Innovator: ETF Solutions For A Changing Market

Innovator believes it has been leading the defined outcome ETF charge and adding enhancements to the concept over time.

Reviewed by: ETF Report Staff
Edited by: ETF Report Staff

Bruce BondBruce Bond




The first defined outcome ETFs debuted in 2018, with the launch of three Innovator ETFs, and the field now includes roughly 130 products with more than $8 billion in collective assets offered by a number of issuers. However, Innovator has sought to maintain its edge, leading the category with nearly 70 ETFs representing almost $5 billion in assets.

ETFR chats with Innovator CEO Bruce Bond about how the firm’s offering is continuing to move the defined outcome ETF space forward while offering investors solutions for the current market environment.

How is the original lineup of defined outcome ETFs that began launching in 2018 doing in the market today?
I believe they have done very well. We have raised assets in all the months [in which the ETFs have reset]. Our belief is the products are doing exactly what we expected them to do, and they’re meeting the expectations of investors holding the products. They’re directed towards giving you the upside of the SPDR S&P 500 ETF Trust (SPY) or the iShares MSCI EAFE ETF (EFA), etc., with a buffer on the downside, over an outcome period.

Where we are in the market today, a lot of baby boomers may be in what some people have termed the “retirement risk zone,” which encompasses the five to 10 years leading up to retirement, and the years immediately following in retirement. This group needs their assets to grow. They might not be able to afford a big downdraft in the market, and they’re potentially going to start taking money out of their retirement [fund]. This poses a massive sequence of returns risk. Taking withdrawals from a portfolio after a large downturn can be extremely detrimental to a retirement nest egg. It’s a very risky area for a lot of advisors and investors.

And there aren’t a lot of alternatives for them. You can sit in bonds, but that’s nearly like just sitting in cash today. What does that really do for you? There’s a real dilemma, and buffer ETFs may help to provide the answer, where you can get your exposure via the equity markets but with a built-in buffer to potentially reduce your risk, and still seek the upside growth potential that you may need.

Some investors will hold one of these funds until it nears its cap or buffer, then roll into another of the funds in the series that has more room for upside performance or for downside mitigation. How prevalent is that approach?
We have all types of advisors participating now. We have some that are simply buying the annual outcome periods (or quarterly or monthly), and others much more frequently. Then, there’s a large group of advisors that are active within the outcome period (i.e., intra-period). When the market goes up and they think an ETF may be close to getting “capped out” on the upside, they’ll roll to a new one with a new buffer and a new cap. We also have a lot of advisors that are looking across the entire fund lineup for the most attractive trade right now.

All that is to say, it’s been really encouraging to see all of the ways advisors are using the Defined Outcome ETFs as tools in their practice.

When we initially launched the products, we weren’t too sure how much trading there would be in the middle [of the outcome period]. It’s really a point-to-point strategy. You invest here, and you have to hold it until the end, in order to get the outcome. We thought there might be “quiet” money in the middle there, but we’ve actually seen respectable trading in most of the products, all throughout the products’ outcome period, which helps keep the pricing tight and keeps an active market for investors who want to get in or out in the interim.

How do the accelerated funds introduce a new element to the defined outcome concept?
We think the Accelerated ETFs are going to be very powerful tools for advisors. The beauty of the “Accelerated” Defined Outcome ETFs is that, just like our other Defined Outcome ETFs, you have an upside growth potential (to a cap) over an outcome period. (One series has a built-in buffer.) However, on the upside, your money may grow twice (or three times) as fast over the outcome period. We currently offer Accelerated ETFs with quarterly and annual resets.

In other words, you seek to double or triple the upside of the reference asset, over the outcome period, up to a particular cap. The most important thing for investors to know is that the downside risk over the outcome period is not accelerated. On the downside, you’re still directed at one-to-one relative to the reference asset. And now, those in the retirement risk zone have a potential solution to meeting both growth and withdrawal needs going forward.

One important note on the Accelerated ETFs is that you still have an upside cap, so you’re not going to be able to shoot the lights out in terms of growth. But one idea we’ve discussed with advisors is to take half of their SPY exposure and invest in an Accelerated ETF that is tied to the price movement of SPY. That way, if the market does run way up, you can get exposure to that run, but if the market is neutral or just up 5-10%, you’re directed towards getting double that return up to the cap with the Accelerated ETF. We believe this approach will help ensure that your assets are not only growing, but at the speed you desire.

If people want to make sure they’re tracking the reference market a little more closely, they can do the quarterly. If they want to do the annual, they can.

