Products March 26, 2020

Investment Product and Service Launches

Innovator expands Defined Outcome ETF suite; Vanguard merges Capital and Windsor funds; and IHS Markit delays rebalancing actions on indices.

Reported by
Art by Jackson Epstein

Art by Jackson Epstein

 

Innovator Expands Defined Outcome ETF Suite

Innovator Capital Management LLC (Innovator) has announced its anticipated upside cap ranges for the April Series of S&P 500 Buffer exchange-traded funds (ETFs), which reset at month end.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Innovator also plans to expand its Defined Outcome ETF suite with four additional Power Buffer ETFs, scheduled to begin trading on April 1, based on the Nasdaq 100, Russell 2000, MSCI EAFE and MSCI Emerging Markets indexes.

“One of the benefits of Defined Outcome ETFs is that increased market volatility typically contributes positively to upside caps, providing investors with greater potential upside participation over the next one-year outcome period,” says Bruce Bond, CEO of Innovator ETFs.

Anticipated return profiles for the Innovator S&P 500, Nasdaq 100, Russell 2000, MSCI EAFE and MSCI EM April Series of Buffer ETFs, as of Monday are:

Ticker

Name

Buffer Level

Cap Range

Outcome Period

BAPR

Innovator S&P 500 
Buffer ETF

9%

12.35 – 29.21% 

12 months 
4/1/20 – 3/31/21

PAPR

Innovator S&P 500 
Power Buffer ETF

15%

7.87 – 23.07% 

12 months 
4/1/20 – 3/31/21

UAPR

Innovator S&P 500 
Ultra Buffer ETF

30%

(-5% to -35%)

7.01 – 14.53% 

12 months 
4/1/20 – 3/31/21

NAPR

Innovator Nasdaq 100 
Power Buffer ETF

15%

9.02 – 16.57%

12 months 
4/1/20 – 3/31/21

KAPR

Innovator Russell 2000

Power Buffer ETF™

15%

8.59 – 28%

12 months 
4/1/20 – 3/31/21

IAPR

Innovator MSCI EAFE
Power Buffer ETF

15%

8.58 – 32.42%

12 months 
4/1/20 – 3/31/21

EAPR

Innovator MSCI  Emerging Markets

Power Buffer ETF

15%

8.98 – 42.16%

12 months 
4/1/20 – 3/31/21


The April Series of Innovator S&P 500 Buffer ETFs (BAPR, PAPR, UAPR) currently has a remaining outcome period of just over one week, with known upside potential and downside buffers through month end. Investors who purchase prior to the rebalance on April 1 will be fully invested for the next outcome period, obtaining new upside caps and downside buffers on the first of the month, for the year ahead. For additional information, visit the Innovator Buffer ETF Pricing Tool.

Innovator Defined Outcome ETFs seek to provide a defined exposure to a broad market index (such as the S&P 500, Nasdaq 100, Russell 2000, MSCI EAFE and MSCI Emerging Markets) where the downside buffer level, upside growth potential to a cap, and outcome period are all known prior to investing. The ETFs reset annually and can be held indefinitely.

Vanguard Merges Capital and Windsor Funds

Vanguard will merge its Vanguard Capital Value Fund into the Vanguard Windsor Fund.

Following the merger, which is expected to be completed in mid-2020, the combined fund will retain the Windsor Fund name and continue to focus on large- and mid-capitalization value stocks. 

The combined fund will continue to be managed by Wellington Management Co. LLP (approximately 70% of assets) and Pzena Investment Management LLC (approximately 30% of assets). David Palmer, CFA, manages Wellington Management’s portion of the Windsor Fund and is currently the sole portfolio manager of the Capital Value Fund. The Pzena team, along with Palmer, will oversee the combined fund.

“We apply a rigorous and comprehensive evaluation process to the oversight of our funds and advisers to ensure we are offering sound, enduring solutions that meet the long-term needs of our clients,” says Matt Brancato, head of Vanguard’s Portfolio Review Department. “We believe this merger will benefit Capital Value Fund shareholders by providing them with exposure to the two outstanding investment advisers managing the Windsor Fund and will benefit the combined fund through improved economies of scale.”

The expense ratios of the Windsor Fund—0.3% for Investor Shares and 0.2% for Admiral Shares—are not expected to change as a result of the merger. Following the merger, shareholders who are eligible for Admiral Shares may request a self-directed conversion at any time. Those who qualify for Investor Shares will experience an increase of one basis point.

