XUSP’s investment strategy seeks long-term outperformance of SPY by producing accelerated returns from positive equity market environments exceeding performance thresholds
Rules-based fund constructed in an effort to provide structural alpha without an upside cap, leverage, nor market timing
New Managed Outcome ETF™ intended to be part of a core equity portfolio as an alternative for active managers, high conviction stock selection strategies and momentum funds
Allocators can express bullish views on Large-cap U.S. stocks with XUSP
CHICAGO, Aug. 11, 2022 (News) — Innovator Capital Management, LLC (Innovator) the pioneer and leader of Defined Outcome ETFs™, today announced the launch of the Innovator Uncapped Accelerated U.S. Equity ETF (XUSP) on the Cboe. XUSP will seek to provide investors with exposure to the SPDR S&P 500 ETF Trust (SPY) with a disciplined options overlay strategy.
Innovator designed XUSP to represent a core equity strategy that may forgo a portion of single-digit equity returns in exchange for potentially accelerated and uncapped upside, creating the potential for outperformance of the price return of SPY over the long-term. The new rules-based Managed Outcome ETF™ will not have an upside cap, potentially allowing investors to particularly benefit from “right tail” return environments1 for large-cap stocks. Additionally, XUSP will not use leverage to implement its investment strategy.
Innovator believes that advisors could use the options-based ETF within the core of an equity portfolio in place of mandates to active stock fund managers over the long-term2. Beyond the applications for the Innovator Uncapped Accelerated U.S. Equity ETF as part of a strategic asset allocation framework, XUSP could also be utilized by an advisor in a more tactical manner to express a bullish view on the prospects for domestic Large-cap stocks. XUSP does not seek to time the market or select individual stocks, sectors nor factors that may outperform SPY.
“Advisors have grown disenchanted with active equity managers failing to beat their benchmarks over the long-term3. 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. 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. With the Uncapped Accelerated U.S. Equity ETF, we feel we’ve designed such a fund. XUSP is designed to deliver structural alpha, meaning it will seek to provide accelerated and uncapped upside returns over periods when the market returns positively in excess of performance thresholds,” said Bruce Bond, CEO of Innovator ETFs.
Bond added, “The Innovator Uncapped Accelerated U.S. Equity ETF is intended to be part of an equity portfolio that can potentially provide outperformance of the price return of SPY during positive returning stock market environments. We believe such an uncapped strategy could fit in a strategic, long-term framework as part of the core of an investor’s portfolio. Additionally, XUSP could be a potentially powerful tool for allocators who feel the market is set up for a solid ‘up-and-to-the-right’ run and who wish to express that viewpoint by gaining exposure to a strategy that aims for return enhancement over the benchmark as the market gaps up.”
XUSP will have an annual management fee of .79%. The prospectus can be found here.
Milliman Financial Risk Management will be the fund’s subadvisor.
The Funds have characteristics unlike many other traditional investment products and may not be suitable for all investors. For more information regarding whether an investment in the Fund is right for you, please see “Investor Suitability” in the prospectus.
There can be no guarantee that the Fund will be successful in implementing its investment strategy to provide the Accelerated Returns during market conditions where the Underlying ETF is increasing in value above the Accelerated Threshold. The fund seeks to achieve its investment objective by investing substantially all of its assets in a series of four, one-year Flex Options packages with “laddered” expiration dates that are 3 months apart. If an options package has experienced any accelerated return rate, the options package may be subject to enhanced risks exceeding any losses of the underlying ETF.
