Animal Spirits Podcast - Talk Your Book: Putting a Floor on the Nasdaq 100

Episode Date: February 19, 2024

On today's show, Ben Carlson and Michael Batnick are joined by Bruce Bond, Co-Founder and CEO of Innovator Capital Management to discuss: behavioral finance, and the popularity of defined outcome products during bull markets, how equity floor ETFs work, Innovator's latest defined income ETF solutions, and much more! Find complete show notes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Past performance is not indicative of future results. The material discussed has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed.   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by Innovator ETFs. Check out Innovatoretifs.com to learn more about their managed floor ETFs and their defined income products. That's innovatoretts.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Redholz wealth management. This podcast is for information. purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Today's Animal Spirits is brought to you by Innovator Capital Management. On today's show, we spoke with Bruce Bond about what they're doing over there. The, uh, the ETF industry is a mature one, right? At this point, there's like two different camps.

there's the index side, and adjacent to that as a smart beta stuff, and that's all basically free at this point, 10 basis points or less. And then on the other side of the barbell, there are, I guess, active, thematic, creative ones, and innovator is definitely on that side of the spectrum, bringing new ideas or old ideas, the structure note, into a new rapper, the ETF. I guess not new, but you know where I'm going. And I think a lot of it had to do with rule changes, too, that you couldn't really do these in the past. So what, I think the first ETF came out in 1993, SPY, although my Canadian friends up north

tell me it actually, the first one was in Canada, I think in 1991. Really? Oh, they did not know that. Like the TSX30 or five or something like that. And so it's been, yeah, you're right. It's been, you know, 30 plus years of ETFs. And I'm sure a lot of people thought that a lot of this stuff would never make an ETFs, right? We're talking about structured note type products that are fairly esoteric, a lot of paperwork involved if you're going to do one through a bank. Yes. So a lot of stuff that just wasn't available and now it is.

And yeah, it's kind of mind-boggling how many choices investors have these days in a products like this that they never would have had access to in the past. So the category that we spoke about today, like the defined outcome one, to be able to say, okay, 10% down, I'm making these numbers up, 10% downside, 17% upside. Nah, I don't really like that. Okay. Well, 20% downside, 37% upside. Yeah, that sounds, whatever it is, to be able to actually see your risk, see your potential

reward and make decisions based off of that is an interesting concept. And the proof is in the pudding in terms of advisor and client adoption. There is a lot of money in these ETFs because people want them. I'm guessing the demographic skew older. I'm sure we've talked about this before. But if you have wealth and you're in the wealth preservation mode, having these defined outcomes would seem to be, would make a lot of sense. I don't, yeah, if you're, if you're in an accumulation mode, I don't know why you would want to cap your upside. Right.

Unless you're really a nervous Nelly, in which case, own less stocks, but whatever. But yeah, Ben, you're right. For the people that are in preservation mode who have no interest in living through another meltdown, they might say, yeah, listen, I don't need all the smoke of the. SP 500. I don't need. Okay, the cues were up 55% last year. I don't need that. I'm happy with X. Whatever your X is, you're now able to get inside of an ETF wrapper. Pretty neat. All right. So with no further ado, here is Bruce Bond from Innovator. We're joined today again by Bruce Bond. Bruce is the co-founder and CEO of Innovator Capital Management. Bruce, welcome back. Nice for having me, guys. I say it every time you come on,

but it's the truth. We get plenty of things wrong. This we were dead right about. The success and growth of the category that you have defined. I'll call the defined outcome category. Innovators now at $18 billion under management, which is incredible, considering that. Did you guys pass your fifth birthday? Yeah, we just passed it.

Yeah, so five years. So not a bad run to say the least. All right. So the company started the first product that Ben and I saw in Chicago. way back when were the buffered ETFs. And we had a feeling that advisors would clamor for this. And they sure did. And now you've spread your tentacles out into some other categories you've got. We'll talk about a bunch of this today. Equity defined protection. You have defined income an equity managed floor suite of products. The environment today, and when I say the environment,

