Barrier Income ETFs FAQ

What are Barrier Income ETFs?

Barrier Income ETFs seek to provide a level of income and a barrier against losses, known to investors before they invest. The ETFs offer exposure to an underlying reference asset, over a 12-month outcome period, with a defined level of income and a downside barrier. Note, if an investor purchases an ETF after the outcome period has begun, or sells shares prior to the end of the outcome period, the investment return will differ from the ETFs defined return parameters. 

What is a Barrier?

Barrier refers to a payoff profile that depends on whether or not the underlying index breaches a predetermined performance level. For example, a 20% Barrier seeks to prevent losses down to the 20% level. However, if the Barrier level is breached at the conclusion of the outcome period, the price of the ETF is designed to match the performance of the reference asset. The ETF will still seek to provide income equal to its stated distribution rate.

How do the Barrier Income ETFs generate income?

Each Innovator Barrier ETF holds a customized basket of FLexible EXchange options (FLEX options) with varying strike prices (the price at which the option purchaser may buy or sell the security at the expiration date), and the same expiration of approximately one year. The ETF also holds U.S. Treasuries with maturities up to one year. This contributes to each ETF’s defined level of income.

When are the income payments made?

On the first day of the outcome period the Defined Distribution Rate is set. The Defined Distribution Rate is paid quarterly and in equal amounts. The pay dates correspond with the start of calendar quarters.

How do the distributions work?

Distributions follow a schedule that includes an ex-date, record date and payment date.

The ex-date is a cutoff date when new owners of the ETF are no longer entitled to the upcoming income distribution. At market open on the ex-date, the NAV of the ETF will drop by the amount of the upcoming distribution. The ex-date is the second-to-last trading day of each quarter.

The record date is the last trading day of the quarter. Owners of the ETF on the record date will receive a payment on the payment date.

The payment date is the first trading day of the next quarter. For example, the schedule for the first distribution from the April series is as follows:

Do investors still receive income if the index finishes below the barrier level?

Yes. A level of income will be communicated at the start of each outcome period. The ETF is designed to pay the income whether the reference asset finishes above or below the barrier level. There is no guarantee that the Fund will be successful in its attempt to provide the outcomes.

What if the Barrier level is breached in the middle of the outcome period?

The NAV of the Barrier will fluctuate throughout the outcome period. The ETF can potentially trade down if the index declines, particularly as it approaches the barrier level.

However, a Barrier “breach” only occurs if the index is below the barrier level at the close of the final day of the outcome period.

What if I buy shares of a Barrier Income ETF intra-outcome period (after the reset day)?

A Barrier ETF seeks to provide a Defined Outcome, regardless of the purchase date. Visit Innovator’s Potential Outcome Analyzer tool to view the current Defined Outcome parameters for any of their ETFs: www.innovatoretfs.com.

Investors purchasing shares of an ETF after its launch date will receive a different payoff profile than those who entered on day one.

Because the NAV of the fund will fluctuate throughout the course of the outcome period, investors can potentially purchase shares of a Barrier ETF opportunistically. For example, if the reference asset and Barrier ETF both trade down in the outcome period, an investor could purchase shares of the ETF and achieve capital appreciation in addition to the ETF’s income. However, there are potential risks associated with purchasing the ETFs in the middle of their outcome period.

In addition, investors purchasing shares following a Distribution Date will not be entitled to Defined Distributions made prior to the Distribution Date and will therefore not receive the full Defined Distribution Rate for such Outcome Period. Similarly, investors selling shares prior to a Distribution Date will not receive the full Defined Distribution Rate for the Outcome Period and will not be entitled to Defined Distributions after such sale.

Do Barrier Income ETFs mature?

No. Upon the conclusion of the outcome period, the ETF will reset into a new portfolio with the same exposure, barrier level, and term, and a new Defined Distribution Rate will be determined.

What is the annual expense ratio?

The expense ratio is 0.79%.

Does any entity guarantee I will not lose money?

No. Unlike certain insurance products and structured products, ETFs are not backed by the faith and credit of an issuing institution like an insurance company or a bank. This also means that Barrier Income ETFs are not exposed to bank credit risk. The options held by the ETFs are 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 ETFs could suffer significant losses.

Can investors buy and hold Barrier Income ETFs or do they need to be repurchased at the end of each outcome period?

Barrier ETFs “reset” at the conclusion of their respective outcome periods, but may be held indefinitely. At the end of the outcome period, each ETF will roll into a new set of option contracts and U.S. Treasuries with the same exposure, barrier level, and term length, and a new Defined Distribution Rate will be determined. 

Where can Barrier Income ETFs fit in a portfolio?

Barrier Income ETFs provide high income potential, built-in risk management, and low interest-rate risk, and could make a meaningful and diversifying return contribution to a portfolio’s fixed income allocation. Additionally, Barrier Income ETFs don’t carry bank credit risk, potentially helping to further diversify a portfolio’s bond allocation.