Wild New ETF Rides S&P 500, Nasdaq and Russell Gains All at Once

(Bloomberg) -- After successfully rolling out exchange-traded funds that mimic structured products, an upstart firm is loading its latest offering with even more bells and whistles.

Innovator ETFs plans to list three funds that offer exposure to multiple equity indexes on the upside, while tracking a single gauge on the way down, according to a release. All three deliver returns up to a cap, but just to add to the complexity, one throws in protection against the first 9% of losses, too.

While complicated products have often struggled to find buyers in the $4.8 trillion U.S. ETF market, Illinois-based Innovator has had more success than most. The firm, co-founded by ex-PowerShares executive Bruce Bond, has attracted more than $3 billion to its so-called defined outcome ETFs, which use options to deliver structured note-like returns.

A roller-coaster year for the stock market has helped, and it’s possible investors will stomach the added intricacy of the new products if it means they can ride the rally without getting hurt too badly.

“It’s emblematic of the times,” said Nicholas Colas, co-founder of DataTrek Research. “It’s the kind of product that comes along when there has been a lot of equity returns already in the market and investors are worried they have missed the big move.”

The three new funds will list on October 1 and charge a 0.79% management fee. They’ll rebalance annually, which makes them suitable for longer-term investors, according to a statement from the company.

The Innovator Triple Stacker ETF (TSOC) aims to deliver 100% of the upside of funds tracking the S&P 500, Nasdaq 100 and Russell 2000 gauges, while only tracking the S&P 500 to the downside. In other words, the fund essentially mirrors the S&P 500, while delivering any incidental gains from the Nasdaq and Russell benchmarks.

Total gains will be capped at around 21%, according to preliminary estimates provided by the firm, while the product is designed to be held for a year.

Innovator is also launching a version linked solely to the S&P 500 and Nasdaq gauges, which track the S&P 500 on the way down. A third version protects against a set amount of losses.

James Seyffart, ETF analyst at Bloomberg Intelligence, said the products could appeal to investors expecting more modest returns for the stock market.

“When you buy one of these, you’re giving up home-run equity returns in exchange for leverage-like enhanced moderate returns,” he said. “It’s a sensible pitch for an investor or adviser who thinks the stock market is only going to give us a few percent over a given one-year period.”

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