The Innovator Defined Wealth Shield ETF (BALT) launched recently. How does that take the defined outcome concept to the next level, as opposed to the other funds?
BALT was really a response to advisor demand for a vehicle with a really deep equity buffer in exchange for some upside growth (albeit limited) … something they could potentially use to invest conservative assets instead of other defensive positions. Our belief is advisors are in a tough spot with regard to what they should do to earn some return with the conservative portion of their portfolio without taking on significant interest rate risk. We were hearing that advisors just wanted a strong buffer to mitigate against losses, with a quarterly reset. I look at BALT as a way to exchange defensive assets for highly buffered equity market exposure with what we believe is a very conservative risk/return profile. 

BALT seeks to offer investors a 20% downside buffer on a quarterly basis.1 On the upside, we’re seeing quarterly upside caps these days between 0.50% and 1.00%. In today’s low interest rate environment, we think a lot of advisors are looking to diversify their defensive allocations, and we think BALT is a potential answer.

How important is that first-mover status in the space, where you’ve had a good lead on everyone else who followed?
With ETFs in general, being the first one to have a certain type of product is very important as long as you attract assets in that product. Innovator currently has the highest AUM and flows among all of the sponsors of Defined Outcome ETFs [according to]. One reason is that this is what Innovator does. This is really what we’re known for: We’re committed to this space, and we came back into the ETF industry to build Defined Outcome ETFs. This is our purpose, and I think it has been a long time coming.

In my view, investors should be able to participate in the equity markets without having to take on the full risk of the market. Defined Outcome ETFs seek to help equip investors with the knowledge of their potential outcomes, even before they invest, in one of the most efficient and benefit-rich investment vehicles ever created. We think that is a powerful innovation for the financial industry as a whole.


1BALT targets a 20% buffer every quarter, but it may fall into a range of 15-20%; there is no guarantee that the buffer will be within this range or that the Fund will provide the buffer. In seeking to provide a significant measure of downside protection on a quarterly basis, the options-based strategy underpinning BALT will likely offer investors an upside cap that is substantially lower than equity Buffer ETFsTM that operate over an annual outcome period.

The Funds have characteristics unlike many other traditional investment products and may not be suitable for all investors. For more information regarding whether an investment in the Fund is right for you, please see “Investor Suitability” in the prospectus.

Accelerated Return ETFs: Investors purchasing shares after an outcome period has begun will be exposed to enhanced downside risk.

Investing involves risks. Loss of principal is possible. The Funds face numerous market trading risks, including active markets risk, authorized participation concentration risk, buffered loss risk, cap change risk, capped upside return risk, correlation risk, liquidity risk, management risk, market maker risk, market risk, nondiversification risk, operation risk, options risk, trading issues risk, upside participation risk and valuation risk. For a detailed list of fund risks, see the prospectus.

FLEX Options Risk. The Funds will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (OCC). In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additionally, FLEX Options may be less liquid than standard options. In a less liquid market for the FLEX Options, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices. The values of FLEX Options do not increase or decrease at the same rate as the reference asset and may vary due to factors other than the price of the reference asset.

These Funds are designed to provide point-to-point exposure to the price return of the reference asset via a basket of Flex Options. As a result, the ETFs are not expected to move directly in line with the reference asset during the interim period.

Investors purchasing shares after an outcome period has begun may experience very different results than funds’ investment objective. Initial outcome periods are approximately 1-year beginning on the funds’ inception date. Following the initial outcome period, each subsequent outcome period will begin on the first day of the month the fund was incepted. After the conclusion of an outcome period, another will begin.

Fund shareholders are subject to an upside return cap (the “Cap”) that represents the maximum percentage return an investor can achieve from an investment in the funds for the Outcome Period, before fees and expenses. If the Outcome Period has begun and the Fund has increased in value to a level near the Cap, an investor purchasing at that price has little or no ability to achieve gains but remains vulnerable to downside risks. Additionally, the Cap may rise or fall from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be considered before investing in the Fund. The Funds’ website,, provides important Fund information as well information relating to the potential outcomes of an investment in a Fund on a daily basis.

The Funds only seek to provide shareholders that hold shares for the entire Outcome Period with their respective buffer level against reference asset losses during the Outcome Period. You will bear all reference asset losses exceeding the buffer. Depending upon market conditions at the time of purchase, a shareholder that purchases shares after the Outcome Period has begun may also lose their entire investment. For instance, if the Outcome Period has begun and the Fund has decreased in value beyond the pre-determined buffer, an investor purchasing shares at that price may not benefit from the buffer. Similarly, if the Outcome Period has begun and the Fund has increased in value, an investor purchasing shares at that price may not benefit from the buffer until the Fund’s value has decreased to its value at the commencement of the Outcome Period.

The Funds’ investment objectives, risks, charges and expenses should be considered carefully before investing. The prospectus contains this and other important information, and it may be obtained at Read it carefully before investing.