50 Defined Outcome ETFs to Hedge Against Market Volatility in 2023

In the face of ongoing market uncertainty and potential downturns, investors are increasingly turning to defined outcome ETFs as a means of protecting their portfolios and generating stable returns. These ETFs offer a unique blend of targeted outcomes, limited downside risk, and the potential for upside participation.

What are Defined Outcome ETFs?

Defined outcome ETFs are exchange-traded funds that provide investors with a predetermined return profile over a specific time horizon. They typically use a combination of options and futures contracts to create a structured investment strategy that aims to achieve a specific target return, such as 5% or 10%, or to protect against potential downside losses.

Benefits of Defined Outcome ETFs

• Targeted Returns: Defined outcome ETFs provide investors with a clear and specific return target, reducing uncertainty and providing peace of mind.
• Limited Downside Risk: These ETFs are designed to limit the potential downside losses to a predetermined level, protecting investors' capital in volatile markets.
• Upside Participation: While providing downside protection, defined outcome ETFs also offer the potential for upside participation, allowing investors to benefit from market gains.
• Diversification: By incorporating options and futures into their strategies, defined outcome ETFs provide diversification benefits and can reduce volatility within an overall portfolio.

Pain Points of Defined Outcome ETFs

• Fees: Defined outcome ETFs typically have higher expense ratios compared to traditional ETFs, which can reduce overall returns.
• Complexity: The use of options and futures contracts can make these ETFs more complex to understand and may require a higher level of financial literacy.
• Volatility: While offering downside protection, defined outcome ETFs may still experience volatility within their target range, especially during periods of extreme market movements.

Why Defined Outcome ETFs Matter

In uncertain economic times, defined outcome ETFs play a crucial role by:

• Preserving capital and protecting against downside losses
• Providing a stable source of income for investors seeking yield
• Enhancing risk-adjusted returns for a more balanced portfolio
• Simplifying investment strategies and reducing the need for active management

How to Use Defined Outcome ETFs

Investors can use defined outcome ETFs in a variety of ways to meet their specific investment goals:

• Income Generation: Providing a steady stream of income by investing in ETFs with high dividend yields.
• Risk Management: Reducing portfolio risk by allocating a portion of assets to downside protection strategies.
• Diversification: Adding diversification to a broader investment portfolio by including ETFs with different target returns and volatility profiles.

Table 1: Top Defined Outcome ETF Providers

Table 2: Defined Outcome ETFs by Target Return

Table 3: Defined Outcome ETFs with Downside Protection

Table 4: Defined Outcome ETFs with Upside Participation

FAQs on Defined Outcome ETFs

1. How do I choose the right defined outcome ETF for me? Consider your investment goals, risk tolerance, and time horizon.
2. What is the difference between a defined outcome ETF and a structured note? Defined outcome ETFs are traded on exchanges while structured notes are issued by banks.
3. Can I lose money with a defined outcome ETF? Yes, while they provide downside protection, it is not absolute and losses can occur, especially during prolonged market downturns.
4. What are the tax implications of investing in defined outcome ETFs? The tax treatment of these ETFs can vary depending on the underlying investments.
5. Are defined outcome ETFs suitable for all investors? Defined outcome ETFs can be suitable for investors seeking income, risk management, and portfolio diversification.
6. How do I monitor the performance of my defined outcome ETF? Track the ETF's returns against its target and monitor the underlying holdings to ensure they align with your investment objectives.
7. Can I hold a defined outcome ETF indefinitely? No, defined outcome ETFs have a defined time horizon after which they mature and distribute their returns.
8. What are some emerging applications for defined outcome ETFs? These ETFs can empower investors to create new strategies, such as customized glide paths for retirement or income-generating portfolios with variable payouts.