I'm really talking about 5% interest rates, looks a heck of a lot different than it did in 2018 and 2019. So with that lead, and I'm curious, where are you seeing the most interest today from advisors and their clients? I think we're still seeing the most interest in the annual buffers, the things that we started with. I think that's primarily because that's what we've talked about the most over time and what people have gotten comfortable with. So, you know, the 10, 15, 30 buffer, it still continues to be kind of our number one asset grower, but we are saying a tremendous amount of interest in the managed outcomes, you know, kind of, you know, the ones that we're going to talk about today with like Q floor and S floor type products as well as in the protect series as well, where you have 100% protection. There's a lot of

interest there as well. So we're really, you know, from the buffers. And, you know, when I taught you guys originally, we were trying to keep it as simple as we could so people could digest how these products work. I think that's one reason we're as proud as we are of how it's gone over the last five years is, you know, we had to introduce this whole new concept within an ETF. So we had to keep it really simple. People are comfortable with that now. That allows us to introduce some ideas that are a little bit different, although still keeping it simple, to give them more control over their assets. Bruce, there's been a ton of other products that have come, not just from you outside of different fund providers using options. And we don't need to name any names,

but there's some option funds that even in the ETF space have blown up. And the whole point of your business is to help investors define, even though you can't predict ahead of time, it puts some, I guess, some ranges on what the outcomes could be. Is anything surprised to you since you started the business and started running these funds in terms of the behavior of the funds or how these strategies have worked or implementing the options? Any big surprises are that you wouldn't have expected? Not really, Ben. I think that's the thing that has really goes so well for us. I think the beauty of the buffers where we started is, you know, you just say, okay, look, for one year you get this much upside, you have this much protection on the downside. And, you know, this is what you get. You know,

like you said, you know, we're kind of putting bumpers on a bowling alley, you know, kind of keeping you within the lanes, giving you a sense of what your outcome will be, has really been what has been. And I think the fact that we have over 300, you know, we call these outcome periods, you know, the one year period or the quarterly period, 300 of those now. And basically all of them have completed exactly where we expected them to. And, you know, for most investors and advisors, you know, being able to deliver on a promise is key. I mean, how many times any of us on the line here today, you know, I've been involved

with a product and we think we're going to get this, but we get that, or we think we're going to get that and we get this. You know, it's so frustrating. And I think having reliable and predictable and repeatable outcomes for people is just really why the category is growing. You don't get that, you know, in investing much these days. And being able to deliver that's been really huge. And A lot of people gravitating toward it. Ben and I were actually just talking about one of those products this morning where we were looking at it. We said, whoa, that's not what we thought would happen with that one. So the fact that you lay out what you're going to do, uh-oh, what?

Oh, I mean, maybe it didn't do what you thought it was going to do. I think typically it does. Now, this is not something that we invest in. It's just something that we were observing from afar. I'm curious, and before we move on to the other, the newer stuff, I'm curious with the buffers because there are different periods of time. Is there one for every month? Yeah, there's one for every month in those three different levels.

Yes. So, Mike, the question is this, is there any one month for whatever reason where you just see a lot more flows? Like, is it January or is there really no rhyme or reason? Yeah. I mean, you would think, you know, we had over a billion dollars flow into our January funds this year, you know what I mean? And you would think it would be January because in the industry, we all kind of think, you know, January to January. What's my return? Cs you track, you know, how you performed. But it really doesn't matter. And the other thing I would say that we do see a lot of, like July was massive to like a billion and a half into July or something. And what we see is that. But, you know, when we're getting up close to where the cap is, sometimes you'll see a big adjustment. And if you think about July, right, for run-up to July last year, it was a huge run-up.

And then we had a big adjustment after that where people locked in their gains, pretty much, and then went for another year. And so July became a big year. So it all depends on what the market's doing is what we're seeing. You know, the market's way up. People may roll and lock that gain in. or if the market's down, we see flows too because people are saying, okay, I'm going to get in now because the caps tend to expand when the market's down. So, you know, we see both.

Yeah, I'm trying to put myself in the shoes of an investor. And I originally was going to say, it doesn't make sense, correct me if I'm wrong, it doesn't make great sense to invest in a buffered ETF in a bare market. Because in a bare market, you really want to be there for the upside bounce. So why would you, if you're in a, if we're, if we're, uh, if we're, uh, October of 2022, right? The NASDAX down, whatever it is, 35%, the S&P's down 27. Why would you want to cap your upside at that point in time? Yeah, yeah, I think that's fair.

