 89 bps (thanks in part to a 10-bps fee waiver that Innovator has promised through June 30, 2024), and as of yesterday it had $3 million in AUM.

All three new ETFs are part of Innovator's Managed Outcome ETF suite, are series of the Innovator ETFs Trust, and have Innovator Capital Management, LLC as investment advisor.

The two Step-Up ETFs are subadvised by Milliman Financial Risk Management LLC. Yin Bhuyan, associate on the ETF portfolio management team at Milliman, and Robert Cummings, principal and director of global trading at Milliman, serve as those two funds' PMs.

Penserra Capital Management LLC serves as the subadvisoed to BUFB. Anand Desai (a Penserra associate), Dustin Lewellyn (chief investment officer of Penserra), and Ernesto Tong (managing director of Penserra), PM that fund. The fund is designed to track the MerQube US Large Cap Equity Buffer Laddered Index, provided by MerQube, Inc.

The Step-Up ETFs use what the Innovator team calls a step-up strategy, by actively buying, and periodically terminating, Flexible Exchange Options (FLEX Options) to provide risk-managed exposure to the S&P 500.

"The Step-Up Strategy ETFs bring to market a concept we've been working on for some time and one that many advisors have asked for," Bond states, noting that "stepping up" by selling one Innovator Buffer monthly ETF for another "became a popular strategy amongst some advisors who used the Defined Outcome ETFs in non-taxable retirement accounts."

"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," Bond adds. "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 non-retirement accounts and model portfolios."

Meanwhile, BUFB tracks an index that equally weights 12 existing Innovator U.S. Equity Buffer ETFs. BUFB, Bond explains, "will seek to allow advisors to own the market with built in buffers but without the need to evaluate the parameters of each monthly series."

"BUFB can help smooth out the equity investing experience by investing in Buffer ETFs that historically have shown lower volatility, beta and drawdowns relative to SPY — the main benchmark for U.S. stocks — yet still participate in a healthy amount of the updside that equities can provide over time," Bond states. "There are many portfolio applications for this new ETF, and we're excited to have it joining BUFF as potential solutions during a confusing market environment that is challenging both sides of a traditional balanced portfolio."

The three new funds' other service providers include: Chapman and Cutler LLP as counsel; Cohen & Company, Ltd. as independent accounting firm; Foreside Fund Services, LLC as distributor; U.S. Bancorp Fund Services LLC as administrator and transfer agent; and U.S. Bank, N.A. as custodian. 

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