Goldman Sachs Asset Management is betting big on defined-outcome exchange traded funds (ETFs), also known as buffer ETFs, which use options to protect against market losses.
Goldman Sachs agreed this month to buy defined outcome ETF provider Innovator Capital Management for $2 billion. The deal is expected to close in the first half of next year.
Bryon Lake, co-head of the firm’s third-party wealth team, expects the fund to become a major growth engine for the industry.
“We did this deal with an innovator, and we’ve loved the business for years. We know the founders, we know the team, and we’re really excited about this space that they’ve invented, this space of defined outcomes,” he told CNBC’s “ETF Edge” this week. “Defined Outcome in particular is a very nimble and exciting area for us.”
His reasoning is that ETFs solve a specific problem for investors.
“They want income. They want downside protection. They want more growth,” Lake said.
Cashmere Capital Management had $3.4 billion in assets under management at the end of November and invests extensively in ETFs.
Nick Ryder, the firm’s chief investment officer, said performance-based ETFs are used in some clients’ portfolios as part of equity strategies built to reduce downside risk. These are used in conjunction with tools such as trend following strategies and covered call strategies.
“We think there is both customer demand for these and a role for them in the portfolio,” Ryder said in the same interview.
He added that ETFs are very attractive because they target investors who want exposure to the stock market with a built-in safety net.
“Stock prices go up and down. Over the long term, they tend to go up. But we know from years of experience…that process is never smooth,” Ryder said. “So for us, this category of these risk-managed equity solutions … plays a role in our portfolio, and that’s where we’re really driving our adoption.”
