Innovator's defined outcome ETFs notch big jump in trading volume ahead of CPI report

Innovator Capital Management said its defined outcome exchange-traded funds saw an unusually large mid-month spike in trading volume Monday ahead of the following day's consumer price index report for January.

Monday's activity occurred mainly across Innovator's suite of buffer ETFs as financial advisers' model portfolios rebalanced to reduce risk and larger wealth managers positioned defensively ahead of the CPI report, Burke Ashenden, director of capital markets at Innovator, said in comments provided via an Innovator spokesman.

In exchange for a capped upside, or maximum return, Innovator's buffer ETFs offer investors protection against downside loss, the spokesman said. For example, each month Innovator offers three defined downside buffer levels on the SPDR S&P 500 ETF Trust — 9%, 15% or 30% — that run over a 12-month outcome period, he said.

Mr. Ashenden also attributed the increased volume to investors' desire to take gains from this year's equity markets rally. While the S&P 500 index, for example, lost about 0.03% on Tuesday following the CPI report, it has returned 8.2% this year through Wednesday.

"This development is a positive sign for the increased adoption of defined outcome ETFs for both tactical and strategic asset allocation," Mr. Ashenden said of Monday's volume jump.

Monday marked the third-largest defined outcome ETF volume day in Innovator's history, with more than 13 million shares traded, the spokesman said. In 2022, trading volume of Innovator's defined outcome ETFs totaled 614 million shares, up about 80% from 340 million shares in 2021, he said.

Todd Rosenbluth, head of research at VettaFi, a data and analytics provider, said while investors want continued exposure to upside in the equity markets, they also want protection from downside risk.

"And the Innovator suite of products provides easy-to-implement tools," Mr. Rosenbluth said. "There was an expectation that the (CPI) data would be market moving given the impact it could have on the Federal Reserve's next moves."

Innovator, founded in 2017, launched its first buffer ETFs — the world's first defined outcome ETFs — in 2018, the spokesman said.

Monday's jump in volume was particularly noteworthy as it occurred midmonth rather than at the end or the beginning of a given month when the defined outcome ETFs complete or begin their outcome periods, according to Mr. Ashenden.

Innovator's defined outcome ETFs recorded their biggest volume day ever on Sept. 30, 2022, when 17.5 million shares traded, the spokesman said. Their second-biggest volume day was Oct. 31, 2022, when 15.8 million shares changed hands.

The firm's 80 defined outcome ETFs had assets under management totaling $10.2 billion as of Dec. 31, 2022, the spokesman said. Innovator offers a total of 91 ETFs, which had assets under management totaling more than $11 billion as of that date, he said.