| The stock market has been on a tear, but 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 just 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.
“If you’re going bowling, and that bowling ball represents your nest egg, wouldn’t you want to put the bumpers up, just to make sure?” asks Bond, Innovator’s CEO. |
