Bet On Breakouts With This New ETF

Upstart exchange traded funds issuer Innovator Capital Management added to its lineup of ETFs built on methodologies pioneered by Investor's Business Daily founder William O'Brien with the debut of the Innovator IBD Breakout Opportunities ETF BOUT.

BOUT, which debuted Thursday, tracks the IBD Breakout Stocks Index.

What Happened

BOUT's underlying benchmark “is a rules-based index developed by Investor’s Business Daily that is designed to provide investment exposure to stocks poised to 'breakout,' or experience a period of sustained price growth beyond the security’s recent 'resistance level,'” according to Innovator Capital Management.

The index defines resistance as a price high previously reached but not exceeded by a stock. BOUT also employs the IBD Composite Ranking and Relative Price Strength Rating to weight its holdings.

Why It's Important

The new ETF can be seen as a momentum strategy. A simple view of momentum investing is that securities in an uptrend have the potential to continue climbing for extended periods. The momentum factor is working, as highlighted by a year-to-date gain of nearly 15 percent for the MSCI USA Momentum Index.

BOUT differs from traditional momentum strategies because the new ETF looks to identify stocks before they develop momentum traits.

“While many ETFs focus on stocks with established momentum, the Innovator IBD Breakout Opportunities ETF seeks to identify companies before they have established momentum, and may offer investors unique exposure that can be utilized as an alternative or complement to momentum ETFs,” said Innovator CEO Bruce Bond.

What's Next

BOUT is a focused ETF with just 56 holdings and exposure to just six of the 11 GICS sectors. The new ETF's sector weights range from 3.19 percent to 41.11 percent. Financial services and technology stocks combine for nearly 65 percent of the new ETF's roster. Health care and consumer discretionary names combine for over 27 percent. 

BOUT's top 10 holdings include Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) and Bank of America Corp. BAC.

The new ETF's annual fee is 0.8 percent, or $80 on a $10,000 investment.

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