As of June 30, 2017 unless otherwise noted

General Information

Ticker IMIFX
CUSIP 004006300
Net Asset Value Per Share $15.68
Total Net Assets (millions) $30.6
Dividend Schedule Quarterly
Minimum Initial Investment $2,000
Fund Inception 1/31/2012
Sub-Advisor McKinley Capital Management, LLC
Tenure 7/13/2015


Portfolio Characteristics

Number of Positions 52
% of Assets in Top 10 Positions 30%

Fund Holdings

As of July 31, 2017

Vanguard High Dividend Yield ETF (VYM)3.0%
Ares Cap Corp (ARCC)3.0%
Cedar Fair, L.P. (FUN)2.9%
Main Street Capital Corp (MAIN)2.9%
Apollo Global Management (APO)2.9%
The Blackstone Group L.P. (BX)2.8%
Solar Capital Ltd. (SLRC)2.8%
Kohlberg Kravis Roberts & Co. L.P. (KKR)2.8%
New Residential Investment Corp (NRZ)2.7%
AllianceBernstein Holding L.P. (AB)2.6%

As of May 31, 2017

Agree Realty Corp. (ADC) 0.8%
AllianceBernstein Holding L.P. (AB) 2.5%
Altria Group Inc. (MO) 2.8%
AmeriGas Partners LP (APU) 2.4%
Antero Midstream Partners LP (AM) 1.6%
Apollo Global Management (APO) 2.9%
Ares Cap Corp (ARCC) 3.2%
AstraZeneca PLC (AZN) 2.6%
AT&T, Inc. (T) 2.4%
Banco Santander, S.A. (SAN) 1.8%
The Blackstone Group L.P. (BX) 2.9%
BP p.l.c. (BP) 1.6%
Capstead Mortgage Corp. (CMO) 1.0%
The Carlyle Group LP (CG) 2.1%
Cedar Fair, L.P. (FUN) 3.1%
CenturyLink, Inc. (CTL) 2.0%
Cohen & Steers Infrastructure Fund, Inc (UTF) 1.9%
Energy Transfer Partners LP (ETP) 1.9%
Enterprise Products Partners L.P. (EPD) 1.9%
Enviva Partners, LP (EVA) 2.2%
GlaxoSmithKline plc (GSK) 1.8%
Goldman Sachs BDC, Inc. (GSBD) 2.0%
Golub Capital BDC, Inc. (GBDC) 1.0%
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) 2.3%
Hercules Technology Growth Capital, Inc. (HTGC) 1.9%
Hospitality Properties Trust (HPT) 1.3%
Icahn Enterprises L.P. (IEP) 2.1%
Imperial Brands PLC (IMBBY) 1.0%
Intercontinental Hotels Group plc (IHG) 1.1%
Invesco Mortgage Capital Inc. (IVR) 1.4%
Just Energy Group Inc. (JE) 1.3%
Kohlberg Kravis Roberts & Co. L.P. (KKR) 2.8%
LyondellBasell Industries N.V. (LYB) 0.9%
Magellan Midstream Partners LP (MMP) 2.0%
Main Street Capital Corp (MAIN) 3.0%
Merck & Co. (MRK) 1.6%
MFA Financial, Inc. (MFA) 1.0%
Newtek Business Services Corp. (NEWT) 2.0%
NuStar Energy L.P. (NS) 1.2%
Nuveen Floating Rate Income Fund (JFR) 1.8%
OFS Capital Corporation (OFS) 1.2%
Omega Healthcare Investors Inc. (OHI) 1.0%
PacWest Bancorp (PACW) 1.8%
Physicians Realty Trust (DOC) 1.5%
Prospect Capital Corporation (PSEC) 2.3%
Reynolds American Inc. (RAI) 1.3%
Royal Dutch Shell plc (RDS-A) 2.0%
Ship Finance International Limited (SFL) 0.6%
Six Flags Entertainment Corporation (SIX) 1.5%
Solar Capital Ltd. (SLRC) 2.9%
Vector Group LTD (VGR) 2.4%
Verizon Communications Inc. (VZ) 1.2%

Holdings / allocations subject to change without notice and shouldn't be considered recommendations to buy or sell any securities.
 

Asset Allocation

 

Commentary

Innovator McKinley Income Fund - For the Quarter Ended March 31, 2017

The Innovator McKinley Income Fund benefited from continued broad macro-economic and potential policy tail winds during the quarter.

