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In this episode of ETF Spotlight, I speak with Bruce Bond, co-founder, and CEO of Innovator Capital Management, about the world’s first ETF that offers 100% downside protection.

Defined-outcome ETFs, which allow investors to participate in the market's upside up to a cap while limiting losses if the market falls, are one of the fastest-growing segments of the ETF market. They continue to see record inflows amid market turbulence.

Last month, Innovator Capital Management, which pioneered buffer ETFs, launched a new fund, the Innovator Equity Defined Protection ETF (TJUL - Free Report), that seeks to track the return of the SPDR S&P 500 ETF Trust (SPY - Free Report), up to a cap of 16.6%, while buffering investors against 100% of losses over the outcome period of two years.

Like other buffer ETFs, this product also invests in a basket of FLEX options with varying strike prices. Investors forgo dividend income and pay an expense ratio of 0.79%.

Some products, such as fixed indexed annuities and market-linked CDs, protect against any downside but come with much higher fees, carry high investment minimums, long lockup periods, and unfavorable tax treatment. ETFs like TJUL are a much better option for investors.

Investors should remember that stocks tend to go up over the long term, and they should generally ignore short-term noise. By seeking downside protection, investors forgo any potential upside beyond the cap.

Since its inception in January 1993, SPY has returned a little over 10% annualized. The Nasdaq 100 ETF (QQQ - Free Report) has produced almost 19% average annual return over the past 10 years.

At the same time, many risk-averse investors, particularly those in or nearing retirement, have been reluctant to buy stocks after last year’s brutal performance. There’s a tremendous amount of cash sitting on the sidelines. Such investors should look at TJUL and other defined outcome ETFs.

Running Length: 00:22:39

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