Innovator launches momentum-driven equity rotation ETF

Nov 24th, 2022 | By | Category: Equities

Innovator Capital Management has launched a new global equity ETF that seeks to identify and invest in market segments with the strongest price momentum.

Bruce Bond, CEO of Innovator ETFs

Bruce Bond, CEO of Innovator ETFs.

The Innovator Gradient Tactical Rotation Strategy ETF (IGTR US) has been listed on NYSE Arca with an expense ratio of 0.80%.

IGTR, which has come to market with more than $300 million in assets under management, is sub-advised by Gradient Investments, a privately owned SEC-registered investment advisor based in Minnesota.

The fund seeks to outperform the benchmark S&P Global Broad Market Index by deploying a proprietary, rules-based investment approach developed by Gradient.

Gradient first divides the global stock market universe into nine sub-sectors spread equally amongst three geographical segments – the US, global developed ex-US, and emerging markets. The three sub-sectors of the US equity market include high beta, broad market, and low volatility, while the three sub-sectors within each of the remaining two geographical segments include momentum, broad market, and low volatility.

On a monthly basis, Gradient uses a top-down methodology to determine which sub-sector shows the strongest price momentum trend. A strong momentum view indicates that Gradient believes that equities within that sub-sector are more likely than not to sustain movement in a positive direction, rather than change directions.

The ETF then invests in US-listed stocks or American Depositary Receipts that collectively best represent the sub-sector with the most favorable momentum characteristics.

If Gradient’s analysis determines that all nine subsectors are exhibiting significant and sustained negative price movement, IGTR will de-risk by investing in cash or cash equivalents such as US Treasury Bills with maturities of less than one year. The ETF will maintain its risk-off position until positive price momentum is identified within a sub-sector at a future monthly review.

Commenting on the listing, Bruce Bond, co-Founder and CEO of Innovator ETFs, said: “We’re very excited to be partnering with Gradient to bring their disciplined, tactical approach to global equity investing into the ETF wrapper. With its unemotional rules-based investment process, we feel that the Innovator Gradient Tactical Rotation Strategy ETF can help advisors diversify the sources of return within growth portions of traditional portfolios, as well as decrease the ‘home market bias’ that persists for too many savers. Gradient’s thoughtful approach to investing has long been valued by their loyal clients, and Innovator believes making this strategy widely available to advisors with IGTR is a great call.”

Michael Binger, President of Gradient Investments, added: “Equity markets around the world often display wide dispersions of return over time. This can create opportunities to make tactical investment decisions and rotate capital to areas of strength across the global stock market. The Innovator Gradient Tactical Rotation Strategy ETF seeks to identify the strongest and avoid the weakest equity market segments and subsectors globally. By applying a systematic momentum-based approach to equity investing – and reserving the right to take a risk-off approach by holding cash under certain circumstances – IGTR aims to maximize risk-adjusted returns across full market cycles and be a potentially compelling option for advisors allocating to growth strategies.”

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