Despite widespread post-election commentary regarding the possible benefits of regulatory relief and a steeper yield curve, it seems the market was very quick to price these upside risks into bank shares in the 3-4 weeks after the election result, while other beneficiaries, such as Business Development Companies (BDCs) and financial Master Limited Partnerships (MLPs) reacted in a more measured fashion.

The principal policy speculation that is thought to benefit the BDC space is a possible relaxation of the leverage cap. The leverage cap equals the total debt/net assets of the entity. The group is subject to a 100% debt to equity limit, or one times gearing, while banks can gear up many times over. The industry is seeking approval to increase that limit towards a two to one level. The result would immediately increase the asset capacity of the group by almost 50%, significantly enhance earnings and dividend potential, possibly leading to expanding return on equity and thus share price multiples. Of course, given the general absence of a “free lunch”, enhanced returns would be offset by increasing risk.

Energy MLPs continued to benefit from the improving outlook for the U.S. economy and the energy sector in particular. The Baker Hughes U.S. Oil and Gas Rotary Rig count rose approximately 25% during the quarter, which signals midstream processing and oil and gas transmission volumes should eventually benefit from rising upstream activity.

Tax relief is also generally expected to be positive for the U.S. economic growth expectations, which should in turn stimulate economic activity, loan demand and broaden the plateau of the benign credit cycle. This would be highly beneficial to financial MLPs which continue to see strong asset growth. We will be tracking the political theatre that shall no doubt precede any tax based legislation as none of these proposals represent anything more than speculation at this time.

Share price strength based merely on speculation typically predates any move by analysts to increase earnings and dividend expectations, so for now multiples in the financial space are approaching the upper end of historical valuation ranges.

We exited positions in FS Investment Corp (concerns on dividend sustainability), Gamestop Corp. (increased on-line sales competition) and pharmaceutical company AbbVie. We purchased two closed end funds in the real estate and floating rate debt space, both currently trading at discounts to NAV. Additionally, international exposure was increased.

Return on Equity: The amount of net income returned as a percentage of shareholders equity. Return on equity measures profitability by revealing how much profit is generated with the money shareholders have invested.

Process

McKinley Capital brings a disciplined investment process to the management of the Innovator McKinley Income Fund. To learn about the quantitative and qualitative steps underlying ongoing management of the Fund, click on the image below.

 

Objectives

  • Primary: Current Income
  • Secondary: Capital Appreciation

Fund Features

  • Universe: Investible universe includes, but is not limited to, common stock and a broad range of “Pass Through Securities”: Real Estate Investment Trusts (REITs), Closed-End Funds, Royalty Trusts, Master Limited Partnerships (MLPs) and Business Development Companies (BDCs).
  • Tax Treatment: “Pass-Through Securities” benefit from being largely exempt from U.S corporate income tax when they distribute substantially all of their profits to shareholders.
  • Equity Income: The Fund provides an alternative approach to the generation of current income, while retaining the chance for equity participation.
  • Eliminated Tax Drag: The Fund’s self-imposed MLP limit mitigates the tax drag associated with pure MLP Funds.
  • Volatility Consideration: The manager strives to build a portfolio of covariant, high-income equity asset classes, which may lower volatility over a full market cycle.
  • History: The Portfolio Manger developed the strategy over twenty years ago and has been executing it ever since.

As of June 30, 2017 unless otherwise noted

Average Annualized Total Returns

  Q2 YTD 1YR Since Inception
(3/27/13)
Innovator McKinley Income Fund, Investor Class 1.06% 5.88% 7.96% 3.72%
S&P 500 Index 3.09% 9.34% 17.90% 13.20%

Yield

30-Day SEC Yield (Subsidized)1 2.85%
12-Month Distribution Rate2 10.29%

1 Subsidized yield reflects the effect of current contractual fee waivers and expense reimbursements. Returns would be lower without those reimbursements. Absent reimbursement and/or fee waivers, the Fund’s 30-Day SEC yield for IMIFX would have been 2.30%
2 12-Month Distribution Rate is the aggregate distribution over the trailing twelve months divided by the period ending NAV. In addition to net interest income, distributions may include capital-gains and returns of capital.
Prospectus

Expenses

Net Expense Ratio – 1.21%
(Excluding AFFE of 1.52%; Including 12b-1 fee of 0.10%)
Gross Expense Ratio – 3.32%

The Net Expense Ratio shown for the Innovator McKinley Income Fund represents a contractual fee waiver in effect through March 30, 2018.

