BlackRock’s buffer ETF fees expected to undercut industry rivals

Innovator Capital Management and First Trust, “dominate the assets for buffer funds, and most of their funds charge at least 79 (basis points),” said Bryan Armour, director of passive strategies research for North America at Morningstar Research Services, a Morningstar subsidiary.

“BlackRock is significantly undercutting their fees, which may help (it) gain a foothold in this space,” Mr. Armour said in an email. “Overall, this is great news for buffer fund investors.”

Innovator’s buffer ETFs were the first defined outcome ETFs to come to market, an Innovator spokesman said. In exchange for capped upside performance, they offer built-in buffers that protect against a specified downside loss.

“We were not surprised by this filing and believe it lends further validation to the idea we brought to fruition in 2018,” Graham Day, senior vice president and chief investment officer at Innovator, said in comments emailed to Pensions & Investments. “We believe what’s most important to advisors is having access to a full suite of tools to pursue defined outcomes, and that’s what we’re focused on offering.”

For example, in 2021 the firm launched the Innovator Defined Wealth Shield ETF, which seeks to offer a 20% buffer over a three-month outcome period at an annual expense ratio of 0.69%, Mr. Day said.

Assets in defined outcome ETFs totaled $22 billion as of January, up from about $183 million as of December 2018, according to a March report by Morningstar, which uses the terms defined outcome ETFs and buffer ETFs interchangeably.

“The joke in asset management is that you don’t want to gather assets so fast that you catch BlackRock’s attention,” Mr. Armour added in a follow-up interview.

The iShares Large Cap Moderate Buffer ETF will seek to track the share price return of the iShares Core S&P 500 ETF – the underlying ETF — up to “an approximate upside limit,” while seeking to afford downside protection against approximately the first 5% of underlying ETF losses over each calendar quarter, the June 23 filing said.

The iShares Large Cap Deep Buffer ETF will seek to track the share price return of the iShares Core S&P 500 ETF up to “an approximate upside limit,” while aiming to provide downside protection against underlying ETF losses between approximately 5% to 20% over each calendar quarter, the filing said.

Innovator has about $14 billion in total assets under management, which includes roughly $13 billion in defined outcome ETF assets, the Innovator spokesman said.

BlackRock, the world’s largest asset manager, had assets under management totaling $9.09 trillion as of March 31. That includes ETF assets totaling $3.07 trillion.