Trevor Terrell, Senior Vice President and Head of Distribution for Innovator ETFs joined Keith Black, Managing Director of RIA Channel, to discuss how advisors can leverage Accelerated ETFs.
Accelerated ETFs provide exposure to the S&P 500 and Nasdaq Indices through options strategies based on the SPY and QQQ ETFs. While leveraged ETFs seek to provide two times the upside and two times the downside return of an equity index, Accelerated ETFs seek to provide two or three times the upside return up to a cap, while not substantially increasing the downside risk.
The Accelerated ETFs provide this payoff profile for a defined outcome period, such as one year, by trading flex options on an equity index. Because the options are exchange traded, there is reduced counterparty risk. Accelerated ETFs work best in a market environment where stock market indices rise to a price at or near the capped return without substantially exceeding the capped return. The preferred environment, then, is a market that returns 7% to 12% during the year-long outcome period. In a high volatility market environment, options prices increase, which can increase the return cap for the next outcome period.
XBJA seeks to provide twice the return of SPY for calendar year 2023 with a maximum return of 18.18% when SPY returns greater than 9.09% and a return buffer for the first 9% of index losses. XDJA seeks to provide twice the return of SPY for calendar year 2023 with a maximum return of 24.98% when SPY returns greater than 12.49%. XTJA seeks to provide three times the return of SPY for calendar year 2023 with a maximum return of 23.13% when SPY returns greater than 7.71%.
For more information on this topic, register & watch Innovator’s webcast: Low Growth, High Rates, High Uncertainty? No Problem.
Topics:
- Understanding trends in the back half of historic Fed hike cycles
- What the disconnect between Fed and Market interest rate expectations may mean for investor portfolios
- Solutions to grow investment portfolios in a world of muted economic growth
- Ideas to drive potential outperformance in the bear, bull, and base case for 2023