What is IJUN? (Pros, Cons, and Strategies)

If you're exploring investment options to diversify your portfolio, it's worth considering ETFs that focus on international markets. One such option is IJUN—Innovator International Developed Power Buffer ETF- June. This ETF lets you gain exposure to international equities while providing a buffer against downside risks. Let's dive in to understand more about IJUN, its advantages and disadvantages, and effective investment strategies.

What is IJUN?

IJUN (Innovator International Developed Power Buffer ETF- June) is an exchange-traded fund that offers exposure to the developed international equity markets with a built-in risk management feature. Unlike traditional ETFs which invest directly in stocks, IJUN uses a defined outcome strategy to limit downside risk and enables capped gains over a predefined period.

Inspired by the Innovator Defined Outcome ETFs, IJUN specifically aims to provide investors with returns tied to the MSCI EAFE Index (which includes stocks from 21 developed markets outside of North America) while implementing a risk buffer to reduce losses during market downturns.

Key Features of IJUN

• Buffer Against Losses: IJUN provides a 15% buffer against losses over a one-year outcome period, which starts and ends each June.
• Capped Upside Potential: To offer downside protection, IJUN also implements a cap on the gains during the outcome period.
• Defined Outcome Approach: Provides a clear, transparent structure for returns based on the performance of the MSCI EAFE Index.

By using options-based strategies, IJUN mitigates risks while balancing the potential for gains. Its specific structure makes it highly suitable for conservative investors who want international exposure.

IJUN Composition

IJUN is structured with options contracts on the iShares MSCI EAFE ETF. This involves purchasing FLEX options (Flexible Exchange Options), which provide specific terms regarding the price at which the ETF can be bought or sold over the period.

Pros of IJUN

Downside Protection

One of the most significant advantages of IJUN is its built-in 15% buffer against losses. This protection makes it a suitable choice for risk-averse investors concerned about the volatility in international markets. By employing this buffer, IJUN aims to limit the impact of a market downturn on your portfolio.

International Diversification

IJUN offers exposure to developed markets outside of North America, which can diversify your investment portfolio. Investing in international equities can help reduce the risk concentrated in domestic markets and potentially improve your overall risk-adjusted returns.

Transparent Structure

The defined outcome strategy employed by IJUN provides a transparent and straightforward approach to investment returns. Investors clearly understand the potential range of returns and the protection mechanism, making it easier to align their investment goals.

Cons of IJUN

Capped Upside

While IJUN offers downside protection, it comes at the cost of capped upside potential. This means that if the international markets perform exceptionally well, your returns will be limited to the preset cap. For investors seeking substantial gains, this might be a drawback.

Limited to One-Year Outcome Periods

IJUN's structure is based on a one-year outcome period. Investors are locked into the defined outcomes of that period and may need to reassess and roll over their investments annually. This can require a more hands-on approach compared to holding traditional long-term ETFs.

Complexity and Fees

The complex options-based structure may not be suitable for all investors, particularly those unfamiliar with financial derivatives. Additionally, IJUN may carry higher fees than traditional ETFs due to the costs associated with managing the options strategy.

IJUN Investment Strategies

IJUN offers a unique investment experience, making it suitable for a specific type of investor. Here's how you can incorporate IJUN into your portfolio effectively:

Long-term Investment Strategy

If you're looking for international diversification with risk mitigation, IJUN can be an excellent choice for long-term investment. Considering the ETF's innovative structure and downside protection, holding IJUN over multiple one-year outcome periods can help smooth out market volatility and provide consistent returns.

Investors should be prepared to commit to successive one-year periods to maximize the benefits of the buffer strategy.

Asset Allocation and Diversification

Incorporating IJUN into a well-diversified portfolio can help manage overall risk. By balancing IJUN with other asset classes, such as domestic equities, bonds, and other global investments, investors can achieve a diversified portfolio that aligns with their risk tolerance and investment goals.

Tactical Allocation

For investors who take a more tactical approach, IJUN can be a valuable tool during periods of anticipated market volatility in international markets. Allocating funds to IJUN when uncertainty in the international markets is high can provide a level of protection while still gaining exposure to potential upside.

Conclusion

IJUN presents a compelling option for investors seeking international diversification with a risk management strategy. While it offers significant advantages, such as downside protection and transparent outcomes, it also carries certain limitations, like capped upside potential and a complex structure.

Understanding your investment goals and risk tolerance is essential before incorporating IJUN into your portfolio. By adopting a well-thought-out investment strategy, IJUN can be a valuable addition for achieving long-term growth with reduced volatility in international markets.

Ready to diversify with added protection? Consider IJUN as part of your strategic investment portfolio.