Q&A With Graham Day

Speaking to the bear market, Day noted that defined outcome products can add a much sought-out measure of stability for advisors, saying, “Bonds are going down with equities. Because of that, advisors are looking for ways to add more levels of certainty to their portfolios.”

Day added, “What these ETFs allow advisors to communicate to clients is a known level of upside potential to the equity markets but, more importantly, known levels of built-in buffers against downside loss. I think with bonds and equities falling together, being able to know that I have a built in buffer of, say, 15% against market losses over the next year is extremely valuable.”

Defined outcome funds can be helpful for the defensive side of the portfolio as well. “The outlook for bonds is not appealing for the next few years,” Day said, noting that rising rates and inflation present unique challenges, but unhedged investment in equities is also not appealing at the moment. “Buffer ETFs are really, in a sense, a hybrid between equities and bonds. You get the upside participation of equities to a cap, but then you also have the known levels of built in downside buffers.”

Day noted that Innovator has had over 150 defined outcome ETFs complete their outcome periods and do exactly what they were expected to do, regardless of market conditions (including COVID). “That type of certainty is extremely valuable to clients,” he observed.

Zeroing in on BALT, Day said that the goal of the fund is to get “bond-like volatility” without interest risk or credit risk. According to Day, “it gives you upside potential relative to the markets but it eliminates the risk that many advisors don’t want to take on with the bond market today. Since its inception, it has delivered positive returns despite equities over that same time frame dropping over 9% or 10%.”

Compared to bonds, BALT has delivered solid returns during a turbulent, troubled time in the market.

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