And just think about earlier this year or even think of the beginning of last year. What would you do then? You know, you didn't think, what did everybody tell us? Mediocre gains. It's not going to be much. But we could, we still have some potential downside. We're coming in for a rough land. And, you know, you really have to put yourself in the moment.

And, you know, Michael, you're pretty good at, hey, the market is sold off. It's on sale. I'm going to get in. I'm going to buy that. Well, people want to do that. But you know what? People don't want to go in for a big down draft. They're still not up for a huge down draft.

So they'll say, you know what? I'm going to buy the nine buffer. I still got 9% on the downside. But I'm getting 20, 21, 22% of the upside. I'll take that, you know. And so that's why people do it. is because it takes some of that, you know, guessing out of it and it says, look, do you really think the market's going to do over 20% over the next year? I mean, some people might say, yeah,

I think it's going to do 30. And if you think that, but you have to really put yourself in the moment, even early this year, we are already in the SMP, past most of the predictions, just in the year already. You know, of all the guys out there, yeah, it's going to be eight or nine percent. I think the average is, you know, 7% or something. We're already past that. Yeah, I think that the strategist on average had 5% and we're already past that gain. Yeah, we're already past that. Yeah. And so, so we told people, well, you're going to get about, you know, 17, 18%, why not grab that, have downside in case we do have some kind of a hiccup in the market? And you get that upside for, and the insurance for free on the

downside that, you know, you're going to have a buffer right there. For the advisors that you and your team are talking to, and it's kind of hard to figure this out with ETF flows and such, but how many are being more strategic in jumping around depending on what the market is doing? And how many are just saying, I want a static allocation to these buffers. And every whatever month or year, I'm going to add a new one. How many are being more? I'm sorry, you have to, you have to be active with these things. Bruce, you may disagree and tell me if I'm wrong.

But if you buy, if you bought that product and you've got the 9% down. side and the 20% upside. If the market rips 20% and you're at the cap, why would you, unless I'm missing something, why would you stay invested if there's no more further upside potential? Well, remember, it lags the market a little bit as you've experienced, right? So it's not going to be up all the way to the cap. If you're six months through the period, you know, you're not going to be right on the cap. You're going to be, you know, moving up. But let's say the market's up 12 or something like that. You might be up, you know, six or seven, something like that.

You have to wait through the fall outcome period to get the whole cap. That's one thing. Okay, I got it. So is there, I do see what you're saying. I do see what you're saying. But let's say that the cap is 20.

And I know where this is hypothetical, but the market's up well in excess of that. Or let's say the cap's 10 and the market's up 20. Like, is there a point in time in which you would fully get to the cap? Or is there really a big time delay baked into the product? Well, okay. So let's just take that example. Let's say that the cap on the ETF was 20.

and the market is up 20 but you're only six months in so you're only up 10% right now and you're looking at it and you're like okay i know i got another potential tim and this is where people start to think about it michael they say okay i got six more months now if the if the market holds i'm going to get that other 10% now i could roll out and lock in the 10 that i have and get get another cap and potentially get more upside, but I already have that future 10 locked in as long as the market holds. You know, so it all, all of a sudden, it starts, you start balancing it and you start saying, yeah, I'm going to, if it just holds, I get another 10% if it comes down, it's got to come down a long way for me to lose anything. And so that's how people start to think about it.

So it's, you would think, Michael, that you would just say, wow, I'm at the camp, I'm rolling out, I'm grabbing up at the new one. It's not, sometimes it's strange. forward is that i get that but wouldn't you also so let's just say fine let's say that the mark's up 20 you're only up 10 but if you were to sell and to lock into the roll into the next one wouldn't you also raise your floor your cap you would raise your cap right the cap would jump i'm saying i'm saying oh yeah you would raise your buffer right your buffer would be like at a higher level so you're gonna exactly it goes 10 down 10 from that point while you're you're your buffered right you have a exactly yeah so and that's what i was mentioning earlier you guys like in july i'll

year. The market, you know, ripped the cover off the ball the first six months. We had a huge adjustment as a lot of advisors adjusted their portfolio when locked in, you know, for another year and they made that adjustment a locked in their game. So we see both, Ben, to your question, we see some people just saying, this thing is great. I'm just letting it run. I'm not going to mess around with it. But then, Michael, to your point, we have some advisors, I think they view themselves as more of a manager in protecting these assets. They're not really asset others. They're more managing. And those guys are more tactical. We see them get in and make adjustments. All right. So as far as the other things, the newer things go, the managed floor,

