Innovators Stacked ETF's
U.S. based ETF provider, Innovator Capital Management has revealed a new type of defined outcome ETF that provides 'stacked' exposure to the S&P 500, Russell 2000, and Nasdaq 100 Indexes. The idea is that each of the three ETF’s Innovator is listing will provide investors multiple or "stacked" exposure to the upside of the Indexes with a single exposure to the downside of the S&P500.
There are products similar to the stacked ETF already available that use leverage created through financial derivatives and debt to provide double or triple exposure on the upside, and on the downside. But unlike traditional leveraged ETF’s, stacked ETF’s provide investors with the upside of double or triple of exposure, without the equivalent exposure on the downside. Innovator Capital Management also say that their stacked ETF’s don’t rely on leverage to function, which begs the question? How is this sorcery possible? Well truth be told, I’m struggling to wrap my head around it. What I can tell you though, is that it’s complicated.
Basically, innovators Stacker ETFs are created using CBOE Flexible Exchange Options or FLEX Options on ETF’s tracking the S&P 500 (SPY), Nasdaq 100 (QQQ), and Russell 2000 (IWM).  The portfolio of options is used to provide the upside and downside of the S&P 500 (SPY) as well as any upside performance of the Nasdaq 100 and Russell 2000. The performance of each ETF is set to a cap. The "Cap" signifies the maximum percentage return an investor will be able to achieve in each of the three ETF’s over the defined outcome period (1 year), before fees and expenses.  At the conclusion of each outcome period, each ETF rebalances into a new outcome period, and the cap resets.
The first of the 3 ETF’s is the Innovator Triple Stacker ETF (not to be confused with a burger). Trading under the ticker TSOC, The Triple Stacker will offer investors capped upside exposure to three ETF's following the S&P 500, Nasdaq 100, and Russell 2000, while limiting losses to just the S&P 500.
Innovator’s second stacked ETF is their Double Stacker ETF (Ticker: DSOC), which is the same as the triple-stacker fund except that is doesn’t offer upside exposure to the Russell 2000. Â
And lastly, there’s the Double Stacker 9 Buffer ETF (Ticker: DBOC). Like the Double Stacker, this ETF also excludes the upside of the Russell 2000, but includes a buffer against the first 9% of a year’s losses.
Innovators three stacked ETF products listed on the 1st of October. These ETFs will not be listed on the ASX for now, so if you’re after some stacking you’ll need to invest through a U.S. exchange.
I must say, these sound pretty interesting at first glance, but it’s important to remember that these products have characteristics unlike many other traditional index-tracking ETFs, and may not be suitable for all investors. You can read more about whether this type of product would be right for you, on Innovators website here.