Bruce Bond founded PowerShares with John Southard back in 2003, building it into one of the largest independent ETF issuers before selling it to Invesco in 2006. More recently, he and Southard bought Innovator ETFs, which currently offers two ETFs, the $317 million Innovator IBD 50 ETF (FFTY) and the $54 million Innovator IBD ETF Leaders ETF (LDRS). Bond and Southard have plans to expand that business in multiple directions, even if it’s a very different environment for new issuers today.
ETF.com: You’re now CEO of Innovator. What brought you back into ETFs after selling PowerShares?
Bruce Bond: I really didn’t intend to come back. John Southard, who was my partner at PowerShares, bought an insurance product that provided protection on the downside but gave him exposure to the upside, and he kept saying, “I can’t imagine we can’t provide this in an ETF. We should look at this.”
When we heard Innovator was for sale, we decided to buy it and use that as a platform to bring more ETFs to market with Investor’s Business Daily. They’ve been a great partner.
ETF.com: What’s the concept behind this insurance product idea that sparked this whole thing? Is it similar to a covered-call strategy?
Bond: A better way to think about it is as a one-year commitment. You get the upside of the S&P 500 Index up to a cap, and you’re protected for the first 15% drawdown in the market over that period. But you have to hold it a year to get that return. After that, it resets and you own the fund for the following year, and it does the same thing each year. What changes about the fund is that the cap will move. It’s different than a covered-call strategy in that it really gives you a defined outcome.
What’s attractive about that is that when you invest in equity markets, you really don’t know what you’re going to get, and you have no way of protecting yourself. We insure everything: our car, our life, our house. But there’s no easy way to insure a most important asset: our capital. This gives you some protection on the downside.
ETF.com: Is this an idea that’s in registration right now?
Bond: It is. It’s not approved yet. But we’re very hopeful that sometime in April we’ll be able to launch the funds.
ETF.com: As an issuer, what’s different now from when you started PowerShares?
Bond: The biggest difference in the industry is that there’s a lot of competitors and a lot of products, and that’s the reason it’s important to focus on products that are really unique. We talk to a lot of people who want us to work with them on products, like smart beta, or products that are just a little smarter than the other guy’s, but we can’t work on those things.
It’s a very difficult and expensive process to try to educate everyone on, “Mine’s a little better than the others because mine does it this way.” People really just aren’t interested. What they’re interested in is getting exposure they want that they don’t already have access to, or in unique ways of getting certain exposures.