Goldman Sachs Asset Management relies heavily on performance-oriented exchange-traded funds – also called buffer ETFs – that use options to protect against market losses.
This month, Goldman Sachs agreed to buy results-focused ETF provider Innovator Capital Management for $2 billion. The deal is expected to close in the first half of next year.
Bryon Lake, co-head of the company's third-party wealth team, expects the funds to be an important growth driver for the industry.
“We did this deal with Innovator. We've loved this business for years. We know the founders. We know the team. We're really excited about this space that they've invented, the defined outcome space.” he told CNBC's “ETF Edge.” “Defined Outcome in particular is a very fast and attractive space for us.”
His reasoning: ETFs solve particular problems for investors.
“They're looking for income. They're looking for protection. They're looking for further growth,” Lake said.
Kathmere Capital Management, which has $3.4 billion in assets under management at the end of November, invests extensively in ETFs.
Outcomes-focused ETFs are used in some client portfolios as part of an equity strategy to reduce downside risk, according to Nick Ryder, the firm's chief investment officer. They are used alongside tools such as trend following and covered call strategies.
“There is both client demand for them and we see them playing a role in portfolios,” Ryder said.
He added that the ETFs are so attractive because they are aimed at investors seeking exposure to the stock market with a built-in safety net.
“Stocks rise and fall. Over the long term, they tend to move to the right. But we know from years of experience that the trajectory is anything but smooth,” Ryder said. “For us, this category of these risk-managed equity solutions … plays a role in a portfolio, and that's the real driver of our adoption.”