Goldman Sachs Asset Management is placing a substantial bet on defined outcome exchange-traded funds, commonly referred to as buffer ETFs, which employ options to mitigate market losses.
In a significant move this month, Goldman Sachs has agreed to acquire Innovator Capital Management, a leading provider of defined outcome ETFs, for a substantial $2 billion. The deal is slated for completion in the first half of the coming year.
Bryon Lake, co-head of the firm's Third-Party Wealth team, believes that these funds will serve as a pivotal growth catalyst for the industry. Speaking to CNBC's "ETF Edge," Lake expressed admiration for Innovator, stating, "We did this deal with Innovator. We've loved that business for years. We've known the founders. We've known the team. We're really excited about this space they have invented, the defined outcome space. Defined outcome, in particular, is a very fast and attractive space to us."
Lake underscored the appeal of these ETFs, noting, "They're looking for income. They're looking for downside protection. They're looking for further growth."
Kathmere Capital Management, which manages assets totaling $3.4 billion as of late November, is an enthusiastic ETF investor.
Nick Ryder, the firm's chief investment officer, describes defined-outcome ETFs as essential elements within some client portfolios, aimed at reducing downside risk. He notes that these ETFs are often integrated with other strategies, such as trend-following and covered-call techniques.
"There's both a client demand for these and we also see a role for them in portfolios," said Ryder.
He further explained that the allure of these ETFs lies in their design to offer stock market exposure while ensuring a built-in safety net. "Equities go up, and they go down. Over the long haul, they tend to work their way upwards to the right. But we know as through years of experience... the ride is anything but smooth," Ryder said, adding, "So for us, this category of these risk-managed equity solutions... plays a role in a portfolio, and that's where our adoption is really driven by."