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Defined Outcome ETF™ Investing

What
Is It?
How Does
It Work?
Why
Use It?
Where Does
It Fit?

What is Defined Outcome ETF™ investing?

Defined Outcome ETFs™ are designed to provide broad market exposure, with defined upside potential and downside exposure, over a specific period of time.

The goal of Defined Outcome ETF™ investing is to take a traditional (undefined) investment and restructure it to create a new risk/reward profile.

Innovator Defined Outcome ETFs™ span three categories: Buffer, Bond, and Accelerated.

  • BUFFER : Innovator's Buffer ETFs™ were the first Defined Outcome ETFs™ to come to market. In exchange for capped upside, they offer built-in buffers against downside loss. Innovator offers buffers of 9%, 15%, 20%, or 30%, across all 12 calendar months.
  • BOND : Innovator's two Defined Outcome Bond ETFs™ both offer capped exposure to the upside of TLT (iShares 20+ Year Treasury Bond ETF). One offers a downside buffer against the first 9% of losses while the other provides a floor that limits losses to 5%.
  • ACCELERATED : Innovator's Accelerated ETFs™ are designed to offer 2x or 3x the upside return of SPY (SPDR S&P 500 ETF Trust) or QQQ (Invesco QQQ Trust), to a cap, with single exposure on the downside, over a 3-month or 1-year outcome period.

Undefined Investment

Defined Investment Components

1: Upside Profile

The maximum return that the portfolio can earn over the full outcome period.
An augmented exposure to the underlying asset class, generally to a cap.

2: Downside Profile

A downside return range of the reference asset in which the portfolio will not have participated at the end of the outcome period.
A level the portfolio won't be below at the end of the outcome period.

3: Outcome Period

The time period (e.g. 1 year) in which the defined outcome return is realized.

Undefined Investment

Defined Investment Components

1: Upside Profile

The maximum return that the portfolio can earn over the full outcome period.
2x or 3x the upside of a single reference asset to a cap (Accelerated ETFs™), with single exposure to the downside.

2: Downside Profile

A downside return range of the reference asset in which the portfolio will not have participated at the end of the outcome period.
A level the portfolio won't be below at the end of the outcome period.

3: Outcome Period

The time period (e.g. 1 year or quarterly) in which the defined outcome return is realized.

Defined Outcome ETF™ investments can provide exposure to broad market indexes or to ETFs, and can offer a variety of downside and upside profiles.

There is no guarantee that the downside protection sought by a buffer or floor will be successful.

How are Defined Outcome ETFs™ constructed?

In order to understand how Defined Outcome ETFs™ work, it’s important to understand how they’re constructed and the building blocks they’re constructed with.

Additional Resources

How Defined Outcome ETFs™ Work

A brief explanation of how Innovator constructs Buffer ETFs™

Read Insight

How Defined Outcome ETFs™ Rebalance

An overview of the annual rebalancing process for Innovator Defined Outcome ETFs™

Read Insight

Understanding Your Experience With Innovator Defined Outcome ETFs™

A look at how Defined Outcome ETFs™ behave during their outcome period

Read Insight

ETF Pricing Tool

A simple tool showing the cumulative performance of a Defined Outcome ETF™, relative to its reference asset

View Tool

Why use Defined Outcome ETF™ investing?

The most common reason for using Defined Outcome ETF™ investing is for the ability to invest with a built-in buffer against losses. Over long periods of time, the stock market has tended to go up. But over shorter periods, stock market losses are common and unpredictable.

  1. 75% of all returns were less than 20%, with a median return of 3.6%
  2. 31% of all returns were negative. The median negative return was -12.0%
  3. Two-thirds of all positive returns were less than 20%, with a median return of 15.1%

Source: Bloomberg L.P. Past Performance is not indicative of future performance.

Large losses require even larger gains in order to get back to even. Many investors, especially those near or in retirement, don't have time to wait to recover from such a big hit to their portfolio:

Benefits of an ETF Wrapper

Accessing defined outcomes through the ETF wrapper enables investors to benefit from its features, including:

Cost efficiency
Tax efficiency
Intra-day liquidity
Transparency
No credit risk Read Insight

ETFs use creation units which allow for the purchase and sale of assets in the fund collectively consequently ETFs usually generate fewer capital gain distributions overall which can make them somewhat more tax efficient than mutual funds. Defined Outcome ETFs™ are not backed by the faith and credit of an issuing institution, so they are not exposed to credit risk

Investor Profiles

Defined Outcome ETF™ investing may appeal to a variety of different investor types for whom managing shorter-term risk is a high priority:

Financial Professional

"I need practical investments that provide a more defined return profile."
"My clients are worried about a pullback in stocks."
"I'm looking for low-cost, defined outcome investment products."
"My institutional clients seek measurable gap risk protection."

Entrepreneur

"I want to participate in market growth (to a cap) but do not want to introduce additional downside risk."
"I want to know my return profile relative to the U.S. stock market before I invest."
"I am concerned about my current risk-management strategy if another '2008' occurs."

Retiree

"I want to participate in the market with built-in buffers against losses."
"I am looking for a potential alternative to other structured outcome investments."
"I can't afford the risk of equities, but also can't afford the low yields of fixed income."

There is no guarantee the fund's will achieve their investment objective. The funds do not provide principal protection.

Where do Defined Outcome ETFs™ fit into my portfolio?

Innovator Defined Outcome ETFs™ can be used and applied in a variety of contexts:

1
Core equity holding The automatic cap resets and tax-efficient structure make these ETFs viable buy-and-hold investments.
2
Structural Alpha The potential for outperformance doesn't rely on stock selection, rather it's built into the structure.
3
Alternative to low/min vol strategies Stocks that have exhibited low volatility in the past may not do so in the future.
4
Equity hedge Defined Outcome Bond ETFs™ may offer a hedge in declining equity markets.
5
Bond replacement Buffer ETF™ caps exceed bond market yields, while built-in buffers help mitigate equity market losses. Read Insight
6
Cash alternative Market conditions can create tactical opportunities to earn positive returns even if the reference asset declines in value.
7
Below-average return environments Accelerated ETFs™ offer the potential to double or triple the reference asset upside to a cap, with only single exposure to the downside.