the defined income, where should we go next? What are we excited to talk about? Well, let's talk about these two new products that we have with parametric a little bit. I think those are very interesting something you guys probably aren't super familiar with and your listeners aren't and I think a great opportunity for investors all right great so so parametric for those who are unfamiliar parametric is a pioneer in the custom indexing space they were correct before I'm wrong they were bought by Eden Vance who was bought by Morgan Stanley yep that's right I'm saying right Michael yep so what does the partnership with parametric look like so our partnership now and I think that parametric had two things going on you know you know they had this

Yeah, this custom indexing thing, you know, where, but then they also are one of the most respects to institutional asset managers that write these cover call strategies. They've been doing this forever. This has kind of been their business, their secret sauce from an asset management standpoint. You know, they manage, I think, almost $500 billion in these types of approaches. You know, so I think they're, you know, obviously they have a lot of credibility. So, you know, and after they saw the buffers, they were super intrigued with those, and they contacted us and say, hey, we think we got something that could be really compelling in an ETF. And so we started talking and we're working together now. And we have two different products. One is called Q Floor.

The Q is for QQQ, and one is called S Floor, and S is for the spider, you know, or U.S. Equity Exposure, Floor. So just think of that, Q Floor, S Floor. And what is a floor? So a floor is different than a buffer, right? A buffer is the first 9% or the first 15%. So a floor, these have what is called a 10% floor. And what that means is you're exposed for the first 10% down. After that 10% you have no more risk.

So you have 90% protection on the downside and you have 10% exposure the first 10% So what are you giving up on the upside to get that protection? So, okay, so these are a little different than the buffers. And these are designed to give you the upside of either the cues or of the spider and to not really, you don't have a cap on these, right? So you're not really being capped out on these. But you have this 10% floor. Now, there has been, it's trailed a little bit in a really aggressive upward market.

you might trail a little bit, but in a trending market, you're going to keep pace with the underlying. And so for these two, we actually buy the underlying, or, you know, we buy a representative sample of the cues or of the spy, and we trend with that. And then what they do is they write cover calls on this. They have this custom cover call writing strategy that they use. It's a shorter term cover call writing strategy, and they raise premium. with that, right? So that premium they raise, we buy puts. And we buy these puts, you know,

10% out of the money. So you have 90% covered. And so writing the calls covers the cost of the puts. Okay. And now, you know, sometimes you might get a benefit of the calls. Like if the puts are less expensive than we thought, then you might actually get a little income from the cover call writing strategy. But typically we think, you know, they're kind of designed to where you know, they will take care. There are 20 Delta calls, if you guys are familiar with that, not to get in details. But it gives you 20% of the upside before you could get them called away. So they're writing them out there every two weeks through a series of cover call writing

to raise enough premium to be able to pay for the put. So what does that mean? That means that you have 10% exposure. Let's just talk about the Q's, right? Let's just talk about the Q's. So you have 10% exposure on the down. side of the cues. That's it. You have 90%. Now, one of the thing I want to explain about the put is these are one-year puts, okay, 90%, but they're, they're trunched out quarterly. So we buy them

every quarter for one year. So you have, so it's kind of a, it moves a little and we're rebuying it. So we're tracking the market. So your puts are moving up as the market moves up. We're writing these 90% out of the money, or I mean 10% out of the money puts. So two questions of clarification. So you only have 10% downside risk. I assume that's at maturity or at the annual marker. That's all the time. It's all the time.

You can buy it any time that is at the end. But if you think about it, you know, you buy the puts up front so you have the put. You know, so if the market crashes, the put becomes very valuable, right? So they move up in value. And so it's significant. So the put has its value. So at any given time, you might. have a maximum of 11. Remember, because the market is moving and they're trunched out. And so it isn't

like buying one put at 90 percent. We're buying, you know, four puts across the year, quarterly at 90 percent. And so it moves a little bit. It's designed like that. So, you know, it's we, so one of the things about the buffers people get concerned with is like this one year period. You know, they, they want to be able to get in any time or participate with it. And what, binding these quarterly like this that allows you to get involved at any time and have that 90% put in place pretty much. So this isn't the kind of fund that's going to be rolled out on a monthly a quarter of the basis of some of the other ones. This is just going to be a standalone. This is just one fund. It's just one fund. One is on the S&P and one is on the NASDAQ 100.

