Innovator Launches 100% Downside Protection ETF 'ZMAR', Drawing Attention as a "Safe Stock Market Investment" Option


On February 28, 2025, a new product emerged in the US ETF market. The 'Equity Defined Protection ETF™ (ZMAR)' launched by Innovator Capital Management has captured investors' attention with its unique structure that seeks to deliver S&P 500 ETF (SPY) returns while providing 100% downside protection for one year.

The Birth of "Upside Together, Downside Protected" Investing

ZMAR is designed to address the fundamental fear associated with stock market investing. This ETF tracks the performance of the S&P 500, America's benchmark index, while incorporating a safety mechanism that protects 100% of an investor's principal if the market declines. This product essentially realizes the long-standing wish of many investors: "to participate in stock market gains while avoiding the pain of market downturns."

The experiences of recent years—including the COVID-19 pandemic, inflation, and rising interest rates—have amplified market volatility and driven many investors to seek safer investment vehicles. ZMAR is being recognized as a product that precisely captures this market sentiment.

How is 100% Downside Protection Possible?

ZMAR's 100% downside protection mechanism is implemented through sophisticated options strategies. The ETF fundamentally invests in SPY (S&P 500 ETF) while simultaneously purchasing put options to offset potential losses during market downturns.

This protection applies during a one-year "outcome period," and investors can only receive full protection benefits if they hold the ETF throughout this period. Selling before the period ends may result in losses depending on market conditions, making it important to maintain the position for the full term.

However, this protection mechanism doesn't come free. To cover the cost of this safety feature, ZMAR establishes a "cap" on returns as part of its options strategy. This means that even if the S&P 500 rises above a certain percentage, investor returns will not exceed a predetermined ceiling.

Upside Limitation vs. Safety: Who Should Consider ZMAR?

Downside protection ETFs like ZMAR aren't suitable for all investors. This product may be particularly attractive to:

  1. Pre-retirement investors: Principal protection becomes a crucial factor for investors approaching retirement who need to preserve their assets.

  2. Volatility-sensitive investors: Those who are psychologically vulnerable to sharp market declines or have experienced trauma from past significant market corrections.

  3. Conservative investors seeking partial stock exposure: Investors who prefer securing safety with limited upside potential rather than completely avoiding the stock market.

  4. Investors anticipating market declines: A defensive investment vehicle suitable for those who believe there's a high probability of market downturn in the coming year.

Conversely, this may not be suitable for investors focused on long-term growth who can withstand market volatility, or aggressive investors seeking maximum returns in bull markets.

ZMAR Within Innovator's Diverse Buffer ETF Lineup

ZMAR is one of many "Defined Outcome" ETFs offered by Innovator. The company already operates several buffer ETFs providing various levels of downside protection.

For example, TJUL (Innovator Triple Stacker ETF) offers 100% downside protection for two years, while other buffer ETFs provide 9%, 15%, 30%, and other levels of downside protection. Each ETF differs in protection level, protection period, and return cap, allowing investors to select products that align with their investment objectives and risk tolerance.

ZMAR's distinguishing feature is its provision of complete 100% downside protection over a relatively short one-year period. This is particularly appealing to investors seeking perfect defense against short-term market declines.

How to Utilize ZMAR as an Investment Strategy

Downside protection ETFs like ZMAR can be most effective when strategically integrated into an investment portfolio. Here are some potential applications:

  1. Portfolio stabilization tool: Allocating a portion of the overall portfolio to ZMAR can enhance stability during market downturns.

  2. Market timing alternative: When anticipating market declines but finding timing difficult, ZMAR can maintain some market exposure while managing downside risk instead of completely moving to cash.

  3. Staged investment tool: When hesitant to invest a large sum at once, investors can place part in ZMAR and invest the remainder gradually over time.

  4. Retirement fund protection: Investors nearing retirement can allocate a portion of their retirement funds to ZMAR for protection against market declines.

Important Considerations

Despite ZMAR's attractive features, investors should be aware of several important considerations:

  1. Importance of holding period: 100% downside protection is only guaranteed if the ETF is held during the defined one-year outcome period. Selling midway may result in not receiving full protection benefits.

  2. Return cap constraints: ZMAR's returns may be limited when markets rise significantly, potentially leading to relative underperformance in strong bull markets.

  3. Cost structure: The costs associated with implementing complex options strategies are reflected in the ETF's overall fees, which can impact long-term returns.

  4. Tax efficiency: Realized gains from options strategies may not be tax-efficient, so after-tax returns should be considered.

Conclusion: ZMAR as a Safety Net

Innovator's ZMAR ETF offers a solution to the fundamental dilemma of stock market investing: balancing risk and return. This product, which provides a 100% downside protection safety net while still pursuing a certain level of market upside, can be an attractive option for many investors, especially in the current environment of heightened market volatility.

However, like all investment products, ZMAR should be used carefully according to the investor's goals and circumstances. No protection mechanism is perfect, and there are always trade-offs in any investment decision.

Ultimately, ZMAR will be a useful tool for investors seeking a balanced investment approach that is "safe while pursuing a certain level of returns." For prudent investors looking to prepare for sharp market volatility without abandoning long-term asset growth, ZMAR offers a noteworthy new option to consider.

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