Target Outcome ETFs for Smarter Investing

Target outcome ETFs are designed to help you achieve a specific financial goal, such as saving for retirement or a down payment on a house. They offer a unique approach to investing that's tailored to your needs.

These funds typically use a combination of equity and fixed income investments to aim for a specific return or outcome, like a 4% annual return. By doing so, they can help you avoid the risks associated with traditional stock market investments.

One key benefit of target outcome ETFs is that they allow you to set a specific target, such as saving for a child's education, and then track your progress towards that goal. This can be a powerful motivator and help you stay on track with your financial goals.

ETFs are a type of investment that allows you to diversify your portfolio with a single fund.

They're essentially a basket of stocks, bonds, or other securities that track a particular market index, like the S&P 500.

This means you can gain exposure to a wide range of assets with a single investment, rather than having to buy individual stocks or bonds.

iShares Outcome ETFs are a specific type of ETF that uses options-based strategies to help investors achieve their goals.

These products can offer benefits like enhanced yield potential and diversification, which can be powerful tools in a portfolio.

Outcome-oriented ETFs offer several benefits, including efficient and intuitive access to investment strategies. They allow you to buy and sell these investments just like a stock, making them easy to manage.

One of the key benefits of outcome ETFs is their ability to help practice management, allowing you to better manage emotions and keep your most risk-averse clients invested. This can be a game-changer for financial advisors.

The benefits of the ETF wrapper itself also make outcome-oriented ETFs appealing, with low fees, intraday liquidity, transparency, and tax efficiency. This can help reduce volatility and balance income and growth in your portfolio.

Here are some of the key benefits of outcome ETFs:

Outcome-oriented ETFs have seen significant growth, with a 78% growth rate based on the 5-year compound annual growth rate (CAGR) of AUM for U.S. Outcome ETFs, as of 12/31/2023.

Risks in a Buffered Outcome ETF can be significant. The risks lie in the extremes, where the ETF will not enjoy gains beyond a certain point if the market is up a lot, and is exposed to open-ended losses if markets sell off too much.

Investors who join after the launch or leave the series before the end of the period may receive far different returns. The structured returns are only there for investors who invest on a particular date and then stay the entire time.

There are three main risks to be aware of: market participation, downside protection, and clearer outcomes. Here's a breakdown of each:

If the market breaks through the upside cap, the buffered ETF flat-lines and receives no further upside returns. After the second inflection point, the buffered ETF's return will be fully exposed to further losses in the market.

The benefits of outcome-oriented ETFs are numerous and exciting. They allow you to easily buy and sell these investments just like a stock.

One of the key benefits is that they are efficient and intuitive, making it easy to access the strategy without needing to understand complex financial jargon.

Outcome-based investment frameworks have been shown to be effective in reducing volatility and balancing income and growth in a portfolio. This can be especially helpful for risk-averse investors.

A leader in the ETF marketplace, iShares, has deep experience in implementing options strategies. This expertise has contributed to the growth and adoption of outcome-oriented ETFs.

The benefits of outcome-oriented ETFs can be summarized as follows:

These benefits have contributed to the 78% growth rate of AUM for U.S. Outcome ETFs over the past 5 years, according to BlackRock and Morningstar.

Buffered ETFs are a type of outcome-focused ETF that have experienced a growth rate of 70% over the past three years.

These ETFs offer enhanced income, combined with the liquidity, lower fees, transparency, and tax efficiency of the ETF wrapper. Investors are increasingly seeking out buffered ETFs as a way to mitigate risk and achieve specific investment outcomes.

The primary driver of returns for buffered outcome ETFs is the returns of the underlying asset, in most cases the S&P 500. However, the direction and scale of the returns are what truly matter.

Here's how buffered ETFs typically work:

The risks to buffered ETFs lie in the extremes: if the market is up a lot, the buffered ETF will not enjoy gains beyond a certain point, and if markets sell off too much, the buffered ETF is exposed to open-ended losses.

A buffered ETF may be used as an equity diversifier or as a means to move cash 'off the sidelines' while attempting to mitigate risk.

Outcome ETFs offer a range of benefits, including low fees, intraday liquidity, transparency, and tax efficiency, thanks to the ETF wrapper.

To better manage emotions and keep clients invested, practice management is key. This involves using Outcome ETFs to reduce volatility and balance income and growth in their portfolio.

Outcome ETFs can also help amplify cash flow in a portfolio. This is achieved through the use of derivatives as a source of income or downside protection.

A 78% growth rate in AUM for U.S. Outcome ETFs over the past 5 years is a testament to their popularity. This growth is based on the 5-year compound annual growth rate (CAGR) of AUM for U.S. Outcome ETFs.

