In a recent episode of "Behind the Ticker," Burke Ashenden, Head of Capital Markets at Innovator ETFs, delves into the unique offerings of Innovator ETFs with host Brad. Ashenden, who started his career in ETF trading and later transitioned to the issuer side, shares his journey and how it led him to Innovator. Innovator ETFs, founded by industry veterans Bruce Bond and John Souther, focuses exclusively on Defined Outcome ETFs. This singular focus has made Innovator a leader in this niche, with a variety of products designed to offer downside protection and defined outcomes for investors.Ashenden explains the core concept behind Innovator's Defined Outcome ETFs, which provide a buffer against market losses in exchange for a cap on upside gains. These ETFs are constructed using a basket of flex options, which offer customizable tenors and strikes, allowing for precise defined outcomes. The firm offers various buffers, including a 9%, 15%, and 30% buffer against market losses over different periods, such as quarterly or annually. Additionally, Innovator has expanded its offerings with 100% buffer ETFs, providing complete downside protection, which has been particularly appealing to advisors and investors looking to equitize cash without principal risk.The conversation highlights the practical applications of these ETFs. Ashenden emphasizes their utility in different market environments, particularly for conservative clients or those wary of investing at market highs. The ETFs' ability to reset within the structure without triggering taxable events and their flexibility make them an attractive alternative to traditional fixed income, especially in a high-yield, low-tax environment. Ashenden points out that these products can be effectively used as a conservative equity allocation or even as a fixed income alternative, providing attractive caps with full downside protection.Ashenden also discusses the strategic use of Innovator's model portfolios, which combine different Defined Outcome ETFs to create customized risk-return profiles. These models help advisors implement diversified and risk-managed portfolios. He underscores the benefits of Innovator's tools available on their website, which assist advisors in analyzing potential outcomes and historical performance. Innovator ETFs' commitment to Defined Outcome strategies and their innovative approach to structured products make them a compelling choice for advisors looking to navigate volatile markets with confidence.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Burke Ashenden covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
So but it's not a one-to-one. So if I'm an advisor buying this product, and I am looking to cap the S&P exposure at 9%, with 100% downside protection, and the market moves up 9% in the first month in January. I'm not going to actually make 9% in the ETF, that Nav is not going to move up 9%. And that's because of the time value of the option is that correct? You can expect a lag in superior. So the Defined Outcome is realized at the end of the outcome period.
So people love that idea of principle protection for their investment. And you can think about FIAs. You can think about annuities. Those spaces have been growing significantly as well over the past two years. So principally protected structures is what we were trying to target with this. And we resolved in a couple of problems. The first is cash on the sidelines. We talked to a lot of advisors. And they tell us that around 30% of the portfolio right now is in cash light or cash ETFs.
Market Context and Positioning
I'm just going to keep throwing stats at you. The market is over its skis. And I think people a little concerned. The advisors we talk to are concerned about investing at all-time highs in equities. So this is a perfect solution for those very conservative clients. Those retirees, those pre-retirees, to aquatize that cash. So if I'm a model portfolio provider, and I'm looking to create risk-managed portfolios. Let's say something off of a 70, 30, a 60, 40, or even, let's call it a 30, 70.
And my clients are in the growth stage of their life. They don't need the income. Isn't there also, could there be an argument that you could utilize some of these as a fixed income and volatility dampener in an overall portfolio rather than having to rely on the fixed income markets to reduce some standard deviation volatility Most definitely. The use cases are numerous. It could be a conservative equity allocation. But with a 9% cap on the S&P over one year, that's above the average S&P return when you look historically.
They need a more upside, they juice their bonds for everything they could, so they use buffers as a solution there. So we're starting to see that continue despite the higher rates, the caps that we have right now in these products, are really compelling. A 9% cap over one year has definitely garnered a lot of attention in the marketplace. So what would the difference between a one year and a two year, 100% of or is there an advantage of using a two over a one?
Notable Insights
"But if you had to know the really simple breakdown, it's buffers."
"It's a basket of options, is what it is at the end of the day."
Key Takeaways
- In a recent episode of "Behind the Ticker," Burke Ashenden, Head of Capital Markets at Innovator ETFs, delves into the unique offerings of Innovator ETFs with host Brad.
- The firm offers various buffers, including a 9%, 15%, and 30% buffer against market losses over different periods, such as quarterly or annually.
- Ashenden emphasizes their utility in different market environments, particularly for conservative clients or those wary of investing at market highs.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Burke Ashenden highlights important considerations around fixed income. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of fixed income and income investing discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Burke Ashenden, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.