The New ETF That Offers 100% Downside Protection

Defined outcome ETFs that 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 saw record inflows amid continued market turbulence last year.

Last month, Innovator Capital Management, which pioneered buffer ETFs, launched a new fund that seeks to provide equity upside with 100% downside protection. The Innovator Equity Defined Protection ETF TJUL is the world’s first ETF to promise no losses to investors.

This product seeks to track the return of the SPDR S&P 500 ETF Trust SPY, up to a cap of 16.6%, while buffering investors against 100% of losses over the outcome period of two years. Investors forgo dividend income and pay an expense ratio of 0.79%.

Like other buffer ETFs, this product also invests in a basket of FLEX options with varying strike prices. The strategy involves buying call options to gain SPY exposure and put options for downside protection, and then offsetting the costs by selling call options, which caps upside returns.

Investors should remember that stocks tend to go up over the long term, and they should generally ignore short-term noise. Since its inception in January 1993, SPY has returned a little over 10% annualized. By seeking downside protection, investors forgo any potential upside beyond the cap.

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.

Some invest in products like fixed indexed annuities and market-linked CDs that 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 options for such investors.
SPDR S&P 500 ETF (SPY): ETF Research Reports

Innovator Equity Defined Protection ETF – 2 Yr to July 2025 (TJUL): ETF Research Reports

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