IHS Markit Delays Rebalancing Actions on Indices

IHS Markit will be postponing a majority of its rebalancing actions on impacted iBoxx indices from March 31 to April 30.

The company published an announcement about potential iBoxx rebalancing delays on its website on March 16, informing users that the company was considering the impact of index composition changes and would seek market feedback as appropriate. On March 17, IHS Markit published a consultation on its website on potential changes to the iBoxx rebalancing schedule, which concluded on March 19.

Updated rebalancing files were published to iBoxx index customers on Wednesday. A detailed list of headline iBoxx indices and the corresponding rebalancing dates can be found here. Headline indices affected by the rebalancing delay can find a description of the different rebalancing actions and their implementation dates below:

iBoxx

Compliance March 26, 2020

Lawsuit Questions Differing Investment Terms for 401(k) and DB Plan

The lawsuit accuses Nationwide 401(k) plan fiduciaries of not negotiating terms for a fixed-income contract comparable to that for its DB plan for the purpose of increasing its subsidiary's profits.

Reported by

A lawsuit has been filed alleging that Nationwide Mutual Insurance Co. and the investment committee for its 401(k) plan failed to prudently manage the plan and used it as an opportunity to promote their business interests at the expense of the plan and its participants in violation of the Employee Retirement Income Security Act (ERISA).

Specifically, the complaint says the defendants failed to negotiate contractual terms for the 401(k) plan’s Guaranteed Investment Fund (GIF) that were comparable to the terms they negotiated on behalf of the company’s defined benefit (DB) plan. As a result, it says, the 401(k) plan’s GIF paid a much lower interest rate than was paid by the otherwise-identical investment held within the pension plan. The lawsuit says this failure led to participants losing more than $142 million in benefits during the proposed class period.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Nationwide says, “We are aware of the litigation and are reviewing the allegations.”

The complaint explains that the GIF is a fixed-interest insurance contract that guarantees the investor’s principal and pays a fixed interest rate to investors over a specified period. The interest rate paid is ultimately set by Nationwide’s wholly-owned subsidiary, Nationwide Life Insurance Co. and periodically adjusted, typically quarterly. The interest rate is set either at the insurance company’s discretion or pursuant to contractual terms negotiated with the contract owner (the retirement plan in the instance of the lawsuit) or a party acting on the owner’s behalf (the defendants), or a combination of both, depending on the contract’s terms.

The plaintiffs allege that, pertaining to the 401(k) plan, this process is “tainted by an inherent conflict of interest.” They note that funds invested in the GIF are deposited into Nationwide’s General Account, which in turn invests in securities that generate a much higher rate of return than the guaranteed rate that Nationwide pays to GIF investors. Nationwide retains the difference between General Account earnings and the interest rate paid to GIF investors as profit, “giving Nationwide a powerful financial incentive to pay GIF investors the lowest possible interest rate in order to maximize Nationwide’s profit margin,” the plaintiffs claim.

They argue that the incentive is different in the context of the DB plan. The complaint explains that the participants in the pension plan are entitled to a specific benefit amount—rather than the earnings on investments—with Nationwide bearing the responsibility to make up any shortfall between pension plan investment returns and benefits payments. “Thus, there is no financial incentive for Nationwide to ‘shortchange’ the pension plan because it would be shortchanging itself, rather than participants. … As a result, the fact that the pension plan’s fixed-interest investment earns a much higher interest rate than the GIF—despite the fact that both accounts’ assets are invested in the exact same pool of investments within Nationwide’s General Account—demonstrates that defendants succumbed to Nationwide’s self-interest rather than prudently and loyally dealing with 401(k) plan investments in the sole interests of plan participants and beneficiaries,” the complaint states.

The plaintiffs mention two other insurance companies that, the plaintiffs say, hold fixed-interest investments like the GIF in both their 401(k) and traditional pension plans that were able to negotiate comparable contractual terms for both plans. The lawsuit says, “This contrast demonstrates that defendants’ failure to negotiate contractual terms comparable to those negotiated on behalf of the pension plan was not due to any differences between defined contribution and defined benefit plans, but instead to defendants’ failure to adhere to the high standards of prudence and loyalty required under ERISA.”

«