Investors may have a new way to generate income during an economic downturn.
Innovator launched a unique set of barrier ETFs this month that provide protection by buying US Treasuries and selling equity call options.
“Advisors are realizing that bonds are not as safe-haven as many people think,” the company’s CIO, Graham Day, told CNBC’snext to ETF” this week. “If you can match [a barrier ETF] With fixed income, it offers a lot of diversification benefits.”
Innovator, an outcome-based ETF issuer, launched these products last week: Premium Income 10 Barrier ETF, Premium Income 20 Barrier ETF, Premium Income 30 Barrier ETF And Premium Income 40 Barrier ETF.
Day said these ETFs eliminate credit risk while providing daily liquidity.
Protecting against losses of up to 10%, 20%, 30% and 40%, the funds offer income distribution ratios of around 9%, 8%, 6% and 5% respectively, according to the website. of the company.
This means they will generate less income with the more protection they offer. Should the fund’s underlying assets suffer a loss beyond the set performance level, Day thinks investors will still receive quarterly distribution payouts – based on the premiums of the options sold.
Per Innovator data on the results determine ETF industry growth, barriers and Buffer ETF grew from three in August 2018 to 158 in March 2023, with assets under management growing from $100,000 to about $21 billion.
Not just for professionals
Todd Sohn of Strategas Securities said that new entrants to the identified outcome ETF space should not be deterred by the detailed protection the fund offers.
The company’s CEO said: “Don’t be too scared by the word ‘options’. “If you’re a novice investor, understand that they’re not doing anything too crazy, right? If that’s the case, I don’t think the products will fetch a lot of fortune.”
He found the Innovator website to do a “great job” of breaking things down.
“I’m curious as ETFs continue to grow and the options market on other funds deepen if they add more sets,” Sohn added.
In a statement to CNBC, Sohn wrote that he is not an Innovator customer and does not currently use these ETFs. But he indicated that he could see their use in the future.
