New ETF gears up to attract hesitant investors

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Risk-averse investors have a new option to bet more safely on Tesla.

Innovator ETFs launched the Innovator Hedged TSLA Strategy ETF (TSLH) last month, among other defined outcome products.

According to Bruce Bond, CEO of the ETF, it gives investors exposure to the stock while largely avoiding volatility and valuation risks. It is a buffered ETF that uses a risk reversal strategy to minimize downward pressure while limiting profits.

“You buy TSLH, hedge Tesla, you basically get 10% on the upside and you have a 10% bottom,” Bond explained to CNBC’s “ETF Edge” last week. “What a floor is — that’s a maximum loss of 10%. If Tesla goes down 20%, you lose 10%. If it goes down 50%, you lose 10%.”

Treasury bills make up about 90% of the hedged fund “to build a potential floor against significant losses on a quarterly basis,” Innovator ETFs reported in the ETF launch news. “A diversified call option on TSLA using FLEX options” makes up the remainder of the fund’s portfolio.

“The projected upward limit for the current calendar quarter (through September) balance is 8.70%,” the company also said.

The bottom resets every calendar quarter, but will never exceed 10%, Bond explained to CNBC, noting that the ETF’s bottom was at 9.23% at launch.

The Innovator Hedged TSLA Strategy ETF is up 5% since its launch on July 26. Meanwhile, Tesla shares are up 12% over the same period.

It is not the first time Bond’s company has launched an ETF using this risk reversal strategy.

Innovator ETFs launched last year with the Innovator Defined Wealth Shield ETF (BALT), which focuses on the S&P 500 index.

But the strategy is under fire from the US Securities and Exchange Commission.

SEC Chairman Gary Gensler released a statement not long after addressing risks that could arise from “complex” exchange-traded products such as leveraged or inverse ETFs, highlighting potential issues with their short-term nature.

“However, these ETPs can pose risks even to sophisticated investors and can potentially create system-wide risk by acting in unexpected ways when markets experience volatility or stress conditions,” Gensler’s statement in October 2021 said.

Gensler suggested “potential regulation” to help protect individual investors. However, Bond defended the products of Innovator ETFs, suggesting that buffers offer significant risk management value.

The SEC declined to issue a statement.

‘Just because it’s new doesn’t mean it’s complex’

“I think FINRA [Financial Industry Regulatory Authority] is starting to realize that, and the SEC is starting to realize that,” he said. “Just because it’s new doesn’t mean it’s complex.”

Bond thinks the defined ETF with the wealth shield could be attractive to investors who want to stay out of bonds. It implements an options strategy, sells calls at the top and puts put spreads at the bottom.

“They know the rates are going up,” he said. “They’re pretty sure they’re going to lose money. They prefer to link their low-risk money to the stock market with a 20% buffer against losses.”

Upwards over the past year have been rare due to market volatility, Bond added.

The ETF is up 0.7% since its launch on July 1, 2021.

Disclaimer

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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