The move underscores a fundamental shift in investor sentiment. Gone are the days of chasing pure alpha, now investors are prioritizing capital preservation and smoother returns. This acquisition positions Goldman Sachs to capitalize on this growing demand.
Buffer ETFs, also known as defined outcome ETFs, offer investors a unique proposition: downside protection up to a certain level in exchange for capped upside potential. This structure is achieved through the use of options contracts, creating a risk-managed exposure to the underlying asset, typically a broad market index like the S&P 500.
The appeal is obvious: investors can participate in market gains while mitigating the sting of significant losses. This is particularly attractive in today’s environment of economic uncertainty and geopolitical risk.
Goldman Sachs has been strategically expanding its presence in the ETF market, recognizing the increasing importance of these vehicles for both institutional and retail investors. Earlier this year, they launched the Goldman Sachs US Large Cap Buffer 3 ETF, offering quarterly resetting downside protection in the 5% to 15% range, capped by a 5% to 7% upside. This launch was a clear indication of their commitment to the defined outcome space.
Brendan McCarthy, global head of ETF distribution at Goldman Sachs Asset Management, highlighted the demand for this type of product, stating in a March CNBC interview that clients were comfortable with small drawdowns but wanted to avoid significant losses. “The feedback we were getting from clients was, I’m in the marketplace. I can live with down a few percent… It gets painful when I’m talking down 5 to down 15,” McCarthy explained.
Innovator Capital Management has established itself as a leader in the buffer ETF space, pioneering innovative strategies and attracting significant assets. Their defined outcome ETFs provide a range of risk/reward profiles, allowing investors to tailor their exposure to specific market conditions and risk tolerances.
By acquiring Innovator, Goldman Sachs gains not only a substantial portfolio of assets but also valuable expertise and intellectual property in the complex world of options-based ETFs.
The increasing adoption of defined outcome ETFs reflects a broader trend among financial advisors. According to earlier research, advisors are increasingly turning to derivative income ETFs as allocations grow across channels.
This shift is driven by a desire to provide clients with more predictable and risk-managed investment solutions. In a world where traditional asset allocation models are being challenged, buffer ETFs offer a compelling alternative.
Goldman Sachs’ acquisition of Innovator Capital Management is a significant development in the ETF industry. It signals the growing importance of defined outcome strategies and the increasing sophistication of investors. As market volatility persists and the search for yield continues, expect to see further innovation and growth in the buffer ETF space, with Goldman Sachs now firmly positioned at the forefront.
