Investments in Exchange Traded Funds have skyrocketed in recent months as value investors shy away from individual stocks that appear expensive and overstretched in the market. With most counters near the peak, the risk of incurring significant losses is pretty high on the market reversing. ETFs appear to be offering a safer approach for gaining exposure to a wide range of stocks while minimizing risk exposure.
Renewed ETF Interest
Exchange-Traded funds are poised to usurp actively managed funds such as Mutual funds. As it stands between $2 trillion to $3 trillion is invested in passive strategies with ETFs accounting for a big chunk of the investments.
With interest rates at record lows, investors are increasingly shunning yields in favor of ETFs. It thus does not come as a surprise that Innovator Capital Management is planning to launch defined outcome bond ETFs. The idea is to provide investors with exposure to bonds with built downside buffer levels.
Defined Outcome Bond ETFs
Defined Outcome bond ETFs are designed to provide improvements to all advisors by removing exposure to substantial interest rate risk. Therefore, the ETFs can mitigate the downside risk while maintaining upside potential.
Likewise, Innovator 20+ Year Treasury Bond 5 Floor ETF and the Innovator 20+ Year Treasury Bond 9 Buffer ETF are poised to list on the CBOE. The two exchange-traded funds are for investors eyeing exposure to the upside performance of the iShares Treasury Bond ETF. Similarly, the ETF should cap against downside losses in excess of 5%.
Non Transparent ETF
In addition, defined outcome bond ETFs interest is also slowly building towards non- transparent exchange-traded funds. The Securities and Exchange Commission has already approved Nottingham Company short term exempt relief application for Blue Tractor’s Shielded Alpha ETF.
The approval paves the way for Nottingham and its advisor to bring a non-transparent ETF to market for new and existing clients. The ETF in question is designed to mask managers’ portfolios and trading strategies used to generate returns. However, the ETFs will provide interested investors with all the necessary information for conducting efficient market trading.
The unveiling of the new ETF also comes at a time when many ETFs are closing down. iShares has already shut down eight of its funds, five of which acted as hedges in the currency market. Some of the ETFs affected include iShares Edge MSCI Min Vol Europe ETF (EUMV), iShares Currency Hedged MSCI Australia ETF (HAUD), and iShares Currency Hedged MSCI Spain ETF (HEWP).
The shutdown comes at a time when currency-hedged strategies appear to be losing favor with investors. Flows from the ETFs have remained muted in recent months. The shutdown now brings to 173 ETFs that have been closed down in 2020 with more still expected before the end of the year. The record-setting shutdowns come at the back of new launches standing at just 158.