Performance data quoted represents past performance and is not a guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares may be worth more or less than their original cost when redeemed. Current performance may be lower or higher than the data quoted here. To obtain performance data current to the most recent month-end call 1-877-FUND890. Performance quoted assumes reinvestment of dividends and capital gains, if any. Investment performance reflects fee waivers in effect. In the absence of such waivers total returns would be reduced.

On February 12, 2016, the Fund acquired the McKinley Diversified Income Fund (the "Predecessor Fund"), a series of Professionally Managed Portfolios, in a reorganization (the "Reorganization"). The Predecessor Fund's performance has been adopted by the Fund following the Reorganization and is shown since inception of the Predecessor fund. The Predecessor Fund was advised by McKinley Capital Management, LLC.

 

Applications / Transfer Forms

Regular Application
IRA Application
IRA Transfer Form

Platform Accessibility

Investors may invest in the fund directly.

IMIFX is also available through the following platforms:

  • Schwab
  • NFS (Fidelity)
  • Pershing
  • UBS
  • TD Ameritrade

Availability - IMIFX

IMIFX is available to investors in all 50 states.

Availability - Institutional Class (IMIIX)

For any questions regarding IMIIX investment minimums and state availability please call:
Innovator Capital Management, LLC at 215-979-3750.

Robert B. (Bob) Gillam, President and Chief Executive Officer
M.B.A. Finance, University of California – Los Angeles, 1969
B.S. Economics, The Wharton School, University of Pennsylvania, 1968


Mr. Gillam is McKinley Capital's founder and remains today its President and Chief Executive Officer. He is responsible for overall corporate strategy and planning as well as oversight of operational and investment management activities. Mr. Gillam has over four decades of experience in the financial services industry, including banking, brokerage, and investment management. He has managed individual, corporate, and public investment accounts since 1970, beginning at Foster and Marshall, where he was elected First Vice President. In 1975, Mr. Gillam was appointed by Alaska's Governor to the Alaska State Investment Advisory Committee. In 1982, he became a General Partner of Boettcher and Company, an investment-banking firm, and in 1983 became an Allied Member of the New York Stock Exchange. At Boettcher Mr. Gillam assisted in the formation of the firm’s managed accounts department. In 1988, Mr. Gillam began to incorporate Modern Portfolio Theory via quantitative computer models into active portfolio management. His achievements in this area serve as the foundation for McKinley Capital's quantitative investment methodology. In addition, Mr. Gillam has been featured in articles appearing in the Wall Street Journal, Forbes, Fortune and other financial publications.

Robert A. Gillam, CFA, Senior Vice President and Chief Investment Officer
B.S. Economics, Concentration: International Finance & Strategic Management, The Wharton School, University of Pennsylvania, 1994


Mr. Gillam joined McKinley Capital in 1994 and in his current role as Chief Investment Officer (CIO), he is responsible for all investment functions and personnel for traditional and alternative portfolios. He guides the firm's quantitative research, portfolio management, trading, risk management, and portfolio operation functions. Prior to becoming CIO, he worked as a Portfolio Manager with a specialty in non-U.S. and global strategies. Mr. Gillam serves on McKinley Capital’s Executive Management Committee and is a member of the firm’s Board of Directors. He is a member of the CFA Institute; a member of the Wharton Global Family Alliance, a unique academic-family business partnership established to enhance the marketplace advantage and social wealth creation contributions of global families; and an investment committee member for the Rasmuson Foundation, a private foundation that supports Alaskan non-profit organizations.

Sheldon J. Lien, CFA, Portfolio Manager
B.S. Business, DeVry Institute of Technology, 1994


Mr. Lien joined McKinley Capital's Portfolio Management Team in 1995 and was trained in the discipline of strategic portfolio construction and management. Mr. Lien was formally promoted to Portfolio Manager in 1997 and participates as a member of McKinley Capital's Portfolio Management Team and shares responsibility for risk analysis and portfolio construction. Mr. Lien previously worked closely with the firm's programmers, providing valuable assistance in the development of McKinley Capital's proprietary computer software systems.

