Crash-Proof Funds

WORRIED ABOUT A BUBBLE? INNOVATOR CAPITAL HAS 160 ETFS DESIGNED TO LET YOU RIDE THE BULL MARKET WITH YOUR SEAT BELT SECURELY FASTENED.

- by HANK TUCKER

The stock market has been on a feverish tear. A $100,000 investment in the S&P 500 in 2009, immediately after the financial crisis, would be worth more than $1 million today. But as the bull market continues to charge, plenty of people are worried about a crash. According to the St. Louis Federal Reserve, a record $7.5 trillion is sitting on the sidelines in money market funds, up 57% from $4.8 trillion five years ago.

Bruce Bond and John Southard of Wheaton, Illinois-based Innovator Capital Management have a remedy for scaredy-cat investors. Their $28 billion (assets) Innovator Fund specializes in bubble-protection ETFs, technically known among advisors as defined-outcome funds. They use options contracts to hedge against losses, which also limits upside returns, but it might be worth it for peace of mind. Innovator's most popular funds are its U.S. Equity Power Buffer ETFs, which protect investors from the first 15% of the S&P 500 losses in a year, and currently offer an upside return of up to 13%.

Assets under management have exploded for Innovator since its first fund was introduced in 2018, even though it has been underperforming the indexes it tracks and has expenses 26 times higher than Vanguard and BlackRock S&P 500 ETFs. Moreover, investment gurus like billionaire quant Cliff Asness suggest that investors can simulate the downside protection of buffer ETFs more economically by allocating, say, 30% to Treasurys and 70% to stocks.

Bond, 62, Innovator's CEO, says Asness' research misses the point, particularly while anxious investors stay out of the stock market entirely.

Innovator's popular U.S. Equity Power Buffer ETFs, which have $10 billion under management, are issued every month with tickers such as PJAN, PFEB and PMAR. They shield investors from up to 15% of losses in the S&P 500 Index over 12 months. Each fund's portfolio rolls into a new set of options contracts when the one-year period ends.