Innovator Launches 2 Dual Directional ETFs

Two new ETFs are designed to let investors benefit from up and down markets — but will they want to?

Innovator ETF’s two new dual directional strategies allow investors to benefit from market upturns or downturns so long as their index, the S&P 500, stays within a certain range. Like most buffered products, the funds limit upside yield and buy additional put options under the hood. The products are mainly aimed at highly risk-averse investors, like retirees or pre-retirees, who are more concerned with capital preservation than capital accumulation, according to Innovator’s director of product strategy Andrew Nelson.

Not all experts are convinced of the product’s utility, however, because of its high upside cap. “The payoff structure works really well when you’re in those negative 10% to negative 15% ranges, and that just doesn’t happen very often,” said Charles Champagne, head of ETF strategy at AllianzIM. “So the payoff structure benefit is a little narrow.”

Upside Down(side)

Dual directional strategies have long existed in the insurance and annuities spaces — for example, with registered indexed-linked annuities, or RILAs — but Innovator’s products mark their entry into the world of ETFs, according to experts. “There’s no free lunch. It’s not magic, it’s not voodoo,” Nelson said. “The cost of this is actually that your ‘normal’ cap, your standard cap that you know and love, is going to be lower than [that of] a competitor.”

The two strategies have slightly different buffer levels and upside caps:

• The Innovator Equity Dual Directional 10 Buffer ETF (DDTL) has a 10% inverse cap and buffer level and a 12.59% upside cap.
• The Innovator Equity Dual Directional 15 Buffer ETF (DDFL) has a 15% inverse cap and buffer level and a 12.59% upside cap.

Product Palooza. The dual directionality funds are the latest introduction of strategies into the ETF world, like autocallables, that have long existed in other spaces. “As issuers try to find new areas to bring products, they look to insurance products and at the structured notes that are available,” Champagne said. “It’s not surprising that these came to market.”