Mallika Mitra
2 min read
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Innovator Capital Management is expanding its footprint in the buffer ETF space with the Innovator Equity Managed 100 Buffer ETF (BFRZ), the firm announced Tuesday.
The exchange-traded fund seeks to provide investors with 100% downside protection before fees and expenses via a one-year laddered options portfolio.
Its strategy entails investing in the Solactive GBS United States 500 Index, which tracks the performance of the largest 500 companies in the U.S. stock market, then purchasing put option contracts with laddered expiration dates that are three months apart up to a year. BFRZ then sells short-dated call option contracts with expiration dates of around two weeks in an effort to fund the purchases of the put option contracts.
It’s actively managed by Parametric with an expense ratio of 0.89%.
We’ve seen a surge in “risk management” as investors pour money into money market funds, Graham Day, chief investment officer at Innovator, told etf.com. But BFRZ “is a better risk-off solution for advisors” for two reasons, he added.
“First, when you tie your upside to the equity markets, you have more upside potential than what bonds offer,” Day said. “Second is the tax status.”
He added that while investors may look at a money market fund and get 4% returns, that could actually just be 2.4% after taxes. “For all of our 100 buffer ETFs, including BFRZ, we don't anticipate paying any capital gains distribution.”
Investors that are putting money into vehicles like short-term and ultra-short-term bond funds and money market funds often think those vehicles don’t come with a lot of risk, but that’s not always the case, Day said. (He pointed to some of those funds that were down 5% to 7% in 2022 as an example).
The goal of this new offering is to give investors a similar experience as the safety they feel with bond funds but with built-in protection and some of the equity upside exposure that the firm thinks will, over time, outperform bonds, Day said. “[The fund] gives them that same comfort of the downside protection in a more tax-advantaged nature.”
