New research from Cerulli Associates anticipates strong momentum for Defined Outcome ETFs™, a category that could grow at a compound annual rate of between 29% and 35% over the next five years. In its most optimistic scenario, assets under management would surpass $334 billion by 2030—more than four times their current size. This projection contrasts with the broader ETF industry’s expected annual growth of 15%.
The report, developed by the international consulting firm in collaboration with Innovator Capital Management, attributes this potential to a combination of favorable factors, including the growing adoption of these vehicles by large broker/dealers and the rise of fee-based advisory models, which require scalability and greater personalization.
Rising Demand as Baby Boomers Retire
Cerulli highlights that the gradual retirement of the Baby Boomer generation, who control over $48 trillion in investable assets, will drive demand for strategies that offer greater predictability, downside protection, and flexibility. As investors shift from accumulation to decumulation, advisors are expected to seek more precise tools to manage risk.
“Traditional risk mitigation strategies offer diversification, but not always the certainty clients are now seeking,” said Daniil Shapiro, director at Cerulli.
“As market uncertainty persists and investor expectations evolve, Defined Outcome ETFs™ have emerged as a dynamic solution to provide personalized risk management at scale. Advisors are increasingly turning to these products to deliver more predictable outcomes and help clients stay invested, particularly those concerned with volatility and downside risk,” commented Graham Day, EVP and CIO at Innovator.
Key Features: Protection, Certainty, and Liquidity
Defined Outcome ETFs™ offer combinations of buffers and return caps designed to:
Cushion volatility and help conservative clients remain invested
Partially protect against losses in exchange for a cap on gains
Participate in equity markets up to a limit, useful for pre-retirement profiles
Reduce costs compared to traditional structured products
Increase liquidity thanks to the ETF format
For advisors, this range of structures enables precise alignment of strategy with each client’s profile and goals.
Growing Adoption, But Challenges Remain
Despite enthusiasm for the behavioral benefits—especially in preventing emotional selling during volatile periods—major broker/dealer home offices remain cautious due to the product’s complexity and its potential impact on distribution platforms.
Another area of concern is the behavior of the ETF when purchased outside its initial outcome period price, which can limit the ability to reach the cap or increase downside exposure.
“Executives want to see how these products would perform in a severe bear market,” noted Shapiro. “Issuers that can address these concerns through innovation and education will gain access to a significantly larger market,” he concluded.