I guess the selling points here, especially for the Q floor, which is the NASDAQ one, would be, listen, NASDAQ has run a ton in the past 10, 15 years, but I'm also positioning for an AI bubble. So I want, I want, like, the upside, but I want to be protected on the downside. That's kind of the, at least the NASCAR 100. That's exactly right. I mean, I don't know if you guys know the number, but the MAG 7, you know, has contributed like 40 or 50% of the return so far in the cues, right? I mean, so it's like, okay, guys, they are not of the return. They represent in wait 40% I think it is of the cues. So, I mean, you have huge exposure to these guys as well as a bunch of the AIs that are the up-and-comers. And so

what this allows you to do is to put it in floor on your on your wrist there so let's say you're kind of a conservative investor but you want more tech exposure i mean to me this is really a brilliant way to do that without taking on the risk of the nasdaq and let's face it the nasdaq yeah moves around a lot you know and it can be down 10% without any trouble so this really puts a floor on your wrist as far as that goes, we expect and, you know, parametric expects that this will keep pace with the NASDAQ 100 over the, over time. And in fact, you know, if you look back to 2000 from today, it's actually outperformed the NASDAQ historically because it took out some of those massive down draws, you know, so are the drawdouts?

Bruce, I have to, I have to politely push back a little. This sounds like a free lunch, and we know that free lunches don't exist. So one of the catches is that this will track, I assume, the price return index. Now that there's really dividends. Yeah, yeah, yeah. So, all right, so the cues have a dividend. Well, no, no, no, no, no, I hear you. Here's the thing, Michael, remember, this owns the underlying stock.

Okay. So this, you know, usually we're buying a deep in the money called, you know, to give representation to these different markets. This one actually, Parametric owns a representative sample of the underlying stock. But remember, too, that doesn't have much dividend yield. Right, right, right, right. You know what I mean? So, I mean, so what is the catch?

Well, so the catch is that, I mean, if we have a really skyrocketed market, you're going to trail the NASAC a little bit. But that's not the, that's not the, that's not, that can't be the real risk. I mean, that's that. That's it. It's not really, it's not really a cap. But, you know, these are, these are written quote unquote, just think about on like, you know, 20% out of the market. So if the market runs up, you know, and it really goes above, you know, you could lose some of those stocks. So the timing of the options is part of, is kind of part of the risk there on, right? The cues, the cues were up 55% last year. Right. What would this? Yeah. We didn't have it all last year. Yeah, we didn't have it all last year, so I wouldn't be able to tell you what it was. I will tell you this. Let me give you this. Permanetri's been running this over the last 10 years, the QFLR strategy would have been up 13.9%.

The NASDAQ was up 17.9%. Okay. So that is a big spread. However. Okay. That's a big spread. Okay. But the sharp on this is 0.95 versus the sharp on the NASDAQ 100 is 0.7.

the volatility on this is 13 versus 21 so and so that's the thing if we have a super aggressive market you could get some self called away and um you may not keep up with the underlying but at the same time so so that's the risk I think that's to give up Michael you know I always say yeah there's no free lunches and we all know that so that's the potential but if you have a trending type of a market you're going to participate in that with this on the bottom. And we think for a lot of people, it's better than a cap. I mean, how many people keep up anyway? You know, I mean, to be honest, with all these actors, I mean, seriously. So here you do that and you know where your floor's out. All right, fair enough. So let's talk about this defined

income product. What's the deal with this one? So, you know, think about the defined income product as basically it's kind of like a buffer. Okay? We have buffers and barriers. Now, let me explain the difference between a buffer and a barrier. A buffer, as I mentioned earlier, is you're buffered for the first 9%. A barrier, our first barrier is at 10%. And so, you know, when you're buffered for the first 9%, it says 0 to 9, you don't lose any money from 0 to 9, but then when you go to 10%, you're going to lose 1%, you know, 11%, you know, those 2%. And so you start losing after the buffer. That's like hard protection on a structure note. Yeah, exactly. So, so, so, here, a barrier, is you go down at 10%, you don't lose anything at the 10% barrier,