About Innovator Capital Management, LLC
Awarded ETF.com’s “ETF Issuer of the Year – 2019″*, Innovator Capital Management LLC (Innovator) is an SEC-registered investment advisor (RIA) based in Wheaton, IL. Formed in 2017, the firm is headed by ETF visionaries Bruce Bond and John Southard, founders of one of the largest ETF providers in the world. Bond and Southard reentered the asset management industry to bring to market the Defined Outcome ETFs™, first-of-their-kind investment products that they felt would change the investing landscape and bring more certainty to the financial planning process. Innovator’s category-creating Defined Outcome ETF™ family includes Buffer ETFs™, Floor ETFs, Accelerated ETFs™ and Managed Outcome ETFs™. Since the 2018 launch of their flagship Innovator U.S. Equity Buffer ETF™ suite, Innovator’s solutions have helped advisors construct portfolios and manage risk to fit their client’s unique financial needs. Built on a foundation of innovation and driven by a commitment to help investors better control their financial outcomes, Innovator is leading the Defined Outcome ETF Revolution™. For additional information, visit www.innovatoretfs.com.
About Milliman Financial Risk Management LLC
Milliman Financial Risk Management LLC (Milliman FRM) is a global leader in financial risk management to the retirement industry, providing investment advisory, hedging, and consulting services on approximately $185 billion in global assets as of March 31, 2022. Milliman FRM is one of the largest and fastest-growing subadvisors of ETFs. For more information about Milliman FRM, visit https://frm.milliman.com/en/.
About Cboe Global Markets, Inc.
Cboe Global Markets is one of the world’s largest exchange-holding companies, offering cutting-edge trading and investment solutions to investors around the world. For more information, visit www.cboe.com.
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Accelerated Return Risk. There can be no guarantee that the Fund will be successful in implementing its investment strategy to provide the Accelerated Returns during market conditions where the Underlying ETF is increasing in value. Additionally, if an Options Package held by the Fund does not increase in value above the Accelerated Threshold, the Options Package will not provide the Fund, and therefore its investors, with positive returns. In the event an investor purchases Shares after the FLEX Options were entered into or does not stay invested in the Fund for the entirety of the duration of an Options Package, an investor may not participate in some of the Fund’s sought-after Accelerated Return. Further, because the Fund ladders its Options Packages, the Fund’s returns are likely to be different than the returns the Fund would produce if a single Options Package were used. Accelerated Returns may only be realized if the Underlying ETF increases in value above the Accelerated Threshold at the conclusion of an Option Package’s one-year expiration term. If the Underlying ETF increases above the Accelerated Threshold during the one-year period but fails to remain above the Accelerated Threshold at the conclusion of such term, the Options Package will not deliver, and therefore the Fund will not experience, in any positive returns with respect to that Options Package. Because the positive returns with respect to an Option Package does not commence until the Accelerated Threshold is achieved, the Accelerated Returns that an investor may receive above the Accelerated Threshold with respect to an Options Package may be less than an investment in a fund that does not have an Accelerated Threshold or Accelerated Returns. If an investor purchases Shares after the FLEX Options were entered into and the Fund has risen in value to a level above the Accelerated Threshold, such investor may experience more losses than the Underlying ETF experiences.
The Fund does not seek to provide investment outcomes on a daily or other short-term basis, which is an attribute of other types of exchange-traded funds that provide a daily, multiple exposure to a reference index (i.e., a “daily leveraged ETF”). In contrast, the Fund only seeks to provide investment returns that will increase at a greater rate of change than the Underlying ETF, after an initial level of no participation. The value of the FLEX Options held by the Fund is ultimately derived from the performance of the Underlying ETF’s share price. However, it is very unlikely that on any given day during which the Underlying ETF share price increases in value, the Fund’s share price will increase at the same rate as the Underlying ETF, since the sought-after Accelerated Return is designed to be delivered on the expiration of each Options Package.
If the Underlying ETF’s share price increases in value above the Accelerated Threshold over the duration of the Option Package, the Fund seeks to provide for an increase in value at a higher rate than the share price increase experienced by the Underlying ETF. Likewise, there are situations during the Option Package in which the Fund may decrease in value at a higher rate than an associated decrease in the Underlying ETF.
Upside Participation Risk. There can be no guarantee that the Fund will be successful in its strategy to provide shareholders the Accelerated Return. The Fund will likely realize different returns than the price return of the Underlying ETF and may underperform the Underlying ETF.