The benefits of Outcome ETFs are numerous, but it's essential to understand the drivers of returns in a buffered outcome strategy. This involves using a combination of derivatives and other investment tools to generate returns.

Outcome ETFs can be an attractive addition to a portfolio due to their flexibility and ease of use. They can be easily bought and sold, just like a stock.

Here are some key drivers of returns in a buffered outcome strategy:

It's also essential to understand the risks involved in Outcome ETFs, including potential tax consequences and transaction expenses.

Risk Management is a crucial aspect of investing in Target Outcome ETFs. These funds are designed to help you navigate risk and achieve your investment goals.

The risks associated with Buffered Outcome ETFs are significant, particularly in extreme market conditions. If the market is up a lot, the ETF will not enjoy gains beyond a certain point, which is an opportunity cost. On the other hand, if markets sell off too much, the ETF is exposed to open-ended losses, which is a very real risk to capital.

In addition to these risks, it's worth noting that the specific returns advertised by Buffered Outcome ETFs are almost never realized. This is because the returns rely on investment on a specific date and holding the investment through expiration, which is not always feasible for investors.

To mitigate these risks, Target Outcome ETFs often employ strategies such as Market Participation, Downside Protection, and Clearer Outcomes. These strategies can help guard against drawdowns, dampen volatility, and provide clearer outcomes over a known period.

Here's a breakdown of these strategies:

Timing is crucial when investing in accelerated ETFs, as returns may not be accelerated until the price of the fund reaches the acceleration zone.

If the price of the accelerated ETF is at or below the start of the acceleration zone, investors may not experience 2x upside and 2x downside participation with the underlying ETF until the price reaches the acceleration zone.

Investors may experience 2x upside and 2x downside participation with the underlying ETF when the price of the accelerated ETF is within the acceleration zone.

The acceleration zone is a key factor in determining returns, and investors should consider this when purchasing the fund.

Here are some key points to keep in mind when considering an accelerated ETF:

Ultimately, accelerated ETFs may be best suited as buy and hold investments due to the potential for varying returns based on timing and other factors.

Pursuing your investment goals requires a clear understanding of what you want to achieve. Whether it's growth, income, or protection from market downturns, there are various options to consider.

iShares Large Cap Accelerated ETF (TWOX) is designed to create a unique payoff where investors can realize accelerated return up to a certain point. This can be a great option for those looking to maximize their gains in a short period.

For income seekers, iShares BuyWrite ETFs, including BALI, offer enhanced income from monthly covered call strategies on fixed income and equity markets. This can provide a steady stream of returns without having to constantly monitor the market.

Investors looking for targeted downside protection may want to consider iShares Large-Cap Buffer ETFs, which seeks to track the S&P 500 up to an approximate cap, while using options to provide downside protection within a buffer range on a quarterly or annual basis.

Here are some key features of these ETFs to consider:

By understanding your investment goals and exploring these options, you can make informed decisions that help you achieve financial well-being.

Timing matters when it comes to accelerated return ETFs. The price of the fund at the start of the outcome period can impact returns.

Entering a position when the price is at or below the acceleration zone may mean returns won't be accelerated until the price reaches the acceleration zone. This can limit upside potential.

Investors who enter when the price is within the acceleration zone may experience 2x upside and 2x downside participation with the underlying ETF.

Above the acceleration zone, upside participation is limited, and investors may experience 2x downside participation if the underlying ETF falls within the acceleration zone.

Returns can vary depending on when an investor enters or exits their position, the time left in the outcome period, volatility, and the value of the options that create the cap.

I've always been fascinated by iShares, and for good reason - they offer a range of innovative ETFs that can help investors achieve their target outcomes. One of the key benefits of iShares is their ability to provide a steady stream of income through their buywrite ETFs.

These ETFs, such as the iShares S&P 500 BuyWrite ETF (IVVW) and the iShares Russell 2000 BuyWrite ETF (IWMW), use a strategy called buywrite to generate income. This involves selling call options on the underlying index to generate premiums, which are then distributed to investors.

The iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW) is another example of this strategy in action, with a 30-day SEC yield of 3.59%. This means that investors who hold this ETF can expect to earn an average of 3.59% in interest over the next 30 days.

Here are some key facts about iShares buywrite ETFs:

One thing to keep in mind is that the distribution yield for these ETFs can be significantly higher than the 30-day SEC yield, as seen in the example of the iShares S&P 500 BuyWrite ETF (IVVW) with a distribution yield of 24.48%. This is because the distribution yield includes both the interest earned and the premiums generated from selling call options.

Overall, iShares offers a range of innovative ETFs that can help investors achieve their target outcomes through a combination of interest income and option premiums.