but you go down 11%, you're down 11%. And that's soft protection. Yes. Right. Okay. So that's the difference to a barrier and a buffer. You know, and I think I want to make sure people understand the difference between them here. And so what we're doing is, it started with the barriers because those of you that are

familiar with, you know, like auto callables. I don't know if you guys are familiar those in the structure. product world, massive products within the infrastructure product world, all kinds of income generated. We were trying to figure out how do we replicate that kind of a strategy within an ETIP? And the barriers are our attempt to do that. And we think they basically do that. But, you know, you don't need the call, really. The call was to, you know, for other reasons within those products. So what this does is, it, you know, there's two types. There's the barriers and the buffers. Now, we have four barriers one at 10 percent one at 20 percent one at 30 percent and one at 40 percent okay

and and the idea here is you can pick what level of barrier you're comfortable with with the amount of income it will generate the two most successful ones we've had on the barriers are the 20 barrier so let's just talk about that one right now so the 20 barrier will pay you 8.21 percent annually. So you're going to get paid that each year. Well, you're going to get paid that for the first year. Then it's going to reset the second year, just like a buffer. And it's going to give you a new income level. But it's like a bond. You know, that's the beauty of it. And it's paid quarterly. So it pays you that quarterly, splits it up into four pieces and pays you that quarterly. Now, why would you do that? Why would you be interested in that? Well, first of all, 8.21 percent is a great return.

If the market is down 18%, you don't lose anything. If it's down 15%, you don't lose anything. It's down 10% you'll lose anything. And you do get the 8.21 no matter what. So it's down 21, you're down 13. If you're down 21, you're down 13. Because you receive the 821, but you're down that amount. Right, the income comes in either way.

So the underlying here is all equity options, or what's the underlying? It's all equity options or the underlying. Okay. So some kind of strategy we're selling puts and calls and mixing and matching kind of deal? Yes, exactly right. Exactly. It's a little more complicated with this one, but basically that's the idea. So like Michael said, this is more like a traditional structured product. It's, yeah, just like the buffers were, you know, originally. But this one is a new one. You know, it's a new one for people to think about. The reason people like this is the market has to go nowhere for you to get paid. Now, if the market goes up, you don't get any of that.

Right, because it's all income. Because you're getting the 8.21%. So you don't, if the market's up 20, you get not of that. You got the 8.21. That's what you signed up for. This is an income product. It's like a bond. You know, so you're just getting the income.

And that income, as you said, that rate is locked in at the beginning. Yeah, it doesn't change throughout that year period. It doesn't change it all throughout the year. Now, let's say you get, let's say you bought it at 10 bucks. because I think it's a $25 share price. So that $25 share price in a year, it should be $25 again, and you should have received the 8.21 unless it was down below the barrier, and then it will be down whenever that percentage is.

And then it will just continue. The higher your barrier, the lower your income is going to be. So you're going to get a higher income at 10% than you would at 40. And it depends on your risk. So 30, just to give the idea on the 30, those are the two most popular ones. That's 7.4.3%. So you've got a 30 barrier. So how likely is it that the SMP is going to be down 30%?

It's super unlikely, right? So you're going to get 7.43%. And these are all tied to the S&P as the downside. These are, yes. We were going to do some of the NASP, but the volatility in the NASDAQ isn't enough to generate enough more premium for people. And we thought it was better for people to look at one underlying the SMP and what is the level of barrier you're most comfortable with. just get the income, you know, you're just selling ball, basically, receiving a ball back is what's happening. Now, these do own treasuries, too. So the treasuries have an impact on the

income level. So as treasury yields go down, these could go down a little bit. Risk and reward are tied at the hip. Anything that you do, anything that you do to mitigate your risk will in some fashion have a similar impact on reward. We know that. What I like about these ideas is that with the market, you really, you can't really define your risk and reward, right? The range of outcomes for the S&P in a given year, it's a mile wide. So I think it's perfectly acceptable for somebody to say, hey, I want to be invested. I just know from my own experience that I can't take all of the downside. So I'm perfectly happy to give up some of the upside as long as I can protect myself to my

own personal risk tolerance. So there are, I don't know why some people have a problem with. with this sort of product or category, what are some of the most common critiques and what do you say to address some of them? Like, what do you hear that shows? That you think is fair. What do you think is nonsense?

