ETF 360: InnovatorETF's Graham Day Talks Defined Outcomes

In the most recent episode of “ETF 360,” VettaFi head of research Todd Rosenbluth is joined by InnovatorETFs’ Graham Day to discuss defined outcomes products as well as a new managed floor ETF.

“2022 has been the year that our defined outcome ETFs have really shown their value,” Day said. With both equities and fixed income plummeting in lock-step this year, many investors are left wondering where they can find protection for their portfolios. Bonds have historically been the non-correlated asset of choice, but as they’ve also had a tumultuous year, new strategies are needed. Innovator’s defined outcomes aim to fill that role. “What has held up,” Day noted, “is the buffered ETF structure. These ETFs provide equity upside to a cap, and in exchange for that cap have known levels of built-in protection of 9%, 15%, or 30% over a one-year outcome period.”

Defined Outcomes Working as Advertised

In these rough market times, InnovatorETF’s buffered products have done exactly what they are supposed to. Day believes amid all of this volatility, these defined outcome products provide portfolio clarity for many advisors. “The defined outcome ETFs are unique in providing advisors the ability to know their outcome potential,” he observed.

With rising rates being telegraphed, many advisors saw the writing on the wall in the fixed-income space. Day sees the defined outcome products as fulfilling that role. He noted, “the buffered ETFs don’t provide income, but they give you something of a hybrid characteristic between equities and fixed-income, so we saw the buffered ETFs being utilized for those positions when maybe an advisor underweighted their fixed income allocations.”

Day observed that the upside potential of their ETFs has risen significantly as volatility continues to increase and rates continue to be raised. This has allowed the buffered products to also slide into the equity portion of some portfolios. He said, “the known upside, the known downside has been incredibly useful, whether or not you’ve used it on the fixed income or equity side.”

Introducing the Floor Manager

The new managed floor strategy hopes to capture gains during up years and manage losses in down years. According to Day, “one of the things we’ve always tried to solve for is how can we build a product that seeks to cap losses?”

Day sees the new product as filling a needed niche in the InnovatorETF suite as a “tail risk hedge strategy and a core equity strategy given the upside potential.”

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