Gregory S. Samorajski, CFA, Portfolio Manager
M.B.A. Finance and Statistics, University of Chicago, 1979
B.A. Mathematics, Northwestern University, 1976


Mr. Samorajski joined McKinley Capital as a Portfolio Manager in 1997. In addition to stock selection responsibilities, he has applied his mathematical and quantitative talents to assist in developing and managing the firm's risk analysis and portfolio construction systems. Prior to joining McKinley, Mr. Samorajski worked for ten years at the Chicago Board of Trade as manager of the Exchange's financial futures product development group. In that capacity, Mr. Samorajski directed the design of the Federal Funds futures contract which is widely used today as a benchmark to determine the market’s expectation of Federal Reserve policy changes. He also was responsible for the design of the successful Five-Year and Two-Year Treasury note futures contracts. Mr. Samorajski was also a market maker on the floor of the Chicago Board Options Exchange. He has served as a faculty member in the graduate Financial Markets and Trading Program of the Illinois Institute of Technology, and taught graduate investment classes at Alaska Pacific University.

Brandon S. Rinner, CFA, Portfolio Manager
B.S. Applied Mathematics, University of Alaska - Anchorage, 1997


Mr. Rinner joined McKinley Capital's Portfolio Management team in 1998 and was trained in the discipline of Portfolio Construction. He has capitalized on his studies in applied mathematics to assist in a variety of portfolio management functions which include alternative investment strategies and the investment global equity products where his responsibilities included back test models, quantitative models, and qualitative stock research. Mr. Rinner was formally promoted to Portfolio Manager in 2001.

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Mutual Fund investing involves risk. Principal loss is possible. While the Innovator McKinley Income Fund is classified as diversified, diversification does not ensure a profit, nor does it protect against a loss in a declining market. Additionally, it may invest in securities that have additional risks. Foreign companies can be more volatile, less liquid, and subject to the risk of currency fluctuations. Small and mid-cap companies can have limited liquidity and greater volatility than large-cap companies. Debt securities will typically decrease in value when interest rates rise. This risk is usually greater for longer term debt securities. Lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Closed-end funds and Business Development Companies (BDCs) are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of their shares may trade at a discount to their net asset value, an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange on which they trade, which may impact their ability to sell shares. Additionally, they may employ leverage which can increase volatility. BDCs may invest in smaller companies and may therefore carry risks similar to those of private equity or venture capital funds. Closed-end funds, BDCs, and exchange-traded funds may experience many of the same risks associated with individual securities. Holders of the units of master limited partnerships have more limited control and limited rights to vote on matters affecting the partnership. There are also certain tax risks associated with an investment in units of master limited partnerships. The fund may not receive the same tax treatment as a direct investment in a master limited partnership. The Fund may have concentrations in REITs and real estate securities with additional risks such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments. Royalty trusts are subject to additional risks such as: cash-flow fluctuations and revenue decreases due to a sustained decline in demand for crude oil, natural gas and refined petroleum products, risks related to economic conditions, higher taxes or other regulatory actions that increase costs for royalty trusts.  

Earnings growth is not a measure of the Fund's future performance.

The SEC 30-Day Yield is based on a 30-day period and is computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period.

The S&P 500 Index is a broad-based unmanaged index of 500 stocks, which is widely regarded as representative of the equity market in general.
The Dow Jones Utility Average Index is an umanaged price-weighted average of 15 utility companies that are listed on the New York Stock Exchange and are involved in the production of electrical energy. You cannot invest directly in an index.
The Barclays Capital U.S. Aggregate Bond Index is a market-capitalization-weighted index of investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. You cannot invest directly in an index.
The Consumer Price Index (CPI) measures changes in the price level of consumer goods and services purchased by households.

Price-to-Book: the ratio of a stock price to its book value (assets minus liabilities) per share.
Discounted Cash Flow: an estimation of the present value of future expected cash flows.

The Innovator Funds are offered to United States residents, and information on this site is intended only for such persons. Nothing on this website should be considered a solicitation to buy or an offer to sell shares of any Fund in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction.

Please refer to the prospectus for important information about the investment company including objectives, risks, charges, and expenses. Read it carefully before investing. You may also obtain a hard copy of the prospectus by calling 1-877-FUND890.

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