Yeah, I mean, you know, people can be tickled. But I think the one thing that advisors get most concerned about it, I don't know if I really want a cat. You know, and I think we have really taught people in our business that they feel like their returns are somehow reliant. liable. Like they know what they're going to get. They had no idea what our returns are going to be. I mean, if we're fair to each other, yes, we're in the business. We talk about it. We tell what we think is going to happen. But when you're in it long enough, you realize there's very little control you have. And the idea of someone just being naked in the market and having no idea of what their return is going to be, to me, is not good. And most investors should have better control of their outcome. And that's what these do. So, yeah, they complain that they don't like the cap or they don't like this or they

don't like that. I'm like, well, you know, this is totally fine and I get it. And the important thing is, is we're not trying to sell to traders and to high risk people. These are meat and potatoes, bedrock type products that you can rely on. These are not things that, you know, even if you think about low-val, men, ball, dividend yield, all these kind of strategies. They work till they don't, you know. And in the markets where you think they may really deliver, they don't really work

that well. And what we like about these is you can look at it and say, okay, I know what I'll get based on what the underlying does. That gives me a lot of comfort. And it allows an advisor to build trust with their clients. Because what no one likes is a surprise out of the blue, especially with a new big client and you got to get five million dollars in my i mean look at how much um money is sitting in money markets right now it's all in the sidelines and it all missed this big runoff early in

the year nobody nobody like surprises to the downside but people also might say that they like the defined outcome until you get a year like 2023 when even though nobody was predicting it if you get a if you get an up 30% year it's it's there's risk to having a cap so I get that yeah yeah there is yeah there totally is and you could lose out and I would tell for people that are in a growth more of a growth mode like that and they I would say don't put all your apples in here I'm not encouraging you to do that with all your investments necessarily you know I well what I'm saying is for a portion of them you got to be thinking about this what do you think most advisors put into your products if you had a guess I mean are they taking a 20% of

allocation, are people taking out a lot of their fixed income exposure? Yeah, I mean, it is all over the board. I mean, we talked to a guy a week ago, is going to call with him. He's converted his whole practice. Wow. Because he said, what can I really bring to the market that's not already out there? You know, I'm out there trying to talk about portfolio management and all this kind of thing. This, I mean, this has something I can really bring to the table and talk to people about and I can paint a vision of the future much more reliably.

then I can just kind of guessing that, you know, bond and stock correlations will hold up or, you know, all these other things. And he feels like it differentiates him in the marketplace. So you get these guys putting a half a billion in, you know, their whole business to all the way down to, you know, 10% or 5% or the whole thing, you know, they're putting their alt's bucket in there. Every time we talk to, we mentioned that even though some of the underlying concepts are relatively straightforward, this can get on wheeled. and fairly complex pretty quickly because of the nature of there are a lot of moving parts. I know that you guys, the fact sheets that you put out, the things on your side that are updated daily to tell you where the barriers are, where the buffers are on the floors and all that sort of stuff is really great stuff. You have people standing by if advisors want to learn more about any of these products?

Absolutely. And I highly recommend, you know, this is what we do at Innovator. this is what we brought the company for or why we started the company, we are the experts in us. And so if you have any questions or you're like, oh, you know, there are no dumb questions either. I mean, these are new products in the market. I mean, and it's a concept that you've got to get inside your head. Once you do, you realize that. These are actually not too bad. Once you take a little time and you spend some time on them, you start to realize, okay, these are very cool. I could do a lot with these. And so we encourage you to to use our knowledge resources,

reach out to innovator ets.com, you know, and connect with someone there. And we'd be happy to help you any way we can't. All right, Bruce. Thank you. Always fun catching up with you. Fellas, it's been a pleasure. Take care of yourselves. And each other. Rest and peace, Jerry. Okay, thanks again to Bruce, who has to be the guest that we've had on most on the show, don't you think? It's getting there. Pretty close. All right. Innovatoretefs.com to learn more.

Email us, Animal Spirits at the Compound. Dang it, what is it? Animal Spirits at the compound news.com. There it is. I'm going to get it. See you next time.