The ETF ecosystem is broad, and growing almost every day. Hundreds of ETFs launch each year, diversifying the options available to investors and advisors. The active ETF part of that ecosystem has contributed massively to both the number of overall launches and their flows. Analyzing those movements helps tell the story of the ETF world, with active ETF innovation particularly exciting in the derivative income and defined outcome categories.
Key Takeaways:
- Active ETFs have pulled in $576 billion YTD, according to State Street Investment Management data.
- That includes almost $80 billion for so-called "non-traditional equity" active like derivative income and defined outcome ETFs.
- Those categories include funds like BALT and GPIQ, which encapsulate much of what those categories offer.
Recent data from State Street Investment Management (SSIM) digs into both September and YTD flows into active ETFs. That data set included some eye-popping numbers. Active ETFs have seen $576 billion in YTD inflows — constituting 38.9% of active ETF AUM, a major leap.
Breaking that down a bit further, about $79 billion in YTD flows came into so-called non-traditional equity active ETFs, about 13.7% of the overall active ETF flows YTD, as of the end of September. That category includes some of the most intriguing spaces for active ETF innovation — derivative income and defined outcome ETFs.
U.S. derivative income ETFs make up $51.6 billion of that total with defined outcomes driving $11.7 billion. Those ETFs include some of the most exciting, innovative strategies in the ETF wrapper, like options income and buffer ETFs.
In recent years, funds like those have picked up some major attention. That includes names like the Goldman Sachs Nasdaq-100 Premium Income ETF (GPIQ) and the Innovator Defined Wealth Shield ETF (BALT).
GPIQ and BALT charge 69 and 29 basis point fees, respectively. GPIQ launched in 2023 and BALT in 2021, each picking up billions of dollars in AUM in that time.
What does the active ETF duo offer by targeting the derivative income and defined outcome spaces? GPIQ, which will hit its three-year ETF milestone in just a few weeks, actively invests in Nasdaq-100 stocks. It generates income off those stocks via an options overlay on between 25 to 75% of its equities. It also uses FLEX options to add income.
That has seen GPIQ produce a robust 9.86% 12-month trailing distribution rate per Goldman Sachs data. It has also returned 19.6% YTD, per ETF Database data, beating its ETF Database Large Cap Blend Equities category average in that time.
BALT, meanwhile, is assessed differently. The active ETF offers participation in the S&P 500, up to a cap. In exchange for capping that upside, it “buffers” the first 15–20% decline the ETF faces. It resets its buffer and cap every three months.
The fund does so using FLEX options to capture some of the return of the SPDR S&P 500 ETF Trust (SPY), writing options on the price return version of the index. That has seen BALT return 4.6% YTD, while also offering that protection.
See more: Buffer ETF BALT Hits $3 Billion Milestone as Costs Rise
Together, the duo encapsulate the kind of active ETF innovation occurring in the broader fund landscape. Active ETFs’ flexibility, leveraging managerial and research capabilities, make them a natural space for asset managers to innovate, whether to offer current income or downside protection.
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