FLEX Options Risk. The Fund will utilize FLEX Options issued and guaranteed for settlement by the OCC. The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts. In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additionally, FLEX Options may be less liquid than certain other securities such as standardized options. In less liquid market for the FLEX Options, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices. In connection with the creation and redemption of Shares, to the extent market participants are not willing or able to enter into FLEX Option transactions with the Fund at prices that reflect the market price of the Shares, the Fund’s net asset value (“NAV”) and, in turn the share price of the Fund, could be negatively impacted.
The Fund may experience substantial downside from specific FLEX Option positions and certain FLEX Option positions may expire worthless. The FLEX Options held by the Fund are exercisable at the strike price on their expiration date. As a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. However, prior to such date, the value of the FLEX Options does not increase or decrease at the same rate as the Underlying ETF’s share price on a day-to-day basis (although they generally move in the same direction). The value of the FLEX Options held by the Fund will be determined based on market quotations or other recognized pricing methods. The value of the underlying FLEX Options will be affected by, among others, changes in the Underlying ETF’s share price, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time to until the FLEX Options expire.
COVID-19. The outbreak of COVID-19 has negatively affected the worldwide economy, individual countries, individual companies and the market in general. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund.
Management Risk. The Fund is subject to management risk because it is an actively managed portfolio. The Subadvisor will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that the Fund will meet its investment objective.
THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).
Cboe Global Markets, Inc., and its affiliates do not recommend or make any representation as to possible Benefits from any securities, futures or investments, or third-party products or services. Cboe Global Markets, Inc., is not affiliated with S&P DJI, Milliman, or Innovator Capital Management. Investors should undertake their own due diligence regarding their securities, futures and investment practices.
Cboe Global Markets, Inc., and its affiliates make no warranty, expressed or implied, including, without limitation, any warranties as of merchantability, fitness for a particular purpose, accuracy, completeness or timeliness, or as to the results to be obtained by recipients of the products.
* ETF.com’s editorial team chose the finalists and then the ETF.com Awards Selection Committee, an independent panel comprised of fifteen of the ETF industry’s leading analysts, consultants and investors, decided the winners.
Innovator ETFsTM, Defined Outcome ETFTM, Buffer ETFTM, Accelerated ETFTM, Managed Outcome ETFTM, Stacker ETFTM, Enhanced ETFTM, Define Your FutureTM, Leading the Defined Outcome ETF RevolutionTM and other service marks and trademarks related to these marks are the exclusive property of Innovator Capital Management, LLC.
The Fund’s investment objectives, risks, charges and expenses should be considered before investing. The prospectus contains this and other important information, and it may be obtained at innovatoretfs.com. Read it carefully before investing.
Innovator ETFs are distributed by Foreside Fund Services, LLC.
Copyright © 2022 Innovator Capital Management, LLC.
1 The right tail of a stock market’s distribution of returns corresponds to the more positive returns that comprise the right portion of the returns distribution.
2 According to S&P Dow Jones Indices’ SPIVA U.S. Scorecard, over the past 10-year period to 2022, 86% of active domestic mutual funds underperformed the S&P Composite 1500 Index on an absolute basis, while 93% underperformed the broad equity benchmark on a risk-adjusted basis over the same period. Over the 20 years through 2021, 90% of active domestic mutual funds underperformed the S&P Composite 1500 Index on an absolute basis, while 95% underperformed the broad equity benchmark on a risk-adjusted basis. Source: https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2021.pdf
3 According to S&P Dow Jones Indices’ SPIVA U.S. Scorecard, over the past 10-year period to 2022, 86% of active domestic mutual funds underperformed the S&P Composite 1500 Index on an absolute basis, while 93% underperformed the broad equity benchmark on a risk-adjusted basis over the same period. Over the 20 years through 2021, 90% of active domestic mutual funds underperformed the S&P Composite 1500 Index on an absolute basis, while 95% underperformed the broad equity benchmark on a risk-adjusted basis. Source: https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2021.pdf