Innovator to List First Hedged Single-Stock ETF: Hedged TSLA Strategy ETF (TSLH)
CHICAGO, July 25, 2022 (GLOBE NEWSWIRE) -- Innovator Capital Management, LLC (Innovator), the Defined Outcome ETFs™ pioneer, today announced that it plans to list the Innovator Hedged TSLA Strategy ETF (ticker: TSLH) tomorrow, July 26th, on the Cboe. With TSLH, Innovator seeks to provide a risk-managed approach to investing in Tesla (TSLA), which has been one of the most popular and best performing large-cap stocks in the market, but also one of the most volatile2.
The ETF’s strategy will seek to solve for the large historical drawdowns in shares of the electric vehicle leader, offering potentially substantial upside exposure to TSLA during periods when the stock rises while attempting to limit downside risk by targeting a protective floor against TSLA losses greater than approximately 10% per quarter.
There is no guarantee that the fund will be successful in implementing the strategy. The ETF will not invest directly in TSLA, but rather in options tied to the company. An investor's possible return profile in TSLH will also depend on the time at which such investor purchases and sells shares of the ETF.
“While there is little doubt Teslas are amazingly sleek, smooth-driving vehicles, the very volatile ride in the shares of the electric vehicle (EV) leader leaves a lot to be desired for advisors and their clients who are not accustomed to such a rough road. Yet, the innovation potential that Elon Musk’s company represents is hard to ignore. For those investors with a lower risk tolerance who still desire exposure to the potential capital appreciation of one of the most inventive entrepreneurs and leading disruptors in the global economy today – as well as those longtime shareholders who have seen substantial gains in TSLA and would like to take some gains yet still have upside exposure, or who wish to put new money to work but in a risk-managed fashion – we’re excited to bring this investment strategy to market. In fact, TSLH will list as the first ETF ever to provide long exposure to a single-stock with built-in risk management,” said Bruce Bond, CEO of Innovator ETFs.
To provide risk-managed investment exposure to TSLA, TSLH’s actively managed portfolio is comprised of two parts. The minority of TSLH’s portfolio, approximately 10%, will be composed of a call option spread on TSLA using FLEX Options. The majority of the portfolio, roughly 90%, will be comprised of Treasury Bills (cash equivalents) to construct a potential floor against significant losses on a quarterly basis. This blend allows investors who hold shares for a full calendar quarter to participate in TSLA’s potential upside, to a cap, while seeking to protect against the prospect of losses greater than 10% each quarter. TSLH will actively reset its portfolio each quarter and investors can hold shares indefinitely.
The projected upside cap for the balance of the current calendar quarter (through September) is 8.70%.3
Anticipated return profile for the Innovator Hedged TSLA Strategy ETF (TSLH), as of 7/20/2022
|Ticker||Name||Floor Level||Average Est. Cap*||Outcome Period**|
|TSLH||Innovator Hedged TSLA Strategy ETF||10.00%||8.70%||Quarterly
7/26/22 – 9/30/22
* The average estimated cap is illustrated by the fund’s strategy, based upon the 5 previous trading days, as of 7.20.22. It does not represent the actual cap that will be set on the date of listing, which may fall outside the stated cap ranges due to extreme market volatility (the minimum projected upside cap witnessed over the 21-day trading window from 6.17.22 to 7.20.22 was 7.91% while the maximum projected upside cap was 8.94%). The estimated average cap above is shown gross of the 0.79% management fee (annually; .20% per quarter). The actual Cap for the Fund will be set at the beginning of the Outcome Period, and is dependent upon market conditions at that time. Periods of high market volatility could result in higher caps, and lower volatility could result in lower caps. “Cap” refers to the maximum potential return, before fees and expenses and any shareholder transaction fees and any extraordinary expenses, if held over the full Outcome Period. “Floor” refers to the projected maximum amount of loss an investor can expect to incur prior to the downside protection the fund seeks to provide, before fees and expenses, over the full Outcome Period. The Floor is only operative against Underlying share price losses exceeding approximately 10% over the duration of the Outcome Period. There is no guarantee that the Fund will be successful in its attempt to provide the Floor. If an investor is considering purchasing Shares during the Outcome Period, and the Fund has already increased in value, then a shareholder may experience losses prior to gaining the protection offered by the Floor, which is not guaranteed. Outcome Period is the intended length of time over which the defined outcomes are sought. Upon commencement of the Outcome Period, the Caps can be found on a daily basis via www.innovatoretfs.com.
** The Outcome Period for TSLH will be quarterly, with the investment strategy resetting each calendar quarter. The initial outcome period will be shortened due to the ETF’s listing occurring after the current quarter, Q3, has commenced.
“TSLH is trying to solve for how investors can gain exposure to a highly appreciated asset – in this case one of the world's largest and most technologically imaginative companies – but limit their tail risk in the event of a potentially significant downdraft in TSLA over any quarter. It is likely that history books will have important chapters devoted to Elon Musk, and we want to provide more risk-averse investors who believe in the future of his flagship company with a strategy that we think can help them overcome the volatility and possibility of big short-term losses when investing in TSLA itself,” said John Southard, CIO of Innovator ETFs.
