Forget back-testing; all the new ETFs launched this year may need taste-testing first. The ETF industry threw spaghetti at the wall in 2025, unleashing a wave of new funds, and leaving advisors wondering which ones were the perfect al dente. Nearly 800 new exchange-traded funds hit the market in the first three quarters of 2025, blowing past the 746 that debuted in all of 2024. With more than $1.4 trillion in global ETF flows this year, trading volumes hit nearly $60 trillion in the US alone. Advisors now ...

Core Viewpoint - The ETF market is experiencing significant growth, particularly in leveraged and inverse products, driven by retail investors seeking higher returns, but this trend raises concerns about investor understanding and potential risks associated with these complex financial instruments [2][12][14]. Group 1: Market Trends and Growth - Approximately 90% of single stock ETFs and leveraged or inverse strategies are owned by retail investors, indicating a shift in market dynamics [2]. - Over a thousand new ETFs have been launched this year, with about one-third utilizing some form of leverage, marking a record in the industry [11]. - The options market has seen a compound annual growth rate that outpaces equity volume growth, reflecting increased interest in derivatives among retail investors [5]. Group 2: Investor Behavior and Education - Retail investors, particularly younger ones, are increasingly seeking riskier products with the potential for high returns, moving away from traditional stock market returns of 8-9% [13][14]. - There is a noted lack of understanding among retail investors regarding the complexities and risks associated with leveraged and inverse ETFs, which can lead to significant losses [7][27]. - Financial advisors tend to avoid these products for long-term strategies, using them primarily in tactical trading scenarios [19]. Group 3: Product Complexity and Fees - Leveraged ETFs often have higher fees, typically around 99 basis points, compared to traditional index funds, which can be as low as 15 basis points [21]. - The complexity of these products necessitates that investors educate themselves about the underlying securities and strategies to make informed decisions [22][23]. - The rise of defined outcome ETFs, which offer clearer risk and return profiles, contrasts with the more unpredictable nature of leveraged and inverse ETFs [25]. Group 4: Market Dynamics and Future Outlook - The current volatility in the market has led to increased correlations among high-beta stocks and leveraged products, impacting their performance [30][32]. - The trend of retail investors chasing high-risk, high-reward products may lead to a cycle where many experience losses and revert to more traditional investment strategies [36]. - The crypto ETF market has also seen significant fluctuations, with recent outflows indicating a need for deleveraging amid broader market weakness [45][47].

Core Insights - Goldman Sachs Group, Inc. has agreed to acquire Innovator Capital Management, enhancing its ETF offerings significantly [1][4] - The acquisition aligns with Goldman's strategy to diversify revenue streams and strengthen its asset management capabilities [6][7] Transaction Details - Goldman Sachs will pay approximately $2 billion in cash and equity, contingent on performance targets [2][9] - Innovator Capital's over 60 employees will join Goldman Sachs Asset Management, operating as a wholly owned subsidiary [2][4] - The deal is expected to close in the second quarter of 2026, pending regulatory approvals [3] Strategic Rationale - The acquisition will expand Goldman's active ETF capabilities and integrate Innovator's defined outcome ETF suite into its platform [4][6] - Post-acquisition, Goldman and Innovator will manage over 215 ETF strategies globally, totaling more than $75 billion in assets under supervision [5][9] - This move is part of Goldman's broader strategy to focus on growth in asset and wealth management, reducing reliance on volatile investment banking [7][6] Market Performance - Over the past year, Goldman Sachs shares have increased by 34.7%, outperforming the industry growth of 25.7% [8]

This story was originally published on Banking Dive. To receive daily news and insights, subscribe to our free daily Banking Dive newsletter. Goldman Sachs will buy exchange-traded fund issuer Innovator Capital Management for $2 billion in cash and equity, the bank announced Monday, bringing $28 billion of additional assets under Goldman’s supervision. The deal significantly expands Goldman’s ETF offerings and future product roadmap, the Wall Street bank said, bringing assets across 159 defined outcome ETF ...

Core Insights - Defined outcome ETFs are projected to grow from $69 billion today to over $334 billion by 2030, driven by an aging US population seeking to limit risk in their portfolios [1] Group 1: Market Trends - The rapid growth of defined outcome ETFs is partly due to baby boomers nearing retirement, which is leading to a shift in retirement planning strategies [1] - Approximately 10,000 baby boomers retire daily, indicating significant potential for growth in downside protection products [2] Group 2: Investor Preferences - Defined outcome products are appealing to older investors and those with lower risk tolerance due to their ability to reduce volatility while providing exposure to volatile asset classes [2] - The use of derivatives in defined outcome ETFs allows for more predictable returns, addressing the uncertainty in market expectations [2] Group 3: Competitive Landscape - Innovator and First Trust dominate the defined outcome ETF market, controlling over 75% of it, with a total of 28 firms offering defined outcome products [3]

Core Insights - Defined outcome ETFs are projected to grow fivefold to $334 billion in AUM by 2030 from $69 billion today, driven by increasing demand from baby boomer clients and faster home-office approvals by broker/dealers [1][2] Group 1: Market Growth Potential - Cerulli estimates an annual growth rate of 29% to 35% for defined outcome ETFs over the next five years, which is at least double the projected growth in the broader ETF market [2] - The growth is attributed to the increasing interest from advisors and their clients, particularly as baby boomers approach retirement [2][4] Group 2: Investor Preferences - Defined outcome ETFs provide downside risk protection, typically covering the first 10% to 15% of losses, making them attractive to investors nearing retirement [3] - A survey indicated that as investors age, they prioritize downside protection over market outperformance, with 61% of investors aged 50-59 and 83% of those aged 70 and above expressing this preference [4] Group 3: Advisor Considerations - Advisors appreciate the liquidity and tax efficiency of defined outcome ETFs compared to structured notes and variable annuities [5] - The use of packaged investment products like model portfolios may enhance advisors' reliance on defined outcome ETFs, allowing for customization based on clients' risk tolerance and investment horizons [5][6] Group 4: Adoption Challenges - Despite increasing inquiries from pre-retirement investors, broker/dealers and wirehouses have not widely adopted defined outcome ETFs due to their complexity compared to traditional equity ETFs [7] - The variability of outcomes based on investment timing poses additional challenges for these channels in adapting to defined outcome ETFs [7]