AAII Eastern Michigan Chapter

I have seen a number of newer ETFs called Defined Outcome ETFs sold by Calamos and Innovators.  These invest in SPY and they limit your downside risk to 0% but you give up part of the SPY upside gains in exchange.  Leverage is used to protect you on the downside.  The stated market niche is annuity and bank deposits.  For example you purchase the 12 month outcome ETF on December 1 and hold it until November 30 of the next year.  Your downside returns are 0% and your upside cap is limited to 9%.  All done withing the ETF wrapper.  These have been around since 2017 at least.  ZNOV is an example of the November issue from Innovators.  The upside cap is 7.49% on it.  As T-Bills drop in rate this has some appeal.  Can anyone comment on the validity of these products and the safety as compared to cash like options available today.  What sort of catastrophic economic event would cause these to fail? 

I have seen a number of newer ETFs called Defined Outcome ETFs sold by Calamos and Innovators.  These invest in SPY and they limit your downside risk to 0% but you give up part of the SPY upside gains in exchange.  Leverage is used to protect you on the downside.  The stated market niche is annuity and bank deposits.  For example you purchase the 12 month outcome ETF on December 1 and hold it until November 30 of the next year.  Your downside returns are 0% and your upside cap is limited to 9%.  All done withing the ETF wrapper.  These have been around since 2017 at least.  ZNOV is an example of the November issue from Innovators.  The upside cap is 7.49% on it.  As T-Bills drop in rate this has some appeal.  Can anyone comment on the validity of these products and the safety as compared to cash like options available today.  What sort of catastrophic economic event would cause these to fail? 

Thanks for posting this.  I had not paid attention to this new ETF and appreciate knowing about it.  A number of things concern me.  First, the stated intention of this ETF (see below)  is to mirror the SP500.  It is a managed fund, however, and it doesn't appear that the management is doing very well with this goal.  The return so far is half of the sp500. (6% vs 12%) The stated return however is also after fees and expenses.  So I am not sure how much of the performance lag is fees and how much is poor investing.  Second, there is a buffer that must be met before the downside protection kicks in. The buffer increases after the issue date of the ETF.  There is no such thing as a free lunch and the fees and expenses that you pay for the protection is pretty hefty.  I'm sure there is a role for such an investment in some portfolios but i'd rather just hold SP500 and ride out the ups and downs.  Of course talk to me when the next slide hits and maybe i will feel differently!  Here is a nice info sheet on the offering from April.  https://www.innovatoretfs.com/etf/?ticker=aapr#  

I have seen a number of newer ETFs called Defined Outcome ETFs sold by Calamos and Innovators.  These invest in SPY and they limit your downside risk to 0% but you give up part of the SPY upside gains in exchange.  Leverage is used to protect you on the downside.  The stated market niche is annuity and bank deposits.  For example you purchase the 12 month outcome ETF on December 1 and hold it until November 30 of the next year.  Your downside returns are 0% and your upside cap is limited to 9%.  All done withing the ETF wrapper.  These have been around since 2017 at least.  ZNOV is an example of the November issue from Innovators.  The upside cap is 7.49% on it.  As T-Bills drop in rate this has some appeal.  Can anyone comment on the validity of these products and the safety as compared to cash like options available today.  What sort of catastrophic economic event would cause these to fail?