Investor’s Business Daily has a lot of fans, and Innovator Capital Management LLC has launched its third exchange-traded fund based on the investment methodologies of that financial research and media company.
The Innovator IBD Breakout Opportunities ETF (BOUT), which launched Thursday, tracks the IBD Breakout Stocks Index, a rules-based benchmark created by IBD comprised of stocks poised to breakout, or experience a period of sustained price growth beyond a security’s recent resistance level. The index employs a ranking score based on a security’s IBD Composite Ranking and Relative Price Strength Rating, and stocks with the highest scores get the largest weights.
The fund begins trading with 56 U.S.-listed holdings. Financials (41.1 percent), information technology (23.3 percent) and health care (19.7 percent) comprise the largest sector weights. The top five holdings include two info tech companies—i3 Verticals Inc. and Pluralsight Inc.; Aptinyx Inc., a health care company; Berkshire Hathaway Inc., the financial conglomerate led by Warren Buffett; and Cogent Communications Holdings, a telecom services company.
Index holdings are rebalanced and reconstituted weekly. According to the prospectus, when market signals forecast a stock market downturn, the index will allocate 50 percent of the portfolio to cash equivalents composed of one- to three-month U.S. Treasury bills.
The BOUT fund’s expense ratio is 0.80 percent.
This is Innovator’s third ETF tied to IBD’s investment strategies. The Innovator IBD 50 ETF (FFTY) launched in April 2015 and currently has assets under management of $544 million. This fund has handily outpaced its bogey with a return of 14.8 percent year-to-date, a 23 percent gain during the past year and an annualized return of 18.7 percent during the past three years.
The FFTY fund tracks the IBD 50 Index of 50 growth companies identified by IBD’s CAN SLIM methodology as having significant profit growth, large sales increases, fat profit margins and high return on equity. Its net expense ratio is 0.80 percent.
The Innovator IBD ETF Leaders ETF (LDRS) debuted last December and has garnered $44.6 million in assets. This is an ETF of ETFs tracking the IBD Leaders ETF Index that uses relative strength analysis to pick the top U.S.-listed ETFs across various asset classes including domestic and international stocks, fixed income and alternative investments. Its total expense ratio is 1.09 percent.
LDRS is down 0.43 percent year-to-date. Nonetheless, that’s significantly better than the minus 5.5 percent return on the MSCI ASWI Ex USA USD Index that Morningstar lists as its bogey.
Innovator Management was formed in 2014, and it had an agreement with IBD to create ETFs based on that company’s investing strategies. In 2017, Bruce Bond and John Southard, the founders of PowerShares Capital Management (now owned by Invesco), bought Innovator and rebranded it as Innovator Capital Management. The FFTY fund was part of that purchase, and the current iteration of the company has subsequently launched eight additional ETFs. The company's nine ETFs have total assets under management of $750 million.