Milliman Financial Risk Management LLC will serve as the fund’s subadvisor.
The filing for the Innovator Hedged TSLA Strategy ETF (TSLH) can be found here: https://www.sec.gov/ix?doc=/Archives/edgar/data/1415726/000143774922017198/inetfs20220714_485bpos.htm
The Fund will have characteristics unlike many other traditional investment products and may not be suitable for all investors. For more information regarding whether an investment in the Fund is right for you, please see “Investor Suitability” in the prospectus.
Shareholders in the Fund will not be entitled to receive dividends, if any, that may be payable on TSLA. The Options Portfolio will consist of exchange listed options contracts on TSLA, including FLexible EXchange® Options (“FLEX Options”).
FLEX Options Risk: The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (OCC). In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additionally, FLEX Options may be less liquid than standard options. In a less liquid market for the FLEX Options, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices. The values of FLEX Options do not increase or decrease at the same rate as the reference asset and may vary due to factors other than the price of reference asset.
Investing involves risk. Principal loss is possible. The Fund is actively managed and seeks to provide risk-managed investment exposure to the common share price of Tesla, Inc. (TSLA) through an active hedging strategy.
The Fund will seek to participate in the price return TSLA, subject to a limit on investment gains and will seek to provide a floor against TSLA losses, up to a limit through the Sub-Adviser's investments in the Options Portfolio and Treasury Portfolio. There is no guarantee the fund will be successful in its attempt to protect against TSLA losses.
During periods in which TSLA appreciates, the Fund seeks to participate in the price return experienced by TSLA. However, if TSLA appreciates beyond the strike prices of the sold call option, the Fund will not experience such increase to the same extent and may underperform TSLA over certain periods of time.
Through the Options Portfolio, the Fund may experience losses experienced by TSLA. However, the Fund will seek to limit overall portfolio losses by virtue of the Fund’s Treasury Portfolio. The Fund seeks to implement an investment strategy that provides protection from significant declines in the price of TSLA, such that losses will be limited to the amount of the Options Portfolio and declines, if any, in the performance of the Fund’s U.S. Treasury Bills over each successive period of approximately three months. Additional funds utilized for investment into the Fund will be invested proportionally to the Fund’s Treasury Portfolio and Options Portfolio at the time of investment until the expiration date of Options Portfolio held by the Fund.
There is no guarantee that the Fund, in the future, will provide upside participation to the price exposure to TSLA within the range currently estimated. The limits to the upside performance of the Fund could fluctuate, depending on prevailing market conditions at the time the Fund enters into the options contracts. The actual caps may be lower or higher.
Strategy Risk: The Fund employs an active hedging strategy that seeks to provide risk-managed investment exposure to TSLA. In doing so, there is no guarantee that the Fund will be successful in its strategy to provide protection against TSLA losses. The Fund does not provide principal protection or non-principal protection, and an investor may experience significant losses on its investment, including the loss of its entire investment.
The trading price of TSLA has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.
The Fund's investment objectives, risks, charges and expenses should be considered carefully before investing. The prospectus contains this and other important information, and it may be obtained at innovatoretfs.com. Read it carefully before investing.
The latest SEC prospectus can be found here. A webpage with information on TSLH is here.
Tesla, Inc. is not affiliated with the Trust, Innovator, Milliman or its respective affiliates and is not involved with this offering in any way. Innovator has not made any due diligence inquiry with respect to the publicly available information of Tesla, Inc. in connection with this offering. Investors in the Shares will not have voting rights with respect to the underlying stock.
About Innovator Capital Management, LLC
Awarded ETF.com's "ETF Issuer of the Year - 2019"*, Innovator Capital Management LLC (Innovator) is an SEC-registered investment advisor (RIA) based in Wheaton, IL. Formed in 2017, the firm is headed by ETF visionaries Bruce Bond and John Southard, founders of one of the largest ETF providers in the world. Bond and Southard reentered the asset management industry to bring to market the Defined Outcome ETFs™, first-of-their-kind investment products that they felt would change the investing landscape and bring more certainty to the financial planning process. Innovator’s category-creating Defined Outcome ETF™ family includes Buffer ETFs™, Floor ETFs, Accelerated ETFs™ and Managed Outcome ETFs™. Since the 2018 launch of their flagship Innovator U.S. Equity Buffer ETF™ suite, Innovator’s solutions have helped advisors construct portfolios and manage risk to fit their client’s unique financial needs. Built on a foundation of innovation and driven by a commitment to help investors better control their financial outcomes, Innovator is leading the Defined Outcome ETF Revolution™. For additional information, visit www.innovatoretfs.com.
About Milliman Financial Risk Management LLC
Milliman Financial Risk Management LLC (Milliman FRM) is a global leader in financial risk management to the retirement industry, providing investment advisory, hedging, and consulting services on approximately $185 billion in global assets as of March 31, 2022. Milliman FRM is one of the largest and fastest-growing subadvisors of ETFs. For more information about Milliman FRM, visit https://frm.milliman.com/.
Paul Damon for Innovator ETFs